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Adaptive Price Modeling Suggests Big Rotation In US Dow Stocks

I have been pouring over the longer term charts as we’ve started to see Oil and Gold move in directions that would indicate increased fear throughout the global markets while a contraction in economic activity/oil prices appears to be setting up for another big move.  The objective is to attempt to identify longer-term volatility expectations and price targets.  To accomplish this task, we use our Adaptive Fibonacci predictive modeling utility on 3 Week charts because they provide a unique look at price activity and are a bit more reactive to shorter-term price activity than Monthly price bars.

We found some very interesting components by reviewing these charts of the ES, NQ, YM, and CL.  We believe we are setting up a 2~4+ week sideways price rotation in the US stock market as price attempts to consolidate within this range before a broader breakout/breakdown move could happen.  Just as we predicted many months ago, the July 2019 price peak we suggested could form appears to be setting up with a sideways pennant/flag formation as investors digest the economic and global trade war news data.

Eventually, the price will make a move in an attempt to break this sideways price channel and our predictive modeling solutions can help us to understand how these price setups will playing out.  Let’s get into the charts and research.

As we start to pull apart the data from these charts, we urge you to pay attention to two things – the range of the current Bullish & Bearish Fibonacci Price Trigger levels and current price rotations of price peaks and troughs over the past 40 to 60 bars.  It is very important to understand and attempt to use the “new price high” and “new price low” Fibonacci price theory that we keep talking about in our articles.

This first chart is the ES 3-Week chart highlighting the range between the Fibonacci Bullish and Bearish Price Trigger Levels (highlighted in light-CYAN).  It is important to understand why the current bearish price trigger level is so far below current price levels.  The Adaptive Fibonacci modeling system adjusts trigger levels based on recent price activity and price volatility to attempt to identify when the price is congesting in a sideways price trend or trending upward or downward.  When price congests in a sideways form, the Adaptive Fibonacci modeling tool identifies this and determines that price would need to move to new levels in order to qualify for a new bullish or bearish price trigger.  In this case, it is suggesting that price would need to fall below $2014 before this 3-Week chart would qualify the move as a “new bearish trend”.

That is a big move from current levels.  It totals more than -750 points – a -27.5% price decline.

Currently, as long as the ES price stays above the $2633 level, the Fibonacci predictive modeling system is still suggesting the Bullish trend is intact and should continue.

 

This NQ 3-Week chart is setup in a similar manner to the ES chart. Although the Fibonacci volatility range on the NQ chart is much more narrow than the ES chart, the Fibonacci modeling system is still suggesting that the current trend is still Bullish and the key levels for the triggers are $6792 for the Bearish Trigger level and $6556 for the Bullish Trigger level.

Because of the narrow volatility range and because the Bearish trigger level is above the Bullish trigger level, we believe a price rotation where the price stays above $6800 is very likely over the next few weeks.  Obviously, should price break below the Bearish Trigger level, then we would begin to become concerned that a broader downside trend is being established and start to look at the Fibonacci downside price targets (near $5815 & $3900).  Until that happens, expect sideways price rotation with a 250 to 500 point range on average (about 2x the Fibonacci volatility range).

 

The YM is really the key to understanding just how the markets are going to play out over the next few weeks and months.  The extremely large Fibonacci volatility range on the YM chart highlights the potential for the wild sideways price rotation that we are expecting over the next few weeks and months.  Remember, our analysis from many months ago suggests a price peak will likely form in July/August 2019 and prompt a broader downside price move after this peak completes.  Our expectation that a current sideways price channel is setting up leads us to believe the apex of this sideways price channel may result in a very brief price rally (pushing prices back towards recent highs) before rolling over and starting a new downside price move to coincide with our July/Aug 2019 predictions.

One way or another, it appears the DOW/YM will be leading the way in terms of price volatility and rotation.  The wide range between the Bullish and Bearish Fibonacci Price Trigger Levels is suggesting that price volatility is increasing and that the YM would have to move to levels above $29,750 or to levels below $18,875 before establishing any new price trends.  The past Fibonacci trigger levels help us to understand key price levels as this future move takes place.

