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Q1 GDP Data Will Likely Mask True Global Economic Future, Part II

This portion of our continued research into the Covid-19 virus event, one of the greatest disruptions to the global economy over the past 50+ years, concludes in this article.  In Part I of this article, we highlighted how price factors and economic data continue to suggest the US and the global stock market will likely attempt to retest recent lows or fall further, as the extent of the virus event continues to play out.  In this second portion, we’ll highlight some of this data and present the opposite aspect of the technical/data-driven research we’ve been providing to you.

Recently, something very important has happened in the US stock market – a breakout of sorts.  The weakness we expected to see last week prior to the new $500 billion in new stimulus appeared to end this past week.  Not only have the markets opened a bit higher this week, but they have continued to push higher over the past 3+ days.  From a technical standpoint, as long as the support channels and current trends do not falter, the US stock market may continue to push higher before breaking this uptrend.

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NASDAQ 100 DAILY CHART

This NASDAQ 100 Daily chart highlights the upside price trend that originated a bottom just as the US Fed initiated a massive stimulus program.  Weakness in the market, from a technical perspective, is still the overall trend because of the move away from the February highs.  At this point, even if the markets continue to rally, we would need to see a substantially higher price move to establish a new bullish trend.  Yet, as long as price stays above the RSI price channel and the relatively low price channel on this chart, the upside potential is higher than the downside price trend we have been predicting.

SPY DAILY CHART

This SPY Daily chart highlights the same type of setup.  We can easily see the minor rotation in price last week which prompted us to issue a warning that price may be turning lower near key Fibonacci levels.  Yet, early this week stock prices pushed higher – even as far weaker global economic data was published.  As long as this upward trend holds, price should continue to move higher.  If it breaks below these price channels we’ve highlighted on this chart – look out below.

At this point, it appears the market is more about a battle between the US Fed and the global central bankers dumping capital into the market to prevent a greater price collapse vs. the data that is starting to support a global economic collapse that may be bigger than the 2008-09 credit crisis.  Currently, it appears global traders and investors are banking on the central bank’s capacity to pour capital into the markets to suppress risks that appear to be growing.

The next series of charts highlight the US economic data as we are just entering a reporting period that reflects the contraction in the US and global economies.  Pay attention to this data and the scope of the collapse compared to the 2008-09 crisis event.

REDBOOK RETAIL SALES INDEX (WOW)

This first chart is the Redbook Retail sales index (WoW) data.  The collapse this week and last is far greater than the lowest levels in 2008~09.


https://www.investing.com/economic-calendar/redbook-911

RICHMOND MANUFACTURING INDEX

This next chart is the Richmond Manufacturing Index – again, the newest data is near twice as deep as the 2008-09 credit crisis levels at their deepest levels. Remember, we are just starting to see the data from the Covid-19 virus event.


https://www.investing.com/economic-calendar/richmond-manufacturing-shipments-1510

US QUARTERLY GDP DATA

This next chart is the US Quarterly GDP data.  The -4.8% level is deep, but still a bit away from the -6.3% level that happened in the 2008-09 credit crisis.  Yet, we believe the Q2 GDP data could offer a number below -8~10%.


https://www.investing.com/economic-calendar/gdp-375

PENDING HOME SALES CHART

This Pending Home Sales chart confirms a very broad contraction in home buying activity.  In the midst of the 2008-09 crisis, this data printed a -29.9% data point in July 2010 – well after the bottom in the markets had completed.  We believe the next few months will present even deeper sales data.


https://www.investing.com/economic-calendar/pending-home-sales-232

REAL CONSUMER SPENDING

Real consumer spending has collapsed.  Consumer engagement makes up a large portion of all global GDP numbers.  As long as consumers stay away from normal activities, the global GDP levels will continue to contract.


https://www.investing.com/economic-calendar/real-consumer-spending-914

CONCLUDING THOUGHTS:

From a technical standpoint, at this point, as long as price continues to track within the upward sloping price trend, the bullish trend may continue for a bit longer.  Once price breaks below this channel though, look out below.

