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Virus Curve, Market Crash, and Mortgage Massacre

In this last segment of our multi-part research article, we want to highlight our expectations of the Covid-19 virus event and how the next 6+ months of global market activity may play out.  We’ve covered some of the data points we believe are important and we’ve touched on the collateral damage that may be unknown at this time.  Today, we’ll try to put the bigger picture together for investors to help you understand what we believe may be the 12+ month outcome.

As the global central banks and US Fed attempt to come to the rescue, the reality is that monetary policy works better when consumers are able to actually go out and engage in spending and economic activity.  If the Covid-19 virus event contracts global consumer activity, as it has recently, for an extended period of time (4 to 6+ months), then we have a real issue with how QE efforts and consumer activity translate into any real recovery attempt.

The real risks to the global markets is an extended risk that the Covid-19 virus creates a contracting economic environment for many months/quarters and potentially fosters an environment where extensive collateral damage to corporations, consumer activity, credit/debt markets, and other massive financial risks boil over.

Before you continue, be sure to opt-in to our free market trend signals 
before closing this page, so you don’t miss our next special report!

News is already starting to hit that QE is not helping the deteriorating situation in the Mortgage banking business.  Remember, this is the same segment of the financial industry that started the 2007-08 credit crisis event.  News that mortgage lenders and bankers are already starting to experience margin-calls and have attempted to contract their exposure to the risks in the markets (a bit late) are concerning.  This is a pretty big collateral damage risk for the global markets.

Additionally, as we expected, applications for new mortgages have collapsed to their lowest level since 2009.  Until consumers feel confident in their ability to get out, engage in real economic growth and take on home loans they know are relatively secure in their ability to repay – there is going to be a continued market contraction.  The next phase of this contraction is a price reduction, forced selling/foreclosures and a glut of assets waiting for a bottom.

“Home-purchase applications dropped by 14.6% while

refinancing applications plummeted 33.8%… “

I think the most important aspect of this global virus event is to remember that we will survive it (in some form) and we will live to rebuild after this event completes.  Yet, the reality is that we were not prepared for this event to happen and we don’t know the total scope of this Covid-19 virus event.  We simply don’t know how long it will take to remove the threat of the virus and for societies to reengage in normal economic activity – and that is the key to starting a real recovery.

Hong Kong has recently reported a “third wave” of Covid-19 infections.  I believe we should attempt to learn from places like Hong Kong, where news is moderately accurate and reported via social media and other resources.  If we want to learn what to expect in the US and how the process of containing this virus may play out, we need to start learning from other nations that are ahead of us in the curve.

It appears that any attempt to resume somewhat normal economic activities while the virus is still active spouts a new wave of infections.  This would suggest that the only way to attempt to reengage in any somewhat normal economic activity would be when a vaccine or true medical cure is in place to allow nations to attempt to eradicate the virus as these waves continue. (Source: https://www.marketwatch.com/story/third-wave-hong-kong-thought-it-had-a-handle-on-coronavirus-it-doesnt-2020-03-23 )

The price collapse in 2008-09 represented a -56% decline from top to bottom.  Currently, the S&P has fallen by just over 35%.  We don’t believe the bottom in the US stock market has setup just yet and we do believe there is a greater downside price risk ahead.  We don’t believe the housing market will be able to sustain any of the current price levels for much longer.  We believe the collateral damage of this event is just starting to be known and we believe a greater economic contraction is unfolding not only in the US but throughout the globe.

Skilled traders need to understand the total scope of this event.  We’ve attempted to highlight this risk in this article and in our “Crunching Numbers” research article (PART III).  An economic contraction, like the Covid-19 virus event, could contract global GDP by as much as 8 to 15% over an extended 16 to 36+ month span of time.  Are we concerned about the Real Estate market?  You Bet!  Are we concerned about global markets?  You Bet!  Are we prepared for this as traders? You Bet!  Are the central banks global nations prepared for this? We certainly hope so.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Chris Featured on TD Ameritrade TV – Safe Plays During Slowdowns

Recently I have been asked to talk on multiple TV shows, radio stations, and podcasts during this wild market correction in almost every asset class.

The reason being I think is from some recent articles I posted publically clearly shows how a technical trader can successfully time, trade, and protect capital no matter what happens in the equities, bonds, and commodities market.

In short, I had subscribers move their money into the leading assets in January which were GDXJ (gold miners) and TLT (bonds). I also talked about consumer staples, and utilities as safe havens.

These assets were outperforming the stock market and that is where you want your money to be positioned as you will earn more over time owning leaders that increase in value more than that of the average stock market index.

Spotting the leaders is not really that difficult, but what is tough is knowing what position size you should have in any given trade, where to place profit targets, and where to place stop losses/trailing stops.

As you have likely noticed gold miners GDXJ fell a whopping 57% from the highs if you didn’t have proven strategy then your likely still holding them and have endured one hell of a rollercoaster ride. Subscribers and I exited GDXJ at the high tick the day price reversed for a 9.5% profit because we had a trading strategy and executed our trading plan.

