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If Investors Crunched Data This Their Expectations Would Change Dramatically

New economic data being released as earnings start to hit may alter how investors perceive the recent price recovery in the US and global markets.  Many institutional analysts began suggesting “the bottom is in” and recently began to issue stronger forward guidance.  The new data suggests we are seeing an economic contraction that, in some cases, maybe 2x or 3x the contraction that took place in the 2008-09 Credit Crisis.

The US stock markets reacted to this news and earnings data by collapsing over -2% in early trading.  Gold and Silver are both lower as we write this article which would indicate weakness across the broader market.  We continue to believe a deeper price low will set up in the near future with the US and global stock prices attempting to retest recent price lows – possibly falling below these levels.  We believe the collateral damage to consumer engagement, manufacturing, transportation, retail/leisure, real estate and other sectors of the economy is just now starting to become evident.  What the economy may look like near Mid-May is anyone’s guess.

MANUFACTURING OUTPUT INDEX

One of the most interesting data items published recently in the US Manufacturing Output Index which reported at -6.3%.  This is the largest downside (negative) print going back over 20 years.  It is nearly 2x larger than the deepest levels from the 2008-09 Credit Crisis and nearly 6x the levels of the 2001 9/11 terrorist attacks.  This time it really is different.

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NEW YORK EMPIRE STATE MANUFACTURING INDEX

The New York Empire State Manufacturing Index was no different – posting a level at -78.20%.  This massive negative number is nearly 2x the deepest levels printed during the 2008-09 Credit Crisis and clearly illustrates how the COVID-19 virus event has disrupted manufacturing output across the globe.  Depressed manufacturing translates into decreased shipping, decreased supply, decreased demand, and decreased overall economic engagement (employment, support services, taxes, and others).  A number similar to the lows of 2008-09 would be sufficiently terrible.  A number that is 2x below the lowest levels in 2008-09 is absolutely destructive to forward expectations.

NAHB REAL ESTATE INDEX

Real estate is starting to feel the pinch too.  The NAHB Real Estate Index came in at 30.  The only times in history where this level has been reached were September 1990, October 2006, and June 2007.  These areas in history clearly point to an early recession indicator in the markets.  We found it interesting that September 2001 (9/11) didn’t experience any major downside print in the NAHB index.  The lowest level reached after 9/11 was 46 (November 2001).  The current 30 level is shocking.  If history is any indication of what to expect in the future, this real estate index may attempt to set up an extended bottom near or below 15 to 20 over the next 12+ months.

REDBOOK INDEX

Lastly, the Redbook Index – which printed a level of -8.3.  This index of over 9000 retail locations is one of the broadest market indicators of consumer/retail-based activity in the US.  Obviously, with the shutdown taking place within the US and across the globe, we were not expecting any type of fantastic number. Yet our concern is that consumer engagement continues to slowly emerge from the shutdown over the next 12+ months and the collapse in retail may become prolonged

Historically, this is the deepest level printed on the Redbook Index since 2008-09.  We believe the continued shutdown and disruption to traditional manufacturing, supply and retail will continue to present very negative outcomes for global economic measures.  Thus, we believe the risks to the US and global stock market are still very real for skilled traders.

CONCLUDING THOUGHTS:

The US Fed and global central banks are doing everything possible to support a shocked global economy – yet they can’t print enough money to replace the global activity of consumers, manufacturers, and traditional economic functions. They can just attempt to “patch things up” while they wait for consumers and manufacturers to begin operating near-normal levels.

It is very important for skilled traders to understand the bigger economic risks that are at play and to understand the process of price moves within the current market cycle.  I was recently interviewed about my market opinions and stated very clearly how investors could fall into a “suckers rally” trap.  Listen to my talk here.

Be prepared for more downside risks and a potential for a much deeper price bottom over the next 6+ months.  Those individuals/firms suggesting “the bottom is in” are certainly jumping the shark, in our opinion, right now.  It’s a pretty big event to come out right now and tell investors “buy these dips because we believe the US Fed has everything under control”.  Be cautious and use your own skills to wait for a proper bottom setup.

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.

Is The Coronavirus Bullish For Stocks?

Earnings volatility has certainly been big.  Tesla pushed the markets much higher early this week and the US stock markets have continued the upward momentum after the State Of The Union address and the acquittal of President Trump on Wednesday.  Still, we continue to believe this rally may be a “fake-out” rally with respect to the fallout from the Wuhan virus.  Certainly, foreign investors are continuing to pour capital into the US stock market as the strength of the US Dollar and the strong US economy is drawing investment from all areas of the globe.