Past Fibonacci Trigger Price levels are $26,025 for a Bearish Price Trigger level and $24,770 for a Bullish Price Trigger Level.  This means if the price is below $26,025 – we should expect a bearish price trend to continue and if the price is above $24,770 – we should expect a bullish price trend to continue.  Yet, price is current BETWEEN both of these levels, so what should we expect right now?  When the price is in between these levels, like now, we typically look for the last price rotation (peak or valley) and for the last level that was crossed (in this case the $26,025 Bearish level) and would conclude:

The trend is currently Bearish and the $26,025 level is key to maintaining this bearish price direction.  Should price move back above this level and close above this Bearish Price Trigger Level, then we would consider the trend “moderately bullish” while we wait for a new Price Trigger Level Breach to setup.

 

Lastly, Crude Oil.  We’ve been writing to all of our followers that we felt Oil was setting up for a price rotation many weeks ago.  We warned that the $65 price level may be the end of the move and that the $55 to $50 levels are the likely downside targets.  The volatility range is somewhat narrow and the last Trigger Level that was breached was the Bearish Trigger Level near $68.75. Therefore, we believe the recent downside price move, below the $60 Bullish Trigger level, results in a new Bearish price trend with immediate targets near or below $50.  Ultimately, the $42.40 level may be the longer term downside price target – which would coincide with a broader commodities slowdown and global economic activity contraction.

 

So here is what you need to know to go into this weekend and for the next 4+ weeks.

Expect the US stock market to trade in a moderately volatile sideways price channel for the next 4+ weeks.

Expect the end of this price channel to result in a “false rally” move that may push prices towards recent highs before faltering and rotating back to the downside.

Expect this END of the sideways price channel to happen sometime near mid-July or early August 2019.

Expect Gold and Oil to continue to react as “fear measures” over the next few weeks/months as global traders reposition their assets throughout this rotation.

Expect a bigger price move near late July through September~October 2019 as this volatility move really begins to take root with equities.

Follow our research and learn how we can help you stay well ahead of these price moves.  We’ve just highlighted what is likely to happen over the next 30 to 60 days in this research post.  Want to know how we are going to trade these moves?  Join our other members to see how we create success and keep our members ahead of these big moves. Also, if you wanted me to ship you free silver rounds with a subscription to this Wealth Trading Newsletter you better join today as this offer expires June 1st.

Chris Vermeulen
www.TheTechnicalTraders.com

Oil, Hot Stocks, and Currencies – Part III

In our continued effort to help skilled traders/investors understand the future risks associated with geopolitical market turmoil, the EU Elections next week and the continued US/China trade war, this Part III of our Sector Rotation article will highlight certain sectors that we believe may continue to perform over the next 12 to 24+ months and help traders/investors survive any extended price volatility/rotation over that same time. Read Part I, and Part II.

Currently, the US stock market has weathered a bit of a jolt in terms of price rotation.  After many stock indexes reached new all-time highs, the news of Iran Oil Sanctions, US/China trade talks failing and the political turmoil in DC as an incredible 2020 US Presidential election cycle heats up, investors are watching the markets for any signs of strength or weakness.  Meanwhile, the US Dollar continues to strengthen against other global currencies in an incredible show of “King Dollar” strength and dominance.  All of this plays into one of our favorite narratives that we started discussing over 30 months ago – the Global Capital Shift.

For those of you who remember our many articles about this global market phenomenon and the root causes of it, we’ll try to keep the following example/explanation of it fairly short.  For those of you that are new to our research, please allow us to try to explain the Capital Shift event and why it is important to understand.

The Capital Shift started after the 2008-09 global credit market collapse.  The US and many other nations created an easy money policy that was designed to spark investment and recovery across the globe.  This easy money, at first, supported failing companies and governments in order to maintain social order and structure.  After that process was completed, this capital went to work investing in under-valued global markets and assets.  As prices continued to rise and the easy money policies became rooted into the social structure, the hunt for greater returns rotated throughout the planet – diving into undervalued markets and opportunities, often with no regard for risk.

