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Banking & Finance Expected To Get Crushed

Big news out today on CNBC about Gilead drug cured all 125 people from serious COVID-19 conditions within 5 days, This is amazing to hear, stocks are popping today up 3-5% which is to be expected for this type of news but the damage to the financial markets has already been done.

But early data recently published suggests the Banking and Finance sector may continue to get crushed under a massive weight of real losses and exposure to risk in the Derivatives Markets.  As with the 2008-09 Credit Crisis, Derivatives losses extended compound risk factors by 10x to 20x or more for in some instances.  We believe the banking and finance sector may be setting up for a massive implosion if global derivatives implode as leveraged accounts collapse.

Two very interesting news articles that may assist readers in understanding the current Financial market contagion event are:

Bank Earnings Armageddon by TheInstitutionalRiskAnalyst.com

Xi fears Japan-led manufacturing exodus from China by Asia.Nikkei.com

The Chinese/Asian economy is built upon the premise that global demand will continue without interruption over the next many decades.  Additionally, China and Asia have leveraged capital systems and financial functions by deploying a very shadowy measure of lending and banking functions.  We’ve all heard the stories of how collateral-based loans were offered many times over as stock in Copper or other raw materials were simply moved from one location to another to secure loans on the same material.

As with any great Ponzi scheme – it all starts to collapse when investors decide they don’t want to play games any longer.

FEDERAL RESERVE – RETAIL & FOOD SERVICES SALES

These recent St. Louis Federal Reserve charts paint a fairly clear picture that retail and food services sales have collapsed to below levels of 4+ years ago – and this is just getting started.

FEDERAL RESERVE – BORROWER DELINQUENCY RATE

This next chart shows that sub-prime borrower delinquency rates have already peaked above both the 2000 and 2008-09 peak levels.  The current virus event collapse is a completely different beast of destruction than what we’ve experienced before.

This is why we believe the Banking and Financial sectors are about to get hammered over the next 6+ months as a massive credit and debt deleveraging process continues to take place.  Consumers recently displaced from the workforce will suddenly find themselves without the ability to pay their bills and credit card balances.  This is not just happening in the US or select areas – this is happening throughout the world right now.  Banking and Finance are staring into a black hole in terms of just how big and destructive the displacement of consumer jobs/earnings capacity really is.

We believe the recent recovery in the US stock market was a reactionary event prompted by the US Fed stepping in to “stick their finger in the dike” as an effort to thwart the downside price collapse.  When the reality of the situation really begins to settle in about 60 days, banks and other financial institutions are going to have a difficult time explaining losses and exposure to derivatives risks that were clearly evident in March and April 2020.

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WEEKLY CHART – NASDAQ REGIONAL BANKING INDEX

This first Weekly chart of the NASDAQ Regional Banking Index shows just how destructive the initial downside price move has been.  Even though the US Fed stepped in with a massive $5+ trillion rescue plan, the recovery in this sector has been minor.  We believe that is because most investors understand the true risks in this sector are likely in the hundreds of trillions range with derivatives and leveraged positions.

UCC WEEKLY CHART – CONSUMER SERVICES SECTOR

This UCC Weekly chart shows a bit more of a recovery after the US Fed stepped in to save the day.  Yet, we fully believe a deeper price low is likely to set up as the full extent of total newly unemployed put additional strains on expectations.  Consumers without income can suddenly collapse multiple trillions in credit/debt over a very short period of time.

XLF FINANCIAL SECTOR WEEKLY CHART

The XLF Financial Sector Weekly chart paints a very clear picture of the downside risks current in play.  After a massive initial collapse, a brief sideways recovery has taken place.  Yet the true risk for this sector takes place over the next 24+ months as these newly displaced workers attempt to manage with little or no income and attempt to satisfy debt levels that were acquired expecting pre-2020 income expectations.  New cars, new homes, new credit card debt, new everything purchased on credit has suddenly become the beast that destroys the financial/banking sector.

CONCLUDING THOUGHTS:

Our researchers believe the true scope of this crisis won’t be known for at least another 30 to 60+ days.  The closer we get to the end of Q2, the more likely we are to see real data reflecting real risks in the Banking and Financial sectors.

Until we get a more accurate understanding of the risks, we feel it is much safer to assume the worst-case scenario going forward.  There is simply no way to paint a positive picture when people throughout the globe are losing their jobs, incomes, and all sense of normalcy.  The reality is that this disruption in the global banking and financial sector is certainly going to be a big one that could last many months or years and if you read this article or watch the video you will understand the magnitude of this market top that looks to be forming.

I have to toot my own horn here a little because subscribers and I had our trading accounts close at a new high watermark for our accounts. We not only exited the equities market as it started to roll over, but we profited from the sell-off in a very controlled way, and yesterday we locked in more profits with our SPY ETF trade on this bounce.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is going to be an incredible year for skilled traders.  Don’t miss all the incredible moves and trade setups.