We believe the scope of this parabolic rally in the US stock market should actually concern skilled traders.  Markets just don’t go straight up for very long.  The last time this happened was in the 1970s and 1980s.  Very minor volatility during that time prompted a big move higher in the US stock market that set up the eventual DOT COM collapse.

Oil, Shipping, Transportation, Consumer, Manufacturing, and Retail will all take a hit because of the Wuhan virus.  We’ve, personally, received notices from certain suppliers that factory closures in China will greatly delay the fulfillment of orders.  Our opinion is that nations may have to close all or a majority of their cities, ports, and activities in Asia for at least 90+ days in order to allow this virus event to peak and subside.  We don’t see any other way to contain this other than to shut down entire cities and nations.

The US Fed and Central Banks are doing everything possible to continue the economic growth and stability of global economics.  Yet, the reality may suddenly set in that without risking a global virus contagion, nations may be forced to actually shut down all non-essential activities for well over 90+ days (possibly even longer).  If you could stop and consider what it would be like for half of the world, and many of the major manufacturing and supply hubs, to shut down for more than 3 to 6 months while a deadly virus is spreading.

Repo lending continues to show that liquidity is a problem.  We believe this problem could get much worse.  Skilled traders need to be prepared for a sudden and potentially violent change in the direction of the global stock markets.

$TNX – 10 YEAR US TREASURE YIELD DAILY CHART

30 YEAR TREASURY BOND PRICE – DAILY CHART

There is now a solid wall of inversions in all the treasury notes and bills.  The 10-year yield is inverted with 6-month and shorter durations.  The 30-year long bond dipped below 2.0% for the third time and is just 6 basis points from a record low.

Prepare to capitalize on this “crowd behavior” in the near future.  Right now, the US stock market is pushing higher as Q4 earnings drive future expectations.  Yet, be prepared for the reality of the situation going forward.

This Wuhan virus may present a very real “black swan” event.  At the moment, the US stock market appears to want to rally as earnings and economic data continues to impress investors.  Overall, the real risk to the markets is a broader global economic contagion related to the Wuhan virus and the potential it may have on foreign and regional economies.

Next week is going to be critical for many things I feel. Virus contagion growth, factory closures, Oil breakdown follow through, equities breakout follow through, and the precious metals pending move.

We locked more gains this week with one of our positions as we rebalance our portfolio holdings for these new big trends to emerge. If you want to know where the markets are moving each day and follow my trades then join my ETF Trading Newsletter.

Chris Vermeulen
www.TheTechnicalTraders.com

Who Said Traders and Investor are Emotional Right Now?

Nearing the end of 2019, our research team continues to attempt to dissect the market rally in an effort to present credible research and timely insights to skilled technical traders.  We recently authored a research article discussing the potential that the US Stock market is less than 2.5% away from a major resistance level that could prompt a massive market top.  You can read our research related to these Fibonacci Price Amplitude Arcs here.

This recent research leads us to revisit the recent blow-off rotation in recent markets.  The typical market cycle moves from through these cycles Stealth Phase, the Awareness Phase, the Mania Phase and finally to the Blow-Off Phase.  The Stealth Phase is where the smart money pours into the market taking advantage of undervalued assets/equities.  The Awareness phase is where more traditional and retail investors pile into assets that have formed traditional bottom formation and started to rally.  The Mania Phase is when enthusiasm and greed take over and when the market moves higher in a parabolic price mode – ultimately reaching a massive top.  Then, we start the Blow-Off Phase which usually starts with a deep “R” type price rotation – followed by extended selling.

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Source: Dr. Jean-Paul Rodrigue Dept. of Global Studies & Geography Hofstra University

We’ve seen these types of market phases play out over the past 20+ years multiple times.  The DOTCOM market breakdown, the 2009 Credit Market Crisis, and the 2017 BITCOIN breakdown.  One of the clearest examples in history was the 1929 Stock Market Crash.

The effort of our research team is to highlight the recent rally mode in the US stock market after the 2018 US Stock Market rotation (January 2018 and August 2018).  If you pay very close attention to the details of these actual price rotations in the examples below, you’ll notice that every ultimate peak happened after a period of moderately deep price rotation and an extended upside price rally (an exhaustion rally).  In every example, this rotation setup the exhaustion rally which ultimately set up the massive price peak/top.


Source: Dr. Jean-Paul Rodrigue Dept. of Global Studies & Geography Hofstra University
Cole Garner: https://medium.com/hackernoon/marketcycle-4e5407d0c68

We believe the rotation in the US stock market in 2018 exhibited the exact same price setup and the current upside price rally is the exhaustion rally that will ultimately set up a massive price peak/top.  We’ve highlighted our research team’s expectations in the S&P500 chart below.