After 2014, things began to change in the US and throughout the planet.  The US entered a period of extended sideways trading that caused many investors to reconsider the “buy the dip” mentality.  In 2014-15, China initiated “capital controls” in an effort to prevent outflows of capital from a newly rich population and corporate structure.  Just before 2014, the Emerging Markets went through a period of pricing collapse which was associated with over-inflated expectations and $100+ oil.  All of that started changing in 2014~2016 as Oil prices collapsed – taking with it the expectations and promises of many Emerging Market investors and speculators.

This shifting of capital in search of “returns with a moderate degree of risk” is what we are calling the “Capital Shift Event”.  It is still taking place and it is our opinion that the US stock market will become the central focus of global capital investment over the next 4+ years.  We believe the strength of the US Dollar and the strength of the US Stock Market/US Economy will drive future capital investment into US and other US Associated major markets in an attempt to avoid risks associated with the foreign market and currency market valuations.  In other words, when the crap starts flying across the globe, cash will rush into the US and other safe-haven investments to protect real value.

 

Currently, the potential for another price decline in Crude Oil is rather strong with our research expecting a move back below $55 ppb over the next 4+ months.  We believe a further economic contraction across the globe with a very strong potential for increased price volatility will drive Oil prices back below $55 with a very strong potential for prices to settle near $46~48 before the downward trend is completed.

The potential for some type of price contraction over the next 12+ months will be related to how the global and localized economic concerns play out over the next 24+ months.  Yet, investors can prepare for these extended price rotations now by becoming aware of weakening price trends and the potential that certain sectors will likely be hit harder than others.  For example, the most recent price weakness in the US stock market appears to be focused in certain sectors:

Technology, Semiconductors, Scientific Instruments, Financials, Asset Management, Property Management, Banking (Generally all over the US), Consumer Goods – Electronics, Airlines, Mail Order Services, Industrial Goods, Aerospace/Defense, Farming and Farming Supply, Medical Laboratories, Medical Appliances, Oil & Gas and others.  This type of market contraction is fairly common in an early stage Commodity and Industrial economic slowdown.

 

The sectors that are improving over the past week are : Healthcare, Electric Utilities, Diversified Utilities, Gas Utilities, Consumer Personal Products, Consumer Confectioners, Cigarettes, Entertainment, Beverages and Soft Drinks, Meat Products, Specialty Eateries, REITS (almost all types), Credit Services, Telecom and Telecom/Communication Services.

All of these are protectionist rallies based on the US/China trade war and the market rotation away from Technology/manufacturing growth and into more consumer protectionist spending mode – where the consumer and larger firms focus on core items while expecting a mild recession within the economy.  All of this is very common at this time within the US Presidential Election cycle.  In fact, our researchers have shown that nearly 80% of the time when a major US presidential election is taking place, the US stock markets will decline within the 24 months prior to the election date.

The Monthly S&P heat map is not much different.  It is still showing weakness where we expect and strength in sectors that have been somewhat dormant over the past 4+ years.  The key to success for skilled traders is to be able to play this future price rotation very effectively as the different sectors continue to rotate headed into the 2020 US Presidential Elections and with all of the external foreign market factors taking place.

 

It is quite likely that the US Dollar will continue to push high, possibly well above $102, before finding any real resistance.  It is very likely that most of the US stock market will fair quite well over the next 24+ months – yet we do expect some extended price rotation over this time and we believe Technology, Financials, Real estate, and Industrial/Consumer related stock sectors could take a hit over the next 16 to 24 months.  These rotations are, again, common for this type of US Presidential Election cycle.  Skilled traders are already aware of this cycle and have begun to prepare for this event to unfold.  The unknowns of the current global market is China and the EU at present.

