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US Fed Intervention Wains… What Next?

What happens to the global markets when the US Fed begins to weaken stimulus activity and when the global markets must begin to function on their own?  Are the global markets capable of sustaining current price levels without the Fed supporting them?

A recent news article suggests the US Fed has drastically slashed stimulus activity over the past 5+ days.  From a peak level of nearly $600 Billion a week to current levels near $83 Billion per week – a -86% decrease.  How will this reflect in the market’s ability to sustain current price levels in the face of disastrous Q2 expectations? Yup, markets are falling fast and hard going into the weekend as expected!

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Source: https://wolfstreet.com

BUFFET INDICATOR

Another common tool for skilled traders is the Buffet Indicator which helps us understand stock market valuation levels and measures extreme trends by measuring Standard Deviation ranges. Currently, the Buffet Indicator is near the highest levels ever recorded over the past 60+ years.  Additionally, a “detrended” version of the Buffet Indicator suggests a broader global recession would require a further devaluation before a true bottom is likely to complete.

This first Buffet Indicator chart shows the current market value to GDP and highlights the recent peak as being the highest level ever recorded.  Notice how this level is much higher than the peak in 2000.  This indicates that the stock market valuation level is excessive compared to historical norms.

Source: www.currentmarketvaluation.com

DETRENDED BUFFET INDICATOR

This Detrended Buffet Indicator suggests the recent peak may not reflect the same excessive valuation levels as we experienced in 2000, yet are historically near the upper range of extended valuation levels.  Notice how price devalues as a process of setting up a valuation advance throughout time. When prices become overvalued (think of simple supply/demand theory), demand typically collapses – sending prices lower. At this time, we have the global Covid-19 virus event disrupting the demand-side of this equation.  When demand collapses, where do prices go?

Source: www.currentmarketvaluation.com

Our research team believes the current trend will eventually end and global stock market prices will collapse again as a much deeper price low/bottom sets up.  Skilled traders need to understand that as long a the US Fed was pouring $600 Billion a week into the credit/stock market, the recovery in price was going to be substantial.  Once that stimulus ends and the markets are left to function on their own, the aspects of the demand collapse become more evident.

In a way, the Fed acted as a “demand supplement” for the US and global markets.  Buying up assets and supporting the credit markets in an effort to transition us past the crisis event that took place in late February and March 2020.  How quickly will the global markets transition back into a declining mode in the continues to stay passive?

CUSTOM US STOCK MARKET INDEX – WEEKLY INDEX

Our original targets where price may attempt to form a deeper bottom near the 2015~2016 price range is still very valid.  Near the peak of the recent selloff, price levels reached these predicted levels just before the US Fed began the stimulus programs. Now, price levels are nearly 35%+ above these low price levels.

Chart By: TradingView.com

CUSTOM SMARTCASH INDEX – WEEKLY CHART

It seems obvious to our research team that continued lack of consumer demand and lack of central bank intervention will likely result in the US stock market moving lower in the near future and attempting to establish a true price bottom.  We believe that bottom will likely happen near July or August 2020 and will likely reach levels near, or below, the 2015~2016 price range but this analysis will change as we progress forward with new events and analysis.

You can see our predicted price bottom on this Weekly Smart Cash Index chart.  The lines we’ve drawn into the future show where we believe the first attempt at a true price bottom may take place near July or August 2020.

Chart By: TradingView.com

CONCLUDING THOUGHTS:

Remember, this type of price rotation is very healthy for the US and global markets.  The price must rotate through these types of trends to eliminate excessive risk/froth and to secure a proper price equilibrium where valuation levels can begin to appreciate again.  This process is almost cathartic in a sense.  The ability to regain a “true valuation base/bottom” in price (consider Fibonacci Price Theory) allows the future appreciation cycle to function more efficiently (having eliminated excessive risk valuations).

We will get through this and the global economy will continue to function.  We just have to get through the next 6+ months and the relative economic disaster of Q2 and Q3 (likely) before we’re going to see any real chance at true price appreciation.

At this point, when the Fed-induced upside trend breaks – watch out below.

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.