GDXJ had reached our extreme price target using technical analysis which was a clear resistance level for sellers to unload shares and that’s what did, sold our shares as well.

TLT actually had the biggest and best-looking chart out of all other asset classes which is why we focused mainly on that position with our capital. See our trade below as it paints a clear picture.

TLT/Bonds historically show that when they rally 20% in price quickly the instantly reverse and crash. Well, our Fibonacci upside target worked out to be a 20% gain and if that level was reached we would close out any remaining position we had, which we did. During the rally, we scaled out of the position at 5%, 7.5%, 10% gain, and then the last portion once 20% was reached. The next day, TLT reversed and fall 15% over the next two weeks.

TD AMERITRADE TV CLIP

CLICK HERE TO WATCH VIDEO

Four Key Questions To This Crisis Everyone is Asking

Recently, I was asked to participate in a live radio talk with Arnold Gay and Yasmin Wonkers at Money 89.3 Asia First and was sent the following questions to prepare for the show.  I thought this would be a great way to share my thoughts and expectations related to the Covid-19 virus, global economics and what the Central Banks are doing to combat this virus economic event.

The reality is that the bottom in the markets won’t set up until fear subsides and the unknowns related to this virus event are behind us.  Until then, the global markets will attempt to seek out the true valuation levels based on this fear and the unknowns.  This means true valuation could be much further away from current price levels as the virus event is still very fluid in nature.

I’ve included a few of our custom index charts to highlight exactly where the markets are currently situated and have attempted to explain my thinking related to these charts.  Please continue reading.

First, be sure to opt-in to our free market trend signals before closing this page, so you don’t miss our next special report!

CUSTOM SMART CASH INDEX WEEKLY CHART

This first chart is our Custom Smart Cash Index Weekly Chart.  We had been expecting a breakdown in the US stock market last August/September 2019 (near the origination point of the line on the RSI pane) as our Super-Cycle system indicated a major breakdown was likely near the end of 2019 and into early 2020.

As the US Fed started pumping credit into the Repo market and the US/China trade deal settled over many months, a zombie-like price rally pushed prices higher through December 2019 and into early 2020.  We alerted our members that this was likely a blow-off rally and to prepare for greater risks.

You can see how dramatic the change in trend actually is on this chart.  We have broken the upward sloping price channel and moved all the way to the lower range of the GREEN downward sloping price channel.  This is HUGE.  Near these levels, we believe the US stock market will attempt to find support while continuing to rotate and setup additional “waterfall downside price events”.  These custom indexes help us to understand the “hidden side” of the market price action.

Chart by TradingView

WEEKLY CUSTOM US STOCK MARKET INDEX

This next Weekly chart is the Custom US Stock Market Index and we want you to pay very close attention to the fact that the recent lows have come all the way down to reach the upper range of the 2016 trading range.  Once the 2018 lows were breached, we knew the markets were setting up for a deeper downside price move.

We do believe this current level is likely to prompt some type of “Dead Cat Bounce” or moderate support though.  The entire range of 2016 (low, midpoint and high) are very much in play right now as these represent the current support levels for the US stock market.  We do believe some moderate support will be found near these levels – yet we have to wait for the price to confirm this bottom setup.

Chart by TradingView

WEEKLY CUSTOM VOLATILITY INDEX

This is our Weekly Custom Volatility Index and the extremely low price level on this chart suggests the US stock market may attempt to try to find moderate support soon.  We have not seen levels this low since 2009.  If the markets continue to push lower, this Custom Index will continue to stay below 6.0 as the price continues to decline.  Yet, we believe this extremely low price level may set up a bit of support near recent lows (within the 2016 range) and may set up a sideways FLAG formation before the next downside price leg.

Chart by TradingView

Please continue reading the questions (below) and answers/thoughts to those questions (below the questions).  We certainly hope this information helps you to understand and prepare for the next 6 to 12+ months as we believe the volatility and unknowns will persist for at least another 4 to 6+ months. But keep in mind the market dynamics change on a daily and weekly basis and if you want to safely navigate them and have a profitable year follow my analysis and ETF trades here

QUESTIONS:

1. Rates at zero, massive injections and coordinated central bank action… why isn’t the market convinced the situation is under control?

2. What are investors looking for now – A peak in coronavirus infection rates? A sense that a proper healthcare response is in place and won’t be overwhelmed?

3. The main issue seems to be that this is not a slowdown, but the sudden closure of economic activity, do you see massive fiscal support coming, including bailouts for sectors like airlines?

4. Do you get a sense that the White House finally gets it, and is now moving to reassure markets and ordinary Americans?

ANSWERS/THOUGHTS:

The markets are not reacting to what the global central banks are doing right now and probably won’t react positively until two things happen: fear of the unknown subsides across the globe and the total scope of the global economic destruction is assessed (think of this as TRUE PRICE VALUATION).  Right now, we are in the midst of a self-actuating supply and demand-side economic contraction that will result in a renewed valuation level as markets digest the ongoing efforts to contain/stop this virus.  Where is the bottom, I have an idea of where the bottom might setup – but the price will be what dictates if that becomes true.