 

And with that last US Dollar chart, there you have it.  Our three-part article about how the Global Capital Shift is about to intensify and continue to drive a US Sector rotation that many traders have failed to consider.  The EU elections, the US/China trade wars, and the US Presidential Election event are all big factors in what we believe will drive in an increased level of uncertainty over the next 16~24 months.  Additionally, we are very concerned that China is very close to experiencing what we are calling a “broken backbone” over the next 12+ months.  We believe the pricing pressures in combination with a slowing economy and a consumer move into a protectionist stance could create a waterfall event in China/Asia.

Our advice for traders is to protect open long positions and to prepare for 16 to 36 months of “repositioning” of the global markets.  The US elections are certain to drive an incredible range of future expectations throughout the world.  Combine that with the EU elections, the BREXIT effort and the continued repositioning of US/China/Foreign market relations and we are setting up for a big shock-wave event in the near future.

Follow our research.  We’ve already mapped out the next 24 to 36 months of market price activity with our proprietary price modeling tools.  We believe we know what will happen over the next 24 to 36 months, we are just waiting for the price to confirm our analysis. Visit www.TheTechnicalTraders.com to learn more.

Chris Vermeulen
Technical Traders Ltd.

 

Prepare For Unknown Price Action As New Highs Are Reached

The ES and NQ are very close to breaking out to new all-time highs this week and possibly over the next few weeks.  The NQ is very close to these new high levels already.  Traders must not take this move for granted as increased volatility and a very real chance for a price correction become even greater once we break into “new high territory”.

This upside move has taken almost 5 months to climb back from the December 2018 lows.  It has been a very dramatic rally to say the least.  We’ve seen dozens of professional analysts suggest the markets would rotate lower all the way up this rally.  It seems as though everyone wanted to be right that the market top in October 2018 was going to be the start of something big.  We were one of the few analysts that called the market accurately.  Our September 17, 2018 analysis called for almost every leg of this price swing over the past 7+ months.  We stuck by our research while others were skeptical and doubting our research.  We stuck to it because we believe in our work and modeling tools.

Now, our modeling tools are suggesting we could be setting up for a pretty big increase in volatility over the next 2~3 months with the potential for bigger price rotation into May/June 2019.  As we are reading our modeling system results, the key elements are that price will achieve new all-time highs, the price will increase in volatility and Gold should begin an upside price move over the next 2~5+ weeks.  The move in Gold suggests one of two things may happen, or both.  The US Dollar may weaken or the US stock market may correct a bit based on some economic event or outside foreign economic event.

Either way, the move in Gold suggests that increased volatility is almost a sure thing over the next 60 to 90 days.  The only reason Gold would rise is if there is some increased fear factor throughout the planet in regards to the protection of assets and fear of some unknown event.  Therefore, if our analysis is correct and Gold does rise as we have indicated, then something is about to create a big increase in volatility.

The key to all of this is that the ES and NQ will move into NEW HIGH territory before this volatility increase begins to become apparent.

This ES Weekly chart shows just how close the ES (S&P500 Futures) are too new all-time highs.  The ES needs to climb another 41 points (+1.41%) before it touches the previous all-time high levels.  That is really only one of two good upside days.  Once it breaks the 2947 level, then the 3000 psychological level becomes a very real target.

 

This NQ Weekly chart shows that the NQ is really just inches away from breaking to new all-time highs.  The NQ only needs to rally 24.50 points (+0.31%) before the 7731 level is breached.  We believe this move will happen very early this week and we could see the NQ push all the way above the 8000 level in short order.  Our Fibonacci price modeling system is suggesting 9130 and 9625 levels may become the ultimate highs – but it is still very early to tell at this stage of our research.

 

Back in July and August 2018, we started warning that the end of 2018 and all of 2019 were going to be very good years for skilled traders.  We’ve seen a nearly 3800+ point price swing in the NQ and a +1200 point price swing in the ES.  Let’s face it, folks, these are very big moves and if you had been capable of trading these moves efficiently, this is the type of price rotation that makes millionaires out of average traders.

Get ready, because the rest of 2019 and almost all of 2020 are going to be just as exciting to trade so be sure to get our trade signals.

We’ll see you on the other side of “new all-time highs” for the US Stock market here soon.

Chris Vermeulen
www.TheTechnicalTraders.com