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Corona Virus and Manufacturing Shutdowns Will Affect Companies

A technical trader talks about this week’s large price swings, Coronavirus, and how to trade this volatility.


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Downside Price Rotation Dominates After Manufacturing Data

Our research team has been all over this longer-term Pennant/Flag setup and the potential for the breakdown in the US/Global markets.  The US manufacturing data released today confirmed what we believed would be the outcome of the extended trade issues between the US and China – a moderate slowdown in US manufacturing.  Couple that with a US Fed that is attempting to navigate very difficult economic developments, consumers headed into the Christmas season unsure of what lies ahead, the US political environment (almost complete chaos) and uncertainties with foreign markets and we have a perfect setup for “investor malaise”.

This is something we last saw after 9/11 and even earlier in 1990 when the US invaded Kuwait.  With each of these events, consumers and investors entered a phase of moderate indifference/malaise in terms of attention put towards global economics and investing as well as a general unwillingness to actively engage in anything related to investing and finance related.  It appeared that consumers and investors were just busy taking care of their lives, families, jobs and watching the “news cycle” as it seemed every evening something new hit the news-cycles to distract from the markets.

If this is the case with the new Impeachment proceedings, the US Presidential election event (2020) and geopolitical trade/finance issues in today’s markets, then we may be entering a period where capital will continue to shift into safe-havens, protective stocks (DOW and dividend-paying stocks) and attempt to shun the high-flying, high-risk technology, Biotech and heavy-equipment and other stocks that rely on a booming global economy.  We have about 13 months to go before the November 2020 US Presidential elections and it appears we have a dramatically changing economic environment ahead of us.

If this downward price move continues as we expect, capital will move away from risk factors and into safe-havens, bonds, and blue-chip stocks as a method of protecting against valuation risks.  The NASDAQ and technology stocks could get crushed while the VIX index rockets higher. The smart money index and the price reversion look to be starting now and we explained it much more detail in this article.

S&P 500 (ES) DAILY CHART

This ES Daily chart highlights the new lower low produced by the downside price move on October 1.  This new low confirms the bearish trend is currently dominating the direction and suggests price may attempt to target the 2880 level (first level of support) before possibly moving lower.  Our researchers believe the ES is likely to fall 5% to 12% over this total downside rotation based on our Adaptive Dynamic Learning (ADL) predictive modeling system. If this happens then see what we think will happen to the price of the VIX. Thus, retesting August 2019 lows is really going to be a key setup to determine what happens next.

DOW JONES DAILY CHART

This YM Daily chart provides an even more dramatic example of the new price low set up that continues to suggest further downside price action is in our future.  Support near 26000 would be our first target level and ultimate support near 25000 would be our ultimate support level based on recent price rotation.  Ideally, we believe the YM will move towards the 26000 level and find support rather quickly.  Much more quickly than the ES and NQ – as we’ve recently detailed in our ADL predictive modeling research article.

NASDAQ DAILY CHART

Because we believe the NASDAQ and the S&P stocks are more likely to experience a broader price rotation than the Dow Jones stocks, we believe that capital will begin a very dramatic and dedicate shift away from risk over the next 2 to 3+ weeks.  This would suggest that certain S&P and Dow stocks/sectors could see some support setting up within a 3~5 week span – well before the NASDAQ stocks find any real support.  It also suggests that Metals and Miners are likely to begin another rally higher over the next few weeks/months.

Ultimately, this will result in the VIX rallying much higher, as we suggested near 30+ days ago, and possibly targeting levels above 25 (initially), then possibly 35 as the capital shift extends.  Once capital begins to pour out of risk and into safe-havens, the VIX could rally above 40 on a deep price downturn in the NASDAQ.

CONCLUDING THOUGHTS:

If this downside rotation extended into the global stock market, we may see a much broader rotation of capital throughout the world as risk factors are heightened and credit/debt issues are pushed to the limits for certain foreign nations/corporations.  This is likely to be a “shake-out” moment if the downside price move extends deeply.