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts. These simple to follow ETF swing trades have our trading accounts sitting at new high water marks yet again this week, not many traders can say that this year. Visit my Active ETF Trading Newsletter.

We all have trading accounts, and while our trading accounts are important, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how and one of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

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
Chief Market Strategies
Founder of Technical Traders Ltd.

Warning: Credit Delinquencies To Skyrocket In Q4

Farm delinquencies skyrocket +24% year over year as global trade issues and the ability to service credit continues to be a problem.  This is a tell-tale sign that the US Fed decreased the Prime Rate recently as a result of broader credit issues related to higher interest rates for corporate and other borrowers.  The last thing the Fed wants is another collapse on the lending markets similar to 2008-09.

(source: zerohedge.com)

Low growth continues to plague the global economy as this extended run in the US stock market continues to mature.  There are many questions all traders are asking – will it continue higher or have we reached a new peak in price activity?  Many economists believe we are ending an expansion period related to the revaluation of the global markets after the 2008-09 credit market collapse.  The typical price cycle of approximately 6~7 years has extended beyond traditional bounds and many analysts are wondering how it may end?

If an economic cycle has truly come to an end, we should expect to see some change in economic activity levels, consumer confidence and mortgage/housing activities.  The end of an economic cycle is usually aligned with some moderate level of economic contraction and a slowing of economic activity.  The one thing that may continue throughout this end of the mature economic cycle is the “capital shift” where capital rushes away from risk and into the US stock market as long as the reversion event stays at bay. (source: zerohedge.com)

Consumer Confidence levels have fallen recently to new lows.  This is a very clear sign that consumers expect the economy to contract a bit based on continued trade-related issues and the overall maturity of the economic cycle.

Most of the “rest of the world” has continued to binge on credit/debt since the 2008-09 credit crisis.  This is a very clear sign that the US Fed and global central banks have pumped trillions of dollars out into the consumer, corporate and global markets over the past 8+ years.  The question for all of us is when and if this debt becomes a liability – when does this credit become un-serviceable?

China and Asia were some of the biggest consumers of US credit/debt since 2008-09.  This graph highlights the incredible 10,667% increase in debt in China since the 2008-09 levels – from approx 300 million to 3.2 billion in 8-9 short years.  It appears the global economic rally was really the “binge on credit” rally.

US Mortgage debt has climbed to near all-time highs recently as well.  This is a sign that the US housing market has rallied to levels that are very close to the peak levels in 2007-08 – just before the crash.  It may also be a sign that cracks may soon start to appear in the housing markets across the US as delinquencies and foreclosures may continue to skyrocket.  People need to be able to service this debt/liability effectively in order to maintain their assets.

We believe the path of least resistance in the US stock market is higher – at least until price breaks below the current price trend channel.  The continued capital shift where foreign investors continue to pour capital into the US stock market will likely continue until some event shakes the confidence of these foreign investors.

You can see from our Monthly chart of the ES, below, we have highlighted the longer-term economic maturity trend which typically lasts about 6~7 years.  The rotation in 2015-16 was very mild as the US Fed continued a type of quantitative easing process by buying bonds and keeping interest rates historically low.  Because the US stock market actually failed to experience any real price rotation near this 2015~2016 cycle date – we believe the current cycle highs are extremely extended and related to the credit binge that has taken place over the past 8+ years.

Our cycle research suggests we may have already past a cycle peak event and may be operating on borrowed time right now.  This suggests that any further upside price activity in the US stock market may be a function of the overall strength of the US stock market compared to the weakening economic activity throughout the world.  In other words, the capital shift process is still feeding large amounts of capital into the US stock market as foreign investors flee risk and uncertainty.  If and when this ends, the US stock market will likely begin a price reversion process that may result in a very deep price correction.

This last Monthly ES chart provides a closer look at the technical indicator data that we believe highlights the overall weakness that is building up in the US stock market.  Even though we’ve recently pushed to new all-time highs, our technical indicators are suggesting that price is actually weakening in the upside price trend and could break lower at any moment.

The Direction Movement index, Momentum, and MACD of Momentum are all highlighting a weakening price trend that appears to be setting up for a broader downside price move eventually.  Traders need to be very aware of the risks in this extended upside price trend and to prepare for the potential of a new credit crisis event related to the current credit levels that are far more extended than in 2008-09.  If something breaks in the credit markets now, there appears to be nearly 5x to 10x the amount of credit extended throughout the global than there was 8 short years ago.

November will be the month of breakouts and breakdowns and should spark some trades. I feel the safe havens like bonds and metals will be turning a corner and starting to firm up and head higher but they may not start a big rally for several weeks or months.

October was a boring month for most major asset classes completing their consolidation phase. Natural gas was the big mover in October and subscribers and I took full advantage of the bottom and breakout for a 15-22% gain and its till on fire and trading higher by another 3% this week already.