If 2018 lows fail to hold as a support level, then we are very likely going to attempt to reach the 2016 trading range and I believe the midpoint and low price range of 2016 are excellent support levels for the market. I show the SP500, Nasdaq and Dow Jones index analysis and prediction in this video below.

What we are looking for in terms of closure of this event (or at least a pathway out of it) is some type of established containment of the event, the spread of the infections and the ability for governments and economies to begin to advance forward again.  As long as we are stuck in reverse and do not have any real control of the forward objective (meaning consumers, corporations and governments are reacting to this event), then we will have no opportunity to properly estimate forward expectations and advancement in local and global economies – and that is the real problem.

The White House and most governments get it and are not missing any data with regards to this virus event.  I truly believe that once this virus event ends and the general population gets back to “business as normal”, the world’s economy will, fairly quickly, return to some form of normal – with advancing expectations, new technology and continued global economic and banking functions.  Until that happens, which is the effective containment and control of this virus event, then no amount of money or speech writing is going to change anything.

Far too many people are acting emotionally and afraid right now.  The facts are simple; until we get a proper handle on this virus event, there will continue to be extended threats to our economy, people, families and almost every aspect of our infrastructure, banking, society and more.  Once the virus event is mostly contained and settled, then we can get back to business cleaning up this mess and finding our way forward.

I’m not worried too much, my research team and I advised our clients to move into bonds and cash before the drop in equities and have been warning our members of a “zombie-rally) for the past 5+ months which took place as expected.  We called for a “volatile 2020 with a very strong potential for a breakdown in global markets” near August 2019.  This is playing out almost exactly like we expected (except we had no idea a virus event would be the cause).

I firmly believe the global leaders and dozens of technology firms will have a vaccine and new medical advancements to address the Covid-19 virus.  I believe this event will be mostly behind us in about 90+ days.  What happens at that point is still unknown, but I believe we will be able to see a pathway forward and I believe all nations will work together to strengthen our future.

In closing, I urge everyone to try to relax a bit and understand this is a broad (global) market event with a bunch of unknowns.  It is not like the Fed can just throw money at this problem and make it go away.  This is going to be a process where multiple nations and various industries and groups of people will have to work together to reduce and eliminate this threat.  Because of that, there are no real clear answers right now – other than to be prepared for a few months of quarantine to be safe.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Is This A Bear Market When Stocks Crash 20% and Bonds Spike 30%

It is another blood bath in the markets with everything down, including TLT (bonds) and gold. Safe havens falling with stocks is not a good sign as people are not comfortable owning anything, even the safe havens, and this to me is a very bearish sign.

Now, with that said, this is one day one of this type of price action and one day does not constitute a new trend or change the game, but if we start seeing more of this happen, we could be on the verge of the bear market we have all been expecting to show it ugly face.

The SP500 (SPY) is down 19.5% from the all-time high we saw just three weeks ago, and the general bias for most people is once the market is down 20% that is a new bear market. I can’t entirely agree with that general rule. Still, a lot of damage is happening to the charts. If price lingers down here or trades sideways for a few months I will see it as a new bear market consolidation before it heads lower, and we start what could be very deep market selloff and test 2100 on the SP500 index (SPY $210) for the next leg down looking forward several months.

20% STOCK MARKET CORRECTION ARE NOT BEARISH

Just because the markets have a deep correction of 20% does not mean its game over for stocks. Just take a look at the chart below on what happened the last time the market corrected 20%. As you can see, they were the biggest and best investor opportunities over the past 12 years. Today, my friend called and said they heard on the news that we are now officially in a bear market, and what should he do?

20% CORRECTIONS CAN TURN INTO A BEAR MARKET – BE READY

The SP500 fell 20% in 2001 and again from the 2007 high its lows, then bounce 10% – 14 over the next few months before rolling over to start its first bear market leg. I feel something similar will happen this time, which would put us a few months before the price should test these lows again and breakdown to give us optimal time to reposition our long term portfolio.

Once we do start a bear market, you will notice price moves very differently from what we have experienced over the past 12 years. How you trade now likely will be a struggle to make money. If you try to trade bonds, they are relatively tricky because of how they move during a bear market. The stock market can fall for a year, and bonds are still trading at or below the price they were when the bear market started. This different price action is what happened in 2001-2002, and again in 2008.

BONDS GO BALLISTIC

Bonds also take on the price action similar to how the VIX trades with violent price spikes only to fade back down again quickly, and this generally happens near the end of a bear market, or extreme selloff like we are in now. Heck bonds (TLT) jumped 30% just in the past few weeks, we caught it, but most traders missed this move. You need to understanding market sentiment and how to trade bear market type price action because that is how the market is moving this week, and trading/chart patterns become more sentiment-driven than logical trading setups and trades become counterintuitive.

I also traded GDXJ for a 9.5% gain and closed that position at open for the high tick with my followers, and we didn’t follow my proven trading rules for price targets, trailing stops, and reading the market sentiment we could be down over 30% today which I know many traders are simply because they lack control of their trading (no defined rules, fall in love with positions). I’ll be doing a detailed gold and gold miners article so stay tuned!