Our longer-term price modeling systems continue to suggest price is still in a Bearish price trend and this move is a bullish price recovery in a bearish price trend.  Time will tell if the markets have enough resilience to push higher even further.  We believe the data is pointing to a very real potential for a new bearish price trend to emerge.

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 an incredible year for traders and investors.  Don’t miss all the incredible trends and trade setups.

Subscribers of my Active Swing Trading Newsletter had our trading accounts close at a new high watermark. We not only exited the equities market as it started to roll over in February, but we profited from the sell-off in a very controlled way with TLT bonds for a 20% gain. This week we closed out SPY ETF trade taking advantage of this bounce and entered a new trade with our account is at another all-time high value.

Ride my coattails as I navigate these financial markets and build wealth while others watch most of their retirement funds drop 35-65% during the next financial crisis.

Just think of this for a minute. While most of us have active trading accounts, 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 the next bear market, you could lose 25-50% or more of your 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 Passive Long-Term Investing Signals which we issued a new signal for subscribers.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

Q1 GDP Data Masking The True Global Economic Future?

As Q1 GDP data is released on Wednesday, April 29, which will reflect the first three months of 2020 in terms of total economic output, we believe the number will skew the current true global economic conditions to a large degree.  The pandemic shutdowns started in the US on March 15th – nearly 2 weeks before the end of Q1:2020.  Thus, we had a fairly normal Q1 in terms of economic activity, production, and consumer engagement. Everything changed after March 15th, 2020.

Skilled traders need to watch the current economic data and “week over week” data that is presented.  Skilled traders also need to pay attention to the news items that are being pushed out to the public.  Larger and larger corporations and sectors are moving towards bankruptcy or screaming for a bailout. Airlines, Hotels, Car Rental, and dozens of other sectors have all collapsed over the past 5+ weeks.  We expect real estate activity and pricing to collapse as well.  The results of the last 5+ weeks, after the March 15th shutdown started, have been anything but normal.

We continue to believe the current data and news, which is still representative of the Q1 (pre-shutdown) economic activity may lull investors/traders into believing the global economy will rebound fairly quickly from this virus event.  Traders/investors are looking at this current data and thinking, “well, this isn’t so bad”.  But they are failing to understand the true scope of the economic contraction event and what the longer-term outcome is likely to be in terms of recovery.

TOTAL WORLD GDP OUTPUT

The total world GDP output was approximately $190 trillion.  An estimated 15% to 20% global GDP contraction as a result of the Covid-19 virus event would shave $28.5 to $38.0 trillion right off the top of the 2020 global economic output.  Should the global shutdown last through the end of May 2020 (or beyond in some form), we believe the contraction in global GDP could become even more severe.

The complicated issues that arise from this global contraction in GDP also bleed over into supply-side economics.  As the world attempts to “shelter in place” to avoid spreading the virus and risking more lives, demand collapses. Once demand collapses enough (resulting in price level collapses as we’ve seen in Oil) the result in production/supply issues becomes even more complicated.  Unlike Eggs or Milk, one simply can’t bury or destroy other types of supply.  The destruction of certain industries, resources, and capabilities will become very real over time as a result of any extended contraction event.  The longer-term results of this type of event are sometimes called “stagflation” – where price levels rise as income and economic output stay moderately flat.

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CUSTOM SMART STOCK MARKET INDEX

Our Custom Smart Cash Index highlights the “new price channel” that setup recently and why all traders/investors should really start to pay attention to how the global markets have transitioned into a new phase or price cycle.  You can see from the chart, below, that the global markets broke below an upward price channel that has been in place since 2012 recently and has established a new downward price channel spanning the December 2018 lows to the February 2020 highs.

