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Revisiting Our ADL Predictions for S&P 500

Our research team authored an article suggesting that our Adaptive Dynamic Learning Predictive Modeling system indicated the US major markets were 12% to 15% overvalued on May 23, 2020.  This was just before the last “euphoric” phase of the recent rally took began the week after our prediction.  From the date of May 23, 2020, to the recent peak in the markets, the SPY rallied another 9.72% above the price levels when we made the ADL prediction.  This suggests that the major markets rallied to levels near 21% to 24% overvalued near the recent peak.

Please take a moment to review our original ADL article here: https://www.thetechnicaltraders.com/predictive-modeling-suggests-us-markets-12-over-valued/

In keeping with our research team’s conclusions, the downside price move that initiated on Wednesday, June 10, 2020, after the US Fed statements, and really broke down on June 11, 2020, will likely continue resulting in the US major markets attempting to find support near our ADL predictive modeling system levels.  The downside price trend could extend below our ADL price target levels if the selling in the markets pushes into an extreme selling event.  It is not uncommon for the price to attempt to move through the ADL price levels attempting to find support and/or resistance.

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ORIGINAL ES ADL PREDICTED TARGET LEVEL WEEKLY

This is the ES chart showing our ADL predictive modeling system results from the May 23, 2020 date.  You can see the ADL predicted price levels near 2520 on this chart and the fact that the markets rallied away from these levels in late May created what we call a “price anomaly”.  This is when price moves away from the ADL levels in a manner that is somewhat unreasonable.  The same thing happened during the peak price level in early February 2018 and the October peak in 2018.

SPY ADL PREDICTED TARGET LEVEL DAILY

Based on our ADL predictive modeling system and the targeted price levels, we believe the SPY will fall to levels close to or below $260 over the next 10 to 15+ days.  It makes perfect sense that the markets over-extended a speculative price rally based on the context that the US economy would rebound from the COVID-19 shutdown.

Now that the US Fed has deflated that expectation and the riots and other issues related to social and political events are pending, we believe a “sudden realization” within the markets could send the US stock market price levels much lower over the next 2+ weeks – eventually attempting to find support near recent lows.

We actually posted our technical forecast for the market crash, the 30% rally, and called this blow-off top and reversal 4 days before it happened in this video a while back.

CONCLUDING THOUGHTS:

Remember, developing a winning strategy is not about trading every trend and day-trading every move, it is about timing your trades and strategically positioning your portfolio to take advantage of the “best asset now”.  We’ve developed proprietary technology that assists us in determining the best assets to be invested in and our predictive modeling and other proprietary tools assist us in identifying confirmed trade triggers.  Our objective is to assist our clients in generating consistent profits – not hundreds of trades.

If you were caught on the wrong side of this move recently, please remember that we tried to warn you of our multiple research articles and clear content.  We’ve been warning that this upside rally was a speculative price move driven by foreign and US investors believing the V-shaped recovery was real.  The reality of the situation is that this recovery is going to be much more volatile than many people believe.  This is a global economic event – not just a Fed Blip or some other isolated panic volatility.

You better stay on top of these trends and risks in the markets to stay ahead of these bigger moves.

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 ETF 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 another 35-65% during the rest of this financial crisis going into late 2020 and early 2021.

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. 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 but we do have a way for you or your advisor can take advantage of the market gyrations with our Technical Wealth Advisor investing signals.

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 ETF Investing Signals which we issued a new signal for subscribers.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

Financial Sector Under Pressure and What It Means

The Financial sector is unique in that it is an essential component of global economics as well as local economic functions.  Consumers depend on banking services, credit, and all sorts of other financial services in their day-to-day lives.  The Financial sector is one of the components of the US stock market that can suddenly find itself under pricing pressure as an economic crisis event unfolds.  This happens because banks earn a large portion of their income from servicing debt and originating loans.

The recent rally in the Financial sector, over 47% from the March 2020 lows, has reached our proprietary Fibonacci price modeling system’s upside price targets and has also filled a major gap that was created in early March 2020.  Because of these factors, and the current downside price rotation within the Financial Sector, we believe this component of the US stock market could continue to see extended pricing pressure going forward as we learn just how damaging the past 70+ days of the economic shutdown have been for the economy.

We do know that certain consumers have quickly begun to pay off credit card debt.  We believe this is a learned trait from the 2008-09 market crisis where credit card rates skyrocketed as large numbers of consumers began defaulting on their homes and other types of credit.  We also know that delinquencies for autos and other sub-prime credit services have begun to skyrocket higher.  The sub-prime credit market is vastly different than it was in 2008-09.  Recently, Fintech and other new resources have allowed for extended sub-prime lending and leveraging within the US (Source: cnbc.com).

When you combine the sub-prime mortgage, auto, personal loans, personal Fintech margin capabilities, and sub-AAA corporate debt levels, the total amount of at-risk subprime debt must exceed $2 trillion US Dollars.  We believe this source of risk has been greatly underestimated in terms of risk to the Financial Sector over the next 12+ months (Source: zerohedge.com).

NON-100 LARGEST BANKS CREDIT CARD DELINQUENCY RATES

The current delinquency rate among the non-100 largest US banks for credit cards has already climbed well above the 2008-2010 peak levels.  It appears subprime borrowers are already pushed well beyond their limits in terms of servicing current debt levels.  This suggests a contraction in the credit market will likely take place over the next 24+ months as these at-risk borrowers default at greater rates.  This could transition into the housing market and other sectors of the economy if multiple waves of sub-prime borrowers stress the US financial system because of the COVID-19 shutdown.

XLF FINANCIAL ETF INDEX DAILY CHART

Our research team believes the peak in the XLF ETF has already set up after the recent 47%+ rally from the March lows.  The $27 price peak sets up directly between our two Fibonacci Daily upside price target (Peak) levels.  We believe this setup is a very strong indication that a move to below $23 may be setting up over the next 30+ days.  The Q2 data may very well push investors to re-evaluate the potential for the Financial sector if delinquencies and at-risk borrowers continue to default in greater numbers.

XLF FINANCIAL ETF INDEX WEEKLY CHART

This XLF Weekly chart highlights the recent rally and the “Gap” that recently filled.  It is our belief that the range between the MAGENTA horizontal lines represents a very clear support/resistance level within this longer-term XLF chart.  We believe that price will have to fall below $25 in order to initiate a deeper downside price move targeting recent low price levels or price will have to move above $27.50 in order to continue to rally.  Currently, our researchers believe the downside potential has a much higher probability of success as we get closer to the end of Q2:2020.

If our research is correct and XLF falls below the $25 price level, we believe it will target at least $22 to $22.50 before finding some support.  If it breaks below the $22 price level, it could fall well below the $20 price level again on weaker expectations.

These types of price swings can be incredible setups for skilled technical traders.  Follow our research and learn how we can help you find and execute better trades.  We recently executed a new swing trade for our members that is already showing great opportunity.  Protect your capital and learn to trade proven technical setups with our dedicated team of researchers and traders.

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 ETF 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, and we closed out another winning trade on Friday.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.