IMPORTANT:
1. Make sure to have 24-hour trading showing so you see pre and post-market trading.
2. Be sure to turn off any price spike filters, you want to see these random price spikes
3. Some data feeds filter out random spikes
The future looks bleak for stocks and not just the US market, I’m talking about global markets are poised to enter bear markets which we have seen already started to see. Subscribers and I have been short the Japan and China market for several months and these two markets have dropped dramatically already and the bear market has not even started yet!
Just take a look at the chart below which shows the declining GDP in January. Real GDP is down the trend it’s not going to stop for a long time yet. The economic outlook appears dismal in the upcoming financial quarters and is likely part of the reason stocks have crashed in January.
After the highly anticipated rate hike in December market participants have toned down their expectation of another FED rate hike in the near future. I believe that instead of another rate increase, the FED will start thinking about back-peddling to correct their mistake of raising rates that definitely has created a reason to sell stocks. They did this during a time when the economy was and still is very “fragile”.
If you look back in history you will see clearly that the FED has the tendency to raise rates just before major corrections in the stock market. Or better said, they start to raise rates when the economy is still too fragile and they trigger the selloff in stocks.
John Williams, San Francisco FED President, said, “We got it wrong” referencing the earlier statement by FED officials regarding crude oil prices being good for the economy.
This graph clearly shows how the US FED, the ECB, the Bank of Japan, People’s Bank of China, the Bank of England and many other nations, have been implemented an easy monetary policy at the same time as the FED.
Remember all markets are linked so when one has an issue so to the others. In 2008/09 it was not just the USA having financial issues, it was a global issue and many countries started easy money policies to help their economy stabilize. It just some counties have different ways of doing things and many don’t openly share what they are doing as they don’t want to show signs of weakness.
World GDP continues to decline even with global efforts of many countries trying to help boost the economy. The world is struggling and is going into “economic contraction” which could plague us for many years. China slow growth trajectory is likely to continue and the US forecasts are also pointing to slowing growth. The odds favor that the growth in 2016 will be much lower than what has been currently reported.
Look at the graph below to see the global GDP line falling.
In short, all this negative talk about the world economy is depressing and not what we all want to hear, see, and worse – live through.
Let me mention that for every negative there can be a positive outcome. And this this case, when the stock markets crumbles and the economy falls into the gutter there is a way you can profit from the event. In fact, when the market crashed in 2008 many of us made a fortune from the falling stock prices and weak economy.
In my next article I will share how I made a couple million dollars from my computer during a time when 95% of individuals lost half of their life savings and their homes. But you must optin to my free newsletter at www.GoldAndOilGuy.com to receive this special report!
Chris Vermreulen
Stocks around the globe were pummeled again last week.
This is no surprise to our subscribers as our predictive trend analytics model gave us clear technical evidence that important multi-year highs had completed back in the middle of 2015.
I continue to remain steadfastly bearish in my outlook for stocks.
Last Friday, January 15, 2016, the SPX broke below its Aug. 24, 2015 low, which is equivalent to a major sell signal if price closes the month below that level.
Last week, The Dow Jones Industrial Average slumped 511 points, or 3.1%, to 15,866, while the S&P 500 slid 64 points, or 3.4%, to 1,856.34, led by the financials, technology and energy sectors. The Nasdaq Composite tumbled 190 points, or 4.1%, to 4,424.35.
Subscribers and I managed to catch a 33% quick intra-week bounce trading the SSO ETF and then got out of harm’s way as volatility took hold once again.
European stocks were unable to escape the downward trend from other markets, and the Stoxx Europe 600 index lost 2.8%. The dollar fell to a one-year low vs. the yen. Gold rose $22.40, or 2.1%, to $1,096.20 an ounce.
The SPX is currently testing major support. This is consistent with a “cycle low” that arrived over the weekend. Even though we are in a bear market, we should expect a “Bear Market Rally” sucking every last investor into long positions, before dropping much lower through previous support areas. This will be a very “short term bottom” this week.
We are in a long term downtrend now; it is not a “hiccup” as we experienced back in 2012.
If the stock market is going to stage a rally from here, this is a good time to start, right when everyone is jumping off the ship and the sentiment is so extremely negative. Just to give you a feel for the level of panic selling on Friday, my panic selling indicator which tells us when short term bottoms are likely to happen as everyone is running for the door, this contrarian indicator spiked to 50. Now any reading over 3 is panic in the market, and a reading of 9-18 is typically a multi week low. So you can see how 50 is VERY extreme.