Right now, we need to watch how the foreign markets will react to this new and how consumers and corporations address this manufacturing slowdown.  Obviously, everything is not as rosy as one might think given the global trade and economic issues.  But we believe this rotation is very healthy for the markets and if our ADL predictive modeling is correct, the ES and YM will recover near mid-November for a moderate Christmas rally for 2019.  The NASDAQ/technology/Biotech sectors, though, may not be so lucky.

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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
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.

All Eyes On Copper

Copper is a fairly strong measure of the strength and capacity of the global economy and global manufacturing.  Right now, Copper has been under quite a bit of pricing pressure and has fallen from levels above $4.50 (near 2011) to levels near $2.55.  Most recently, Copper has rotated higher to levels near $3.25 after President Trump was elected on November 2016, yet has recently fallen as trade and global economic concerns become more intense.

This should be viewed as a strong warning sign that institutional traders and investors are very concerned that the future economic and manufacturing activities throughout the world are continuing to contract.  Copper is used in various forms throughout all types of manufacturing and consumer products, such as computers, building & infrastructure, electronics, chemical & medical use as well as automobile and aircraft manufacturing.  It makes sense that copper prices would be a leading indicator for much of the global economy and relate to economic output and capacity.

Copper Monthly Long Term Chart

As the US/China trade war continues and we enter the final stretch of the US Presidential election cycle, we believe that copper will breakdown below the $2.50 level and attempt to identify past support levels below slightly $1.50 over the next 6 to 12+ months.  We believe the next big move in commodities will be a contraction move where certain commodities (mostly manufacturing & industrial related) will collapse as the world focuses on two of the most important events that are about to conclude in 16+ months: the US Presidential elections and the Global Trade/Economic issues.

Copper Monthly Pennant Pattern

The breakdown in commodity prices as related to slower expectations and global economic demand may see a dramatic downside move or may see a more measured “slide” towards the $1.45 level (much like what we saw happen between 2013 and 2016).  Overall, though, we believe the downside price move outweighs the upside at this time – unless some type of dramatic resolution to the US/China trade issues and global economic slowdown are ended.

We’ve also highlighted an extended long-term Pennant/Flag formation in Copper that should provide further insight as to the range of price rotation before the bigger breakdown in price occurs.  This pennant formation will likely contain the immediate price range/rotation over the next few months to between $2.30 to $3.00.  Should price break below the $2.25 level within the next 2~6+ months, then we would expect an immediate downside move towards the $1.50 level.

CONCLUDING THOUGHTS:

Following the core commodities as related to global economic and manufacturing demand and capacity are key elements to understanding how traders and investors are viewing the future expectations for the global markets.  Commodities like Copper, Gold, Silver, Oil, Natural Gas and others can often be leading indicators related to global economic output and expectations.  We urge all traders to prepare for a broader market contraction event over the next 6 to 12+ months based on our research that suggests Copper is setting up for a breakdown move.

These global market price swings in 2019 and 2020 are going to be huge events that will present incredible opportunities for skilled technical traders.  You don’t want to miss out on the opportunity these types of big moves present. In fact, last week we closed out 24.16% in profits for the first week of August and you can see the charts here.

Following the core commodities as related to global economic and manufacturing demand and capacity are key elements to understanding how traders and investors are viewing the future expectations for the global markets.  Commodities like Copper, Gold, Silver, Oil, Natural Gas, and others can often be leading indicators related to global economic output and expectations.  We urge all traders to prepare for a broader market contraction event over the next 6 to 12+ months based on our research that suggests Copper is setting up for a breakdown move.

These global market price swings in 2019 and 2020 are going to be huge events that will present incredible opportunities for skilled technical traders.  You don’t want to miss out on the opportunity these types of big moves present.

Recently warning that the next financial crisis (bear market) was scary close, possibly just a couple weeks away. The charts I posted will make you really start to worry. See Scary Bear Market Setup Charts.

I then posted a detailed report talking about where the next bull and bear markets are and how to identify them. This report focused mainly on the SP 500 index and the gold miners index. My charts compared the 2008 market top and bear market along with the 2019 market prices today. See Comparison Charts Here.

On June 26th I posted that silver was likely to pause for a week or two before it took another run up on June 26. This played out perfectly as well and silver is now head up to our first key price target of $17. See Silver Price Cycle and Analysis.

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Chris Vermeulen – www.TheTechnicalTraders.com