If you like to catch assets starting new trends and trade 1x, 2x and 3x ETF’s the be sure to join my premium trade alert service called the Wealth Building Newsletter.

Happy Trading
Chris Vermeulen
www.TheTechnicalTraders.com

US Stock Markets Trade Sideways – Waiting On News/Guidance

Our researchers believe the global concerns centered around Banking and Debt within the Emerging Markets and Asia/Europe are very likely to become major issues over the next 3+ months.  These potentially dangerous issues could have far-reaching pricing ramifications for almost all of the world’s financial markets.  This weekend, we received first-hand information from an associate in Hong Kong about banks limiting ATM withdrawals and very limited transportation services.  Our source stated the biggest issue was the lack of transportation right now.

We also followed the news of the Bank collapse in India this weekend and the aftermath for Indian banking customers – PMC Bank

Many of you remember how the US credit crisis event started in a similar manner.  First, it is news of a few select financial institutions or lenders that are in trouble.  This sends a shock-wave throughout the populous – they react by becoming more “protectionist” in their actions.  Sometimes, small bank runs can happen as consumers want to have more cash on hand instead of “in the bank”.  Next, the local economic metrics start to fall – almost like a self-fulfilling nightmare, the consumers, acting to protect their interests and assets, are now pushing the local economy over the edge and the banks, possibly, over the breaking point in terms of Non-Performing Loans.

This time, as we have detailed in our previous research posts, we believe the crux of the credit problems is related to how emerging markets and foreign markets took advantage of the cheap US dollar between 2011 and 2015.  At that time, it was cheaper for banks to borrow the US Dollar than it was for them to borrow money from their own local central banks.  Thus, many went out seeking to borrow as much US Dollar as they could because it provided an opportunity to save on interest fees.  Now, as the global economy continues to contract in a “stagflation” type of manner, it becomes even harder for many of these firms, banks, and individuals to service their debt.

We believe the global markets and the US stock market are waiting for news before initiating any new price trends.  We believe the recent US manufacturing number is indicative of the type of economic output values we can expect over the next 30+ days.  Unless the US Christmas season starts off with a big spending spree or the US/China trade issue is resolved and settled within 30+ days, we believe the markets will continue to search for and identify “true price value” by seeking out true support before attempting to move higher again.

Our morning coffee video analysis recap is the one thing… that single investment that’s going to turn into the greatest thing you’ve ever made for your trading and investment accounts.

S&P 500 DAILY CHART

This ES Daily chart highlights the recent resistance, triple-top formation, near 3025.  It is clearly obvious that this 3025 level is a very strong price resistance level.  Below this ceiling, we have multiple support levels to watch.  2875 is highlighted in MAGENTA and is one that we believe is the most critical right now.  Below that, the Moving Average level, currently at 2845, could also provide some support.  Below these two, we suspect the 2700 level is the only level of support left before we could experience a much bigger price breakdown.

DOW JONES DAILY CHART

This YM Daily chart sets up a similar type of price pattern.  In fact, they are almost identical.  Again, the current downside price rotation has already established new recent price lows.  The RED resistance channel we drew across the tops should provide some real level of a price ceiling within this trend.  Our concern is that price will attempt a further breakdown without any positive news to extend a positive perspective for the US markets future.  There is just too much uncertainty in the world for investors to have the confidence to push prices higher.  The most logical transition would be for price to “reset” by rotating lower, finding true price value levels and establishing a new price bottom to begin a new rally from.

DOW JONES 2-WEEK CHART

This 2-Weekly YM Chart highlights exactly why we believe skilled technical traders need to be cautious right now and why having a very skilled team of researchers is important.  This is not the time to go ALL-IN on any trades.  This is not the time to roll your retirement account into HIGH-RISK funds.  We suggest being very cautious at the moment and to prepare for any downside rotation by scaling back your trading account to 70 to 80% CASH.  Deploying only about 20 to 25% into the markets right now.

CONCLUDING THOUGHTS:

It is funny how real traders understand the value of having a skilled team of dedicated technical and fundamental researchers assisting them at times like this.  While other people freak out and turn into “super protectionist traders”.  The reality of these types of markets is that they are the best markets for traders.  Price swings are larger, opportunities are setting up nearly everywhere and skilled traders can attempt to make 45%, 65%, 85% or more within a very short time-frame.  Not like the regular market moves of 3~5% annually in the SPY.  This is the time when you want to become more attentive and active in the markets – with the right team.

Opportunities are setting up EVERYWHERE and will continue to present very clear trade setups over the next 16+ months.

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.

Be sure to ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

I can tell you that huge moves are about to start unfolding not only in metals, or stocks but globally and some of these supercycles are going to last years. My simple technical trading strategy using ETFs will allow you to follow the markets closely and trade with it so you never get caught on the wrong side of the market with big losses.

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 to learn how to take advantage of our members-only research and trading signals.