Be sure to opt-in to our free market trend signals before closing this page, so you don’t miss our next special report!

CONCLUDING THOUGHTS:

I share this analysis, not to scare you, but let you know where we stand. The stock market is treading on thin ice, and if/when it breaks down, a new bear market will have started. Remember, we are still in a bull market, but the coronavirus is stopping businesses, which means earnings will be poor, and that is why stocks are falling. Investors know stocks are worth less money if they make less money; it is that simple.

The type of market condition I think we have entered could be here for a while, a year or three, and it’s going to be a traders market, which means you must have a trading strategy, plan your trades, and trade your plan. It’s amazing how simple a few trading rules are written down on paper can save you thousands of dollars a year from locking in gains, or cutting losses. I have this mini trading strategy mastery course if you want to take control of your trades and override your emotional issues. It’s easy to hold winners until they turn into losers, taking to large of a position, or maybe you have masted the art of buying high and selling low repeatedly? Yikes! It happens to most traders, and it can easily be overcome with a logical game plan I cover in the crash course, pun intended 🙂

Someone yesterday I spoke with said that in the USA alone already had 10,000 people die just from common influenza, yet here we are freaking out over 17 dead in the USA. Sure, its bad news, but the common sicknesses for older citizens makes coronavirus seems a little blown out of proportion. There are conspiracy theories out there and this could be bioweapon which is scary and I am no expert in this field but my sources are not concerned with the Conornavirus. I want to think a cure gets found soon, and if so, the markets will rebound with a vengeance, and we can relax.

In short, if you have lost money with your trading account this year, holding some big losing trades that were big winners just a couple of weeks ago, I think it’s worth joining my trading newsletter so you can stay on top of the markets. I take the loud, emotional, and complex market and deliver simple common sense commentary and a couple of winning trades each month.

My trading is nothing extreme or crazy exciting because I’m not an adrenaline trading junky. I only want to grow my entire portfolio 2-4% a month with a couple of conservative ETF trades and make a 22%-48% return on my capital without the stress of being caught up in this type of market and feeling like I always need to be in a trade.

Happy Trading!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

Emergency Technical Traders Market Crash Update & Video Analysis

The US stock market opened Sunday, March 8, 2020, dramatically lower.  Oil collapsed 25% to near $30.  Gold shot higher to levels just above $1700.  All of the major US indexes were lower than 5%.  As of this morning, the US major indexes are lower by 6.40%, and oil down 23%. Bonds are set to open 7-8% higher at this time.

As mentioned in yesterday’s update, we could see metals and miners get hit with margin calls, and silver took a beating last night down over 5%, and miners are down 5% in pre-market, so things could get uglier yet.

The war on oil has officially started. To me, it’s a typical bully/bad guy move. When everyone is bleeding, and in trouble like the financial markets, everyone’s mental state, and our health, the true bullies and bad guys (sharks) come out of the woodwork. Russia is being difficult and will keep production high for oil; the Saudis are giving out hug discounts on oil and jacking up their production to flood the market with their oil and take as much of the market share possibly. When blood is in the water, the sharks attack.

This oil war is going to devastate the USA and Canadian oil sectors and businesses if the price of oil trades between $20-35 per barrel, which I think is what will happen and could last a few years.

The US futures for stock hit a circuit breaker and halted futures trading of the Indexes once a 5% drop took place, but ETF and regular stocks will continue to trade. The next round of circuit breakers are only during regular trading hours and was implemented after the May 10, 2010, flash crash.

This new set of circuit breakers have never been hit before which are:
A drop of 7% stock halt for 15 minutes.
A drop of 13% stocks halt for 15 minutes.
A drop of 20% stocks halt for the rest of the session.

This is a huge breakdown in the US markets and indicates much greater weakness within the global markets and further concern that the COVID-19 virus may continue to disrupt the US and European markets (as well as others).

The potential that multiple billion-dollar disruptions in the US and other foreign markets, including travel, leisure, autos, hospitality, and many others, may see a continued decline in sales and incomes over the next 6+ months.  We don’t believe we will truly understand the total scope of this COVID-19 virus event until possibly well after July 2020.

The crazy part is I’m in a little secluded town in Canada, and people are starting to panic and buy food and toilet paper for their bunker stash. Almost everyone I talked to this weekend while out snowboarding has been affected by manufacturing, trade show cancellations, travel restrictions, etc..  We are in a full out global crisis that seems to affect everyone in some way no matter their location, occupation, or business.

There will be some great opportunities to find and execute incredible trading opportunities – yet the risks are very high right now for volatility and price rotation.  Think of the markets like a body of water in a severe storm.  The waters are very choppy, unstable, and chaotic – just like the markets.

Unless you have the right information, skills, and vehicle to navigate these waters, there is a very high probability that a dangerous outcome could happen. I closed out our last position on Friday with our TLT bond trade for a 20.07% profit and we are 100% cash watching this market VS trying to survive it.