We believe the current upward price trend on this chart is nothing more than a “bullish retracement in a bearish trend” and that the global markets will begin another downside price move within 5 to 10+ days.  As we’ve been trying to share with you over the past few weeks, the longer-term global economic disruption is just getting started.

US DOLLAR DAILY CHART

We believe the US Dollar will enter a new phase of increasing demand throughout the world as global economies begin to feel the pressures of the demand-side collapse.  We believe the US dollar is uniquely positioned to benefit from the global economic crisis simply because the US economy is the biggest and most capable economies on the planet in terms of the ability to recover from this virus event.  As foreign nations attempt to deal with weakening currencies and economies related to the collapse in demand and continued virus-related economic transitions, we believe the US economy will be one of the first global economies to regain any real growth over the next 2 to 3+ years.

Thus, we believe the US Dollar may attempt another quick downside valuation move, similar to what happened in February/March 2020, then rally to levels above 102 again as continued economic data hit the markets.  Remember, valuation levels of currencies are often based on future expectations of economic stability and capability for any nation.  The US Dollar is a bit different because it is also the “currency of choice” in terms of global economic activity.  We believe the US Dollar could begin a moderate “melt-up” process as the virus data continues to scorch the world’s economic output.

CONCLUDING THOUGHTS:

These longer-term economic expectations are key to understanding how the recovery process will create opportunities for skilled traders and investors.  We believe the world will survive this virus event.  Yet, we also believe the global economic landscape will likely change over the next 3+ years as this virus event could very easily push many foreign nations away from economic relationships or projects they have engaged in over the past 10+ years.  This virus event is really a “big game-changer” in terms of how and what the future of the global economic world will look like for many.

As we’ve warned many times, it is not the localized “one-off” economic event that presents a real problem for the global economy – central banks can simply patch the economy up with an infusion of cash.  The bigger problems for the global economy happen when a fundamental shift takes place that lasts 6 to 12+ months and disrupts the “systems” in place throughout the globe.  We believe this virus event could start a process that disrupts supply, demand, consumer engagement, and true valuation levels of almost all commodities and assets throughout the globe over the next 24+ months.

In Part II of this article, we’ll attempt to share more data and highlight where opportunities may present real profit objectives for skilled investors and traders.

The next few years are going to be full of incredible opportunities for skilled traders and investors.  Huge price swings, incredible revaluation events, and, eventually, an incredible upside rally will start again.

I’ve been trading since 1997 and I’ve lived through numerous market events.  The one thing I teach my members is that risk is always a big part of trading and that’s why I structure all of my research and trading signals around “finding profits while reducing overall risks”.  Sure, there are fast profits to be made in these wild market swings, but those types of trades are extremely risky for most people – and I don’t know many successful traders that want to risk their hard-earned money when daily price swings in various assets are moving 10% to 95%.

I’m offering you the chance to learn to profit, as I do with my own money from market trends that I hand-pick for my own trading.  These are not wild, crazy trades – these are simple, effective, and slower types of trades that consistently build wealth.  I issue about 2 to 4+ trades a month for my members and adjust trade allocation based on my proprietary allocation and risk algo – the objective is to gain profits while managing overall risks.

You don’t have to spend days or weeks trying to learn my strategy.  You don’t have to try to learn to make these decisions on your own or follow the markets 24/7 – I do that for you.  All you have to do is follow my research and trading signals and start benefiting from my trading experience.  My new mobile apps make it simple – download the app, sign in and everything is delivered to your phone, tablet, or desktop – updates, videos, education, and trade alerts.

I offer membership services for active traders, long-term investors, and wealth/asset managers.  Each of these services is driven by my own experience and my proprietary trading and risk modeling systems.  I have a small team of dedicated researchers and developers that do nothing but research and find trading signals for us to take advantage of together. Our objective is to help you protect and grow your wealth.

Please take a moment to visit www.TheTechnicalTraders.com to learn more.  I cannot say it any better than this…  I want to help you create success while helping you protect and preserve your wealth – it’s that simple.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.