Is The Technology Sector Setting Up For A Crash? Part III

FANG stocks seem uniquely positioned for some extreme rotation over the next 6+ months.  The continued capital shift that has taken place over the past 5+ years has driven investment and capital into the Technology sector – much like the DOT COM rally.  The euphoric rally in the late 1990s seems quite similar to today.

The biggest difference this time is that global central banks have pushed an easy-money monetary policy since just after 2000.  The policies and rallies that took place after 9/11 were a result of policies put in place by George W. Bush and Alan Greenspan.  Our research team believes these policies set up a  process where foreign markets gorged on cheap US Dollars to expand industry and manufacturing throughout the late 1990s and most of the early 2000s.  This process sets up a scenario where the US pumped US Dollars into the global markets after the 9/11 terrorist attacks and foreign markets gobbled this capital up knowing they could expand infrastructure, industry, and manufacturing, then sell these products back to the US and other markets for profits.  Multiple QE attempts by the US Fed continued to fuel this capital shift.

It wasn’t until after 2008-09 when the US Fed entered a period of extreme easy money policy.  This easy money policy populated an extensive borrow-spend process throughout most of the foreign world.  Remember, as much as the US was attempting to support the US markets, the foreign markets were actively gorging even more on this easy money from the US and didn’t believe anything would change in the near future.  China/Asia and most of the rest of the world continued to suck up US Dollars while pouring more and more capital into industry, manufacturing and finance/banking.

This process of borrowing from the US while tapping into the expanding US markets created a wealth creation process throughout much of Asia/China that, in turn, poured newly created wealth back into the US stock and real estate markets over the past 7+ years.  It is easy to understand how the trillions pushed into the markets by the US Fed created opportunity and wealth throughout the globe, then turned into investments into US assets and the US stock market.  Foreign investors wanted a piece of the biggest and most diverse economy on the planet.

This foreign investment propelled a new rally in the Technology sector, which aligned with a massive build-out of technology throughout the world and within China.  Remember, in the late 1990s, China was just starting to develop large manufacturing and industry.  By the mid-2000s, China had already started building huge city-wide industry and manufacturing.  But in the late-2000s, China went all-in on the industry and manufacturing build-out.  This created a massive “beast” in China that depends on this industry to support finance and capital markets.  This lead to the recent rise in the global and US markets as all of this capital rushed around the globe looking for the best returns and safest locations for investment.

FANG stocks have taken center stage and the recent rally reminds of us the DOT COM rally from the 1990s.  Could the Coronavirus break this trend and collapse future expectations within the global markets?  Is it possible that we are setting up another DOT COM-like bubble that is about to break?

THE WEEKLY CHART OF APPLE (AAPL)

This first Weekly chart of Apple (AAPL) shows just how inflated price has rallied since August 2019.  The share price of AAPL has risen from $220 to almost $320 in the last 6 months – an incredible +49%.  We attribute almost all of this incredible rise to the Capital Shift that took place in the midst of the US/China trade war.  Foreign capital needed to find a place to protect itself from currency devaluation and to generate ROI.  What better place than the US Technology Sector.

THE WEEKLY CHART OF FACEBOOK (FB)

Facebook has also seen a nice appreciation in value from the lows in late 2018.  From the August 2019 date, though, Facebook has seen share prices rise about +25% – from the $180 level to the $225 level.  Although many traders may not recognize the Double Top pattern set up near the $220 level, we believe this setup may be an early warning that Technology may be starting to “rollover” as capital may begin searching for a safer environment and begin exiting the Technology sector.

THE WEEKLY CHART OF GOOGLE (GOOG)

Google (Alphabet), GOOG, is another high-flier with share prices rising from $1200 to $1500 from August 2019 till now – a +28% price increase.  We can clearly see that GOOG is well above the historic price channel set up by the rotation in late 2018.  We believe resistance near $1525 will act as a price boundary and may prompt a downside price rotation associated with the rotation away from risk within the Technology sector.  Any downside move, if it happens, could prompt a price decline targeting $1350 or lower.