Right now, Cash is king.
Waiting for proper setups and understanding risks is critical.  Timing your entries and targets is critical.  Learning to stay away from excessive risk is essential.

We’ll scan the markets for you and find the best opportunities that set up over the next week.

We appreciate your loyalty and want to continue to deliver superior analysis and research.  Please be well aware that the current market environment is very dangerous for traders.  The VIX recently touched above 50.  We believe it could reach levels above 75~90 still.  These are incredible levels for the VIX.

WATCH VIDEO ANALYSIS


Stay tuned for more free info, but if you like what you read here and
watched then subscribe to the premium trading newsletter today and
get this information EVERY MORNING before the opening bell – CLICK HERE

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

Is This A Repeat of February 2018 Market Crash?

Back in early 2018, after a dramatic rally in early January 2018, the US stock market collapsed suddenly and violently – falling nearly 12% in a matter of just 9 trading days.  Our researchers asked the question, is the current collapse similar to this type of move and could we expect a sudden market bottom to setup?

Although there are similarities between the setups of these two events, our researchers believe there are two unique differences between the selloff in 2018 and the current selloff.  We’ll attempt to cover these components and setups in detail.

Make sure to opt-in to our free market trend signals newsletter before closing this page so you don’t miss our next special report!

FIRST, THE SIMILARITIES:

_  The contraction in market price just before the end of the year in 2017 was indicative of a market that had rallied to extended valuation levels, then stalled in December as the year-end selling took over.

_  The renewed rally in early January was a process of capital re-engaging in the market as future expectations continued to drive and exuberant investor confidence in the markets.

These two similarities between 2018 and 2020 seem fundamental.

Yet, there are differences that may drive a further price contraction event – beyond what we saw in 2018.

_  The US/China trade deal disrupted market fundamentals over the past 6+ months and established a more diminished function of global economics as the trade tensions continued

_  The foreign market capital shift process, where foreign capital poured into the US stock market over the past 12+ months and supported the US Dollar was a process of avoiding foreign market risks.  This process trapped a large portion of foreign capital in the US markets prior to the 2020 collapse.

_  Global geopolitical functions are far more fragile than they were in 2018.  After BREXIT was completed and prior to the signing of the US/China trade deal, a number of concerns existed throughout the world and are still valid.

_  The Wuhan Corona Virus has changed what global investors expect and how both supply and demand economic functions are being addressed world-wide.

The potential of an early price bottom setting up after this 2020 price collapse is very real.  Yet, the ultimate bottom in the markets may be much lower than the 11% or 12% price decline that happened in 2018.  The scale and scope of the Corona Virus event, should it continue beyond April 2020 (and possibility well into June or July 2020), could extend the price decline even further.  Ultimately, this extended risk function may push the US and global markets to deeper lows before a bottom sets up – yet the outcome may be very similar.

After the double bottom in 2018 setup, a slow and stead price advance continued until the SPY price rallied to new highs in September 2018.  A very similar type of price activity may take place in 2020 after the ultimate bottom in price sets up.

Our researchers believe the ultimate bottom in the SPY will likely happen near $251 – near the middle of the 2018 price range.  Ideally, the event that takes place to create this price decline will likely happen in a “waterfall” event structure.  This means we may see a series of 3 to 9+ day selloffs culminating in a major market bottom near $251.

If our research team is correct in this analysis, a bottom will likely form in the SPY and near $251 to $265 where and extended bottom pattern may setup.  We may see a double-bottom type of pattern as we saw in 2018.  Ultimately, we believe the bottom will setup sometime in mid-2020 and the remainder of the year will continue to support an extended price rally into the end of 2020.

Are we looking at a similar type of price event like we saw in early 2018?  Ideally, yes.  Although, we believe this downside price move will be deeper in terms of the total price decline (likely 18% to 25%) and will end when price valuation levels reach a point where global investors feel opportunity exists beyond risk.

Right now, we believe an incredible opportunity for skilled investors is present and that incredible market sector price rotations are taking place.  We believe the devaluation process will move the markets lower by at least 15% to 20% or more.  That suggests the bottom in the SPY is likely near $251 before we see any real opportunity for price to form a support base and begin to rally higher.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Now and Get a Free 1oz Silver Bar!

Chris Vermeulen
www.TheTechnicalTraders.com

SPY Breaks Below Fibonacci Bearish Trigger Level

Our research team wanted to share this chart with our friends and followers.  This dramatic breakdown in price over the past 4+ days has resulted in a very clear bearish trigger which was confirmed by our Adaptive Fibonacci Price Modeling system.  We believe this downside move will target the $251 level on the SPY over the next few weeks and months.

SOME RECENT HEADLINE ARTICLES WORTH READING:

On January 23, 2020, we issued a warning that the Put/Call ratio was warning of a potential Flash Crash

On January 24, 2020, we issued a research post related to the Wuhan Wipeout the markets

On January 26, 2020, we issued this research post about the start of a Black Swan event

On January 29, 2020, we issued this research post about a potential WaterFall selloff

Clearly, we were well ahead of this correction and issued multiple warnings to our friends and followers. This week we locked in 9.48% on GDXJ at the open on Monday, and today we are writing to suggest that $251 on the SPY is real support (see the magenta/purple area/line on this chart) and pay attention to the real risks at play in the markets.