The fact that this potential price peak aligns with our GREEN Fibonacci price amplitude arc presents another clear example that massive resistance exists near 3200 in the S&P.  The phases of the extended market rally, lasting just over 10 years now, align nearly perfectly with the previous examples of major market tops and a Blow-Off Phase.

Our research team believes the resistance level near 3200 on the S&P will likely result in a downside price rotation setting up an “R” type price move.  Once this completes, a Blow-Off phase could begin rather quickly.  We believe the expansion of the markets has reached a point well past a euphoric phase and the rotation in 2018 setup the perfect exhaustion rally phase.  We believe it is just a matter of time at this point before the Blow-Off phase begins.

We would be surprised if the S&P rallied far beyond the 3200 price level before setting up the “R” price rotation.  We believe the first 3 to 5 months of 2020 will create the “R” price setup before broader market concerns take hold – potentially bursting investor enthusiasm.

All this could be the start of the next real estate crash we explain here.

Don’t miss these next moves in the markets.  Our research goes beyond traditional types of analysis and our research team is dedicated to helping you protect your assets and wealth.

In short, rotations in ETFs, such as this potential move in WOOD, will continue to set up and rotate throughout the 2020 election event and beyond we’ll keep you informed as this plays out with Wealth Building & Global Financial Reset Newsletter. Join us with the 1 or 2-year subscription to lock in the lowest rate possible 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. Get a Free 1oz Silver Round or Gold Bar Shipped To You as a Bonus!

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.

Chris Vermeulen
Founder of Technical Traders Ltd.
www.TheTechnicalTraders.com

Investors are confident, bullish and buying stocks, but…

The Technical Traders Ltd has identified a unique price to volatility relationship between the SP500 and VIX index.  The calculations required to compute the VIX index are composed of a number of factors. That final value of the VIX index is reported on an annualized basis. This means that VIX index as already internalized the past 12 months price volatility into the current VIX levels.

We believe this increased VIX volatility expectation could be muting future VIX spikes and trading systems focus on the VIX Index.  The fact that the VIX as likely to internalized that large October to December 2018 price rotation and will not move beyond this price range until well after April or May of 2020 creates a unique problem for VIX systems and analysts. In short, the VIX has normalized a 20% price volatility expectation, or more, and will not reduce this expectation until well after April or May of 2020.

Taking a look at this weekly VIX chart clearly highlights the large 472% increase in January and February 2018.  The reason why the VIX increased by this incredible amount is that the prior 12 months price volatility was extremely muted.  The price rotation in the SPX was -343, for a total of -12%. The second VIX Spike between October and December of 2018 resulted in a 227% increase while price rotated more than 600 points, -20.61%, in the SPX. Obviously, the larger price movement in October through December 2018 would have likely resulted in a large VIX move if prior volatility expectations had remained the same.

It is our belief that the January to February 2018 price volatility rotation increase the VIX volatility expectations by at least 30 to 40%. The second, much larger, price rotation during October to December 2018 pushed the VIX volatility expectations higher by at least 10 to 15%. Our researchers believe the normalized VIX levels representing current price volatility are likely to stay above 12 or 13 until well after November or December 2019 if price volatility and expectations stay rather muted. Any additional large price rotations, to the downside, will likely continue to normalize or internalize increased VIX level volatility expectations.

This SPX chart helps to compare the relative VIX price increases in relation to the true SPX price volatility. We’ve also drawn a 12-month price window, as a red box on this chart, to highlight how the VIX attempts to normalize the past 12 months volatility going forward. It is our belief that a move above 500 to 600 points in the SPX may only prompt a rally in the VIX to near 28 to 30. Whereas, the same price swing from October to December 2018 prompted a VIX move to about 36. We would need to see the SPX move at least 900 points before the VIX will spike above 25 again.  Remember after January or February of 2020 the VIX may begin to contract again as price volatility stays muted for the rest of this year.

We currently believe a large price rotation may be set up for near the end of 2019. Our proprietary cycle modeling systems and extended research are suggesting this downside move may begin sometime near August or September of 2019. Remember, this new VIX research suggests that any large price downswing may result in a very moderate VIX price increase at first. In other words, things could get very interesting towards the end of 2019 for traders.

Please take a minute to visit www.TheTechnicalTraders.com and see how we have been navigating, trading and profiting from the market over the past 17 months, I think you will be pleasantly surprised. Our research team believes the US stock market will likely form an extended pennant formation over the next 60+ days.  Now is the time for us to plan and prepare for what may become a very volatile second half of 2019 and early 2020.

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Chris Vermeulen