CONCLUDING THOUGHTS:

Remember, we are warning of a change in how capital operates within the markets.  The Capital Shift that has continued to drive advancing share prices in Technology may be nearing an end.  It does not mean the capital shift will end, it just means this capital may rotate into other sectors in an attempt to avoid risks and seek out returns.  We believe this is a real possibility because we believe the Coronavirus in China is disrupting the markets (supply/manufacturing and consumer spending) by such a large factor that we believe capital will be forced to identify new targets for returns.  In other words, we believe the Technology Sector may be at very high risk for a price reversion event if this “black swan” event continues to disrupt the global markets.

Let’s face it, a very large portion of our technology originates and is manufactured in China.  In fact, a very large portion of almost everything we consume is manufactured in China.  Heck, the cat food I buy every week is made in China.  If this Coronavirus continues to force China to shut down large sections of their nation and manufacturing while it continues to spread, then the only real outcome for the rest of the world is that “China manufacturing capabilities will be only 10~20% of previous levels” (if that).

Once supply runs out for most items originating from China, then we are going to have to deal with a new reality of “what are the real future expectations going to really look like” and that is why we are preparing our followers and friends the Technology sector may be one of the biggest rotating sectors in the near future.

Join my Swing Trading ETF Wealth Building Newsletter if you like what you read here and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own.

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 (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.

Current Equities Rally Similarities To 1999

Euphoria is a type of market rally where valuations, real market expectations, and global market concerns are pushed away from view while a trader based rush to rally takes place.  One of the clearest examples is the 1995 to 2000 DOT COM US stock market rally.  As the Internet burst into homes and businesses across the world, the US-led the way with dozens of new Internet-based IPOs touting glorious expectations, potential earnings and more.  Everyone had the idea this new medium would dramatically change the economy for the better and breakthrough traditional economic boundaries.

The rally that took place in 1995 through 2000 was incredible.  The S&P 500 rallied from 463 to 1535 – +235.57%.  What we find interesting is the “price wave formation” that took place within that rally.  There were a number of key price rotations that took place as the market continued to rally, we’ve labeled them A, B, and C.  The first rotation, A, took place in July~Dec 1997.  The second, B, took place from May 1998 to November 1998.  The last, C, took place between January 1999 and November 1999.  Technically, these rotations are significant because they represent “true price exploration” related to price advancement.  The price must always attempt to identify true support/resistance levels while trending.

When we compare the rally from 1995 to 2000 with the current rally in the US stock market, we can see a defined level of euphoric price advance after the 2016 US elections.  We must also pay attention to the previous price advance from the 2009 price lows as the global markets were struggling to recover from the Credit Crisis. Our research team identified the A, B, C rotations in the current price and associated them to the similar rotations in the 1995-2000 price rally as “key components of the current rally and a potential warning sign of a pending top formation”.

Our researchers believe the QE processes of the global central banks have set up a similar type of euphoric price rally in the current global markets even though current economic metrics are warning of weakening economic activity and weakening global market output.  The US Fed and global central banks seem to want to keep pumping money/credit into the global markets to keep the rally going – most likely because they are fearful of what a crash/correction may do to the future growth opportunities around the planet.

Yet, our research team focused on the C rotation in 1999 and 2019 – a full 20 years apart.  What interested our research team the most was the fact that the rotation in 1999 set up a full 21 months before the November 2000 US Presidential election.  The current C rotation initiated in January 2018 – a full 34 months before the November 2020 US Presidential Elections.  Anyone paying any attention will recognize the 21 and 34 are both Fibonacci Numbers – relating a 1.619 ratio advancement.

Are we setting up a massive top in the US stock market based on a Fibonacci price range expansion related to the patterns we have identified in this SP500 chart?  Have we advanced from the 2000 peak and 2009 bottom in some form of Fibonacci Ratio expansion that aligns with the C rotation pattern we have identified?

The rally from Bill Clinton’s second term start date to the peak in 2000 totaled 932.9 pts – +153.61%.  the rally from Donald Trump’s first term start date to our projected peak level totals 997.5 pts – +44.38%.  The rally in 2000 peaked at a range that is 200% larger than the ration between the two separate percentage point ranges.  Is this significant to traders?  Does it help to align our peak with the 1.619 Fibonacci ratio?

153.61 / 44.38 = 3.4612

3.4612 / 2 = 1.7306

Given the alignment of these values with a potential 200% range expansion theory, we need to start to look at TIME/PRICE ratios to determine if these rallies are aligned efficiently.