This would suggest that the major markets will wipe out about 25% of the valuations in the major averages (ES, NQ, and YM), before finding any real support.  Obviously, there is a level near $208 that appears in RED on this chart.  If $251 fails to hold as support, then we immediately start to look at that $208 level for ultimate support.

This is the time when you want skilled researchers and traders backing you up and sourcing real solid trade opportunities for you.  We’ve been warning about this move for many months, suggesting that 2020 was going to be an incredible year for skilled traders and warning that a large downside price rotation was likely after August 2019.

In fact, one of our researchers predicted this move back in February/March 2019.  Visit www.TheTechnicalTraders.com to learn how we can help you stay ahead of these massive trends and find real opportunities in the markets.

Make sure to opt-in to our free market trend signals newsletter before closing this page so you don’t miss our next special report!

Chris Vermeulen
Technical Traders Ltd.

Is The Technology Sector Setting Up For A Crash? Part IV

As we continue to get more and more information related to the Coronavirus spreading across Asia and Europe, the one thing we really must consider is the longer-term possibility that major global economies may contract in some manner as the Chinese economy is currently doing.  The news suggests over 700+ million people in China are quarantined.  This is a staggering number of people – nearly double the total population of the entire United States.

If the numbers presented by the Chinese are accurate, the Coronavirus has a very high infection rate, yet a moderately small mortality rate (2~3%).  Still, if this virus continues to spread throughout the world and infects more and more people, there is a very real potential that 20 to 50 million people may be killed because of this event.  It may become one of the biggest Black Swan events in recent history.

We really won’t know the total scope of the damage to the Chinese and Asian economies for another 35+ days – possibly longer.  The information we have been able to pull from available news sources and from the Chinese press is that hundreds of millions are quarantined, the Chinese Central Bank is pouring capital into their markets in order to support their frail economy and, just recently, President Xi suggested stimulus will not be enough – austerity measure will have to be put into place to protect China from creating a massive debt-trap because of this virus.

Austerity is a process of central bank planners cutting expenses, cutting expansion plans, cutting everything that is not necessary and planning for longer-term economic contraction.  It means the Chinese are preparing for a long battle and are attempting to protect their wealth and future from an extreme collapse event.

From an investor standpoint, FANG stocks have outperformed the S&P, NASDAQ and DOW JONES indexes by many multiples over the past 5~6 years.  The chart below highlights the rally in the markets that originated in late 2016 (think 2016 US Presidential Election) and the fact that foreign capital poured into the US stock market chasing expected returns promised by future President Trump.

It becomes very clear that the FANG stocks rallied very quickly after the elections were completed and continued to pull away from valuation levels of the S&P, NASDAQ and DOW JONES US indexes.  How far has the FANG index rallied above the other US major indexes? At some points, the FANG index was 30~40% higher than the biggest, most mature industries within the US.  In late 2018, everything contracted a bit – including the FANG index.

As or right now, the FANG index has risen nearly 274% from October 2014.  The S&P has risen nearly 60% over that same time.  The NASDAQ has risen 140% and the S&P 500 Info Tech Index rose 180%.  The reality is that capital has poured into the technology sector, FANG stocks and various other US stock market indexes chasing this incredible rally event.

(source: https://www.theice.com/fangplus)

This Netflix Weekly chart highlights what we believe are some of the early signs of weakness in the FANG sector.  The sideways FLAG formation suggests NFLX has reached a peak in early 2018 and investors have shied away from pouring more capital into this symbol while the Technology index and FANG index have continued to rally over the past 8+ months.

This Weekly Custom FANG Index chart highlights the rally that took place after October 2018 and continues to drive new highs today.  This move on our Custom FANG index shows a very clear breakout rally taking place which is why we believe more foreign capital poured into the US markets as the US/China trade deal continued to plague the global markets and as BREXIT and other economic issues started to weigh on economic outputs.  What did investors do to avoid these risks?  Pour their capital into the hot US technology sector.

Another chart we like to review is our Custom Technology Index Weekly chart.  This chart shows a similar pattern to the FANG chart above, yet it presents a very clear picture of the excessive price rally and rotation that has taken place over the past 5+ months.  The real risk with this trend is that investors may start to believe “it will go on forever” and “there is no risk in these trades”.  There is a very high degree of risk in these trades.  Once the bubble bursts, the downside move may become very violent and shocking.

A reversion event, bubble burst event, in the technology sector as a result of the economic collapse in China and throughout other areas of the world may break this rally in the technology sector at some point and may push investors to re-evaluate their trading plans.  Until investors understand the risks setting up because of the Coronavirus and the potential for a 20%, 30%, even 40% decrease in economic activity and consumer spending may finally push global investors to really think about the true valuations within the FANG/Technology sector.

We writing this article to alert you to the very real fact that “what goes up – must come down” at some point.  Pay attention to how this plays out and what may cause global investors to suddenly change their opinion of the Technology sector.   A pullback in this sector may result in a -40% to -50% price reversion.

We believe the economic collapse and humanitarian crisis that is unfolding in China may be enough to put a massive dent in future expectations for 2020 and 2021.  You simply can’t have a major global economic collapse in this manner without having some type of cross-over event.  As we learned in 2008-09 with the US credit crisis – when a major economy collapses its assets and financial markets, the ripples spread across the globe.  China may become the next financial crisis event for the new decade.

Join my Swing Trading ETF Wealth Building Newsletter if you like what you read here and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own.

Chris Vermeulen
www.TheTechnicalTraders.com

Is The Technology Sector Setting Up For A Crash? Part III

FANG stocks seem uniquely positioned for some extreme rotation over the next 6+ months.  The continued capital shift that has taken place over the past 5+ years has driven investment and capital into the Technology sector – much like the DOT COM rally.  The euphoric rally in the late 1990s seems quite similar to today.

The biggest difference this time is that global central banks have pushed an easy-money monetary policy since just after 2000.  The policies and rallies that took place after 9/11 were a result of policies put in place by George W. Bush and Alan Greenspan.  Our research team believes these policies set up a  process where foreign markets gorged on cheap US Dollars to expand industry and manufacturing throughout the late 1990s and most of the early 2000s.  This process sets up a scenario where the US pumped US Dollars into the global markets after the 9/11 terrorist attacks and foreign markets gobbled this capital up knowing they could expand infrastructure, industry, and manufacturing, then sell these products back to the US and other markets for profits.  Multiple QE attempts by the US Fed continued to fuel this capital shift.

It wasn’t until after 2008-09 when the US Fed entered a period of extreme easy money policy.  This easy money policy populated an extensive borrow-spend process throughout most of the foreign world.  Remember, as much as the US was attempting to support the US markets, the foreign markets were actively gorging even more on this easy money from the US and didn’t believe anything would change in the near future.  China/Asia and most of the rest of the world continued to suck up US Dollars while pouring more and more capital into industry, manufacturing and finance/banking.

This process of borrowing from the US while tapping into the expanding US markets created a wealth creation process throughout much of Asia/China that, in turn, poured newly created wealth back into the US stock and real estate markets over the past 7+ years.  It is easy to understand how the trillions pushed into the markets by the US Fed created opportunity and wealth throughout the globe, then turned into investments into US assets and the US stock market.  Foreign investors wanted a piece of the biggest and most diverse economy on the planet.

This foreign investment propelled a new rally in the Technology sector, which aligned with a massive build-out of technology throughout the world and within China.  Remember, in the late 1990s, China was just starting to develop large manufacturing and industry.  By the mid-2000s, China had already started building huge city-wide industry and manufacturing.  But in the late-2000s, China went all-in on the industry and manufacturing build-out.  This created a massive “beast” in China that depends on this industry to support finance and capital markets.  This lead to the recent rise in the global and US markets as all of this capital rushed around the globe looking for the best returns and safest locations for investment.

FANG stocks have taken center stage and the recent rally reminds of us the DOT COM rally from the 1990s.  Could the Coronavirus break this trend and collapse future expectations within the global markets?  Is it possible that we are setting up another DOT COM-like bubble that is about to break?

THE WEEKLY CHART OF APPLE (AAPL)

This first Weekly chart of Apple (AAPL) shows just how inflated price has rallied since August 2019.  The share price of AAPL has risen from $220 to almost $320 in the last 6 months – an incredible +49%.  We attribute almost all of this incredible rise to the Capital Shift that took place in the midst of the US/China trade war.  Foreign capital needed to find a place to protect itself from currency devaluation and to generate ROI.  What better place than the US Technology Sector.

THE WEEKLY CHART OF FACEBOOK (FB)

Facebook has also seen a nice appreciation in value from the lows in late 2018.  From the August 2019 date, though, Facebook has seen share prices rise about +25% – from the $180 level to the $225 level.  Although many traders may not recognize the Double Top pattern set up near the $220 level, we believe this setup may be an early warning that Technology may be starting to “rollover” as capital may begin searching for a safer environment and begin exiting the Technology sector.

THE WEEKLY CHART OF GOOGLE (GOOG)

Google (Alphabet), GOOG, is another high-flier with share prices rising from $1200 to $1500 from August 2019 till now – a +28% price increase.  We can clearly see that GOOG is well above the historic price channel set up by the rotation in late 2018.  We believe resistance near $1525 will act as a price boundary and may prompt a downside price rotation associated with the rotation away from risk within the Technology sector.  Any downside move, if it happens, could prompt a price decline targeting $1350 or lower.