The rally from 1995 to the peak in 2000 consisted of 63 Months.  The rally from 2009 to our projected peak consists of 131 bars.  This represents a price TIME expansion of 207.9%

The rally from 1995 to the peak in 2000 consisted of a price move of +1081.2 pts (+235.57%).  The rally from 2009 to our projected peak consists of a price move of 2585.6 pts (390.49%).  The ratio between these two price expansions is 1.657.

The correction from the peak in 2000 to the low in 2009 consisted of 109 months.  The ratio between the 63 months (1995~2000 peak) to this correction time is 1.73.  The ration of the 2009~2019 rally time span is 1.20.  Thus, the correction between the peak in 2000 to the bottom in 2009 expanded at a rate of 1.73x the time it took to complete the DOT COM rally from 1995 to 2000.  The recovery that has taken place from the 2009 bottom to our projected top in 2019 would expand at a rate of 1.20x the correction time rate.  All of these levels align with common Fibonacci numbers and ratios.

In other words, we believe the current expansion in price is nearing a completed Elliot Wave/Fibonacci ratio peak (likely wave C) that maintains proper aspect ratios related to previous major price rotations.

Other major sectors and asset classes also look to be showing similar topping patterns like the real estate values and charts here.

CUSTOM VOLATILITY INDEX MONTHLY CHART

Our Custom Volatility Index shows extended volatility is increasing with price nearing the upper range for December 2019.  Notice the increase in the range of these bars since the just before the peak in January 2018.  This increased range suggests extreme price volatility has been pushing the markets for the past 24+ months.  If this volatility continues into early 2020 as our projected peak sets up, we may see some very big rotation in 2020.

2000 AND 2019 PRICE SIMILARITIES IN S&P 500

This 2000 peak to 2019 peak comparison chart highlights the similarities in the C price pattern that has setup.  In 1999, the C pattern set up with an initial peak, followed by minor downside rotation – just like in January 2018. The second peak was higher, followed by a much deeper downside price rotation – just like in Nov/Dec 2018.  And the final rally broke upward after a Pennant/Flag formation pushing higher by +25% in 2000.  The current upside breakout from the December 2018 lows suggests a 39.5% price peak – just above our predicted 32% scaled Fibonacci rally expectation.

FIBONACCI PRICE AMPLITUDE TOP LEVEL IS NOT MUCH HIGHER

The total scope of this price move over the past 40+ years is impressive.  These longer-term patterns still drive the markets to establish major peaks and valleys.  Take a look at this chart and try to understand the ratios that are being presented here.  21%, 34%, 50%, 62%, 100% and any combination of these levels using 2x, 3x or any multiplier constitute a Fibonacci structure.  One of the most important facets of attempting to understand the Fibonacci price theory is that the ratios must be somewhat aligned.

Pay attention to the Fibonacci Price Amplitude arcs (the circles) drawn on this chart.  They represent the price range from the peak in 2000 to the low in 2009.  The reason this range is important to our researchers is that it will properly measure the previous upward price rally and the current price rally in terms of price amplitude.  Pay attention to how the current price rally stalled and rotated near these arcs.  We believe the upper GREEN arc level will operate as major resistance for the markets – possibly setting up another “rollover” type of top similar to the one in 1999~2000.

Skilled technical traders still need to be cautious headed into 2020.  The current rally, and most of 2018 and 2019, have been setting up a very serious type of pre-top setup.  Any downside rotation in early 2020 may attempt to move lower in multiple waves – possibly spanning multiple years.

Currently, our research suggests a limited 2.5% upside price range before the SP500 will reach the GREEN resistance arc.  The US markets may reach this level before the end of 2019 and may begin a topping pattern before you finish reading this article.  Please stay informed and understand the structures, trends, and dynamics that are at play in these markets to attempt to reduce your risk.  Now is the time to trim your equity/stock positions and prepare for a much bigger swing in price/volatility.

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.

We’ll keep you informed as this plays out with Wealth Building & Global Financial Reset Newsletter if you like what I offer, join me with the 1 or 2-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Now and Get a Free 1oz Silver Round or Gold Bar Shipped To You!

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