CONCLUDING THOUGHTS:

Remember, we are warning of a change in how capital operates within the markets.  The Capital Shift that has continued to drive advancing share prices in Technology may be nearing an end.  It does not mean the capital shift will end, it just means this capital may rotate into other sectors in an attempt to avoid risks and seek out returns.  We believe this is a real possibility because we believe the Coronavirus in China is disrupting the markets (supply/manufacturing and consumer spending) by such a large factor that we believe capital will be forced to identify new targets for returns.  In other words, we believe the Technology Sector may be at very high risk for a price reversion event if this “black swan” event continues to disrupt the global markets.

Let’s face it, a very large portion of our technology originates and is manufactured in China.  In fact, a very large portion of almost everything we consume is manufactured in China.  Heck, the cat food I buy every week is made in China.  If this Coronavirus continues to force China to shut down large sections of their nation and manufacturing while it continues to spread, then the only real outcome for the rest of the world is that “China manufacturing capabilities will be only 10~20% of previous levels” (if that).

Once supply runs out for most items originating from China, then we are going to have to deal with a new reality of “what are the real future expectations going to really look like” and that is why we are preparing our followers and friends the Technology sector may be one of the biggest rotating sectors in the near future.

Join my Swing Trading ETF Wealth Building Newsletter if you like what you read here and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own.

Chris Vermeulen
www.TheTechnicalTraders.com

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.  Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.

Technology Sector Setting Up For A Crash? Part II

In the first section of this article, we highlighted three key components/charts illustrating why the “rally to the peak” is very likely a result of a continued Capital Shift away from risk and into the US stock market as an attempt to avoid foreign market growth concerns.  This method of pouring capital into the US stock market is a process that is driving incredible asset rallies in the US technology sector.  Already the US technology sector (FANG and our Custom Technology Index charts) are up almost 15% in 2020.  How long will it last and when will it end?

Recently, China has revised the Coronavirus data with a sharp increase in infection cases – now over 40,000.  We believe the true number of infections in China are currently well above 250,000 from video content and other data we’ve researched.  We believe economic data originating from China for January and February 2020 will show a dramatic 60% to 80%+ decrease in activity for many of the major cities.  Satellite technology suggests manufacturing and consumer activity in most major Chinese cities is only a fraction of what would be considered normal – 10% to 20% or normal levels.

This means the manufacturing capacities in China have collapsed and that supply to the rest of the world will collapse as well.  This means major electronics manufacturers and suppliers will suddenly quickly experience shortages and outages very shortly.  This is why we believe the technology sector may come under severe pressure over the next 6+ months and why we believe the “high-flying” technology sector may be one of the biggest sector rotations of 2020.

Just how much of a “collapse” are we talking about?  How can anyone attempt to quantify the true scope of this potential “black swan” event and how it may result in sector rotation?

Let’s start with some of the basics.  First, the global economy has been focused on Chinese manufacturing and production of goods for more than the past 20+ years.  Over the past 10 to 15+ years, the Chinese economy has become the central hub of manufacturing and supply for some of the largest economies on the planet.  At this point in time, nearly every nation on the planet relies on China in some form for some essential goods that support their local economies.

This image showing the size and scope of global economies may highlight just how interconnected we really are.  The Chinese economy is 15.4% of the total global economy when taken as a whole compared to other global economies.  Yet, China supplies a very large number of these other nations with cheap goods, essential components for industry and manufacturing as well as a very large number of everyday essential items for consumers.  So, when we attempt to consider a “shut-down” of the Chinese economy as they attempt to deal with this virus, try to think about how long it would take for the supply chain to dry up and then what?

Source: visualcapitalist.com

Try to take a moment and think about the total scope of what we’re dealing with in regards to this Corona Virus outbreak.  Take a minute to review this graphic from InvestmentWatchBlog.com showing some of the “Best” US firms and how many rely on China for manufacturing/supply of critical components or generate a large portion of their revenues from China.

Source: investmentwatchblog.com

It has been over 45 days since the end of 2019.  China knew about this virus fairly early in December 2019.  So, in reality, it has been over 75 days since this outbreak first started. The data accumulated by Johns Hopkins CSSE started on January 20, 2020.  Since that time, China has experienced a more than 4000% increase in new Corona Virus cases – that is only about 21 days.  The number of infected has risen to well over 64,000 and we believe that number (reported by the Chinese government) may be only a fraction (1/8th to 1/6th) of the real infected rate.

Source: gisanddata.maps.arcgis.com

Not all technology companies rely on China to supply products and software.  Many technology companies have strong core business enterprises that are independent of Chinese manufacturing.  Yet we continue to believe the disruption in manufacturing and supply from China will disrupt forward earnings data enough to potentially send the technology sector much lower than current levels.  Additionally, if capital rushes out of technology in search of a more suitable opportunity – where will that capital find a new home?

What happens if this “shut down” of the Chinese economy lasts for more than 6+ months and what happens to the world economy as a result of this virus outbreak?  In Part III of this research article, we’ll try to share our insight a bit further and attempt to show you where real opportunity exists as this rotation plays out.

Join my Swing Trading ETF Wealth Building Newsletter if you like what you read here and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own.

Chris Vermeulen
www.TheTechnicalTraders.com

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.  Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.