Because we are entering a bear market and institutions will be unloading shares area record pace going forward, I feel this extreme level of panic selling (50) is only going to trigger a bounce lasting a week or so, then more distribution selling will take hold.
A slew of disappointing U.S. data shows that manufacturing and consumer spending are in trouble. Empire State factory index declined sharply this month to its lowest level since the recession. Retail sales declined by 0.1% in December 2015 and a report on industrial production compiled showed that activity declined for the third straight month.
The New Year is not off to good start. In fact, it may be the worst start ever of a New Year in many world stock indices. Instead off irrational exuberance that had previously been so evident, investors of world equity markets are clearly starting to panic.
We all know things are not right. We know it hasn’t been okay since the 2008 financial crisis. The effort by the central banks to get over the hump has fueled an “Asset Bubble” in the stock markets.
This in turn should start to fuel safe haven buying in gold. Gold’s day in the sun is soon approaching. I believe this new year will prove to be a pivotal year for gold, silver and miners.
The “talking heads” tell us that the stock market is falling because energy prices are falling. We need higher energy (gasoline) prices. Really? They claim that energy companies are going out of business and that tens of thousands of people will lose jobs and unemployment will rise. Really? Didn’t the jobs numbers show hundreds of thousands of people getting new jobs – in fields outside of energy? Who are you going to believe?
This week I posted an exciting video show you how to make a fortune during this pending bear market and exactly how I did this in 2008 – 2012 to become financially free before I turned 30 years of age – WATCH HERE. Stay tuned and be sure to opt into my free email list if you want to see this exciting, inspiring and educational video!
Visit: www.GoldAndOilGuy.com
Chris Vermeulen
Instead of talking about the all the manufactured strong earning numbers created by share buyback programs, sales being way down for most companies, shipping companies struggling for products to ship, and products and service prices being reduced to help generate sales (deflation), let me share with you some monthly charts that I think paint a simple and clear picture of what is happing in the US stock market.
See Stock Charts: http://www.gold-eagle.com/article/these-monthly-stock-charts-say-it-all
If you didn’t read my post from last night that showed you why the stock market was going to drop Thursday morning to make a new low then reverse and rally read this really short post and see the charts: http://www.gold-eagle.com/article/when-and-what-do-next-%E2%80%93-djia-spx
Wednesday Jan 13th was a wild session for US equities and many great trading opportunities are about to take place in various indexes, sectors and commodities.
Let me share with you two intraday updates I sent to subscribers during the trading session so you can get a feel for how technical analysis can assist us in timing and trading the market.
SEE FULL ANALYSIS & CHARTS: http://www.gold-eagle.com/article/when-and-what-do-next-%E2%80%93-djia-spx
How to make money during falling equity markets and where to make money next…
LISTEN TO LIVE ANALYSIS: CLICK HERE
Chris Vermeulen
This coming New Year of 2016 is the year of the Monkey, according to the Chinese calendar. Will this cause wild gyrations in the Chinese and World stock markets, which are symbolized by the volatile nature of the Monkey? Many do not believe that China can derail the world economy, however, but here I explain why they are missing the point. Directly or indirectly, China’s slowdown will definitely lead to a global meltdown.
READ REPORT: http://www.gold-eagle.com/article/why-china-will-bring-down-world-markets
About eighteen months ago the international price of WTI Crude Oil, at the close of June 2014, was $105.93 per barrel. Flash-forward to today; the price of WTI Crude Oil was just holding above $38.00 per barrel, a drastic fall of more than 65% since June 2014. I will point out several reasons behind this sharp, sudden, and what now seems to be prolonged slump.
Despite a combination of factors triggering the fall in prices, the biggest push came from the U.S. Shale producers. From 2010 to 2014, oil production in the U.S. increased from 5,482,000 bpd to 8,663,000 (a 58% increase), making the U.S. the third largest oil-producing country in the world.
The next big push came from Iraq whose production increased from 2,358,000 bpd in 2010 to 3,111,000 bpd in 2014 (a 32% increase), mostly resulting from the revival of its post-war oil industry.
The country-wide financial crunch, and the need for the government to increasingly export more to pay foreign companies for their production contracts and continue the fight against militants in the country took production levels to the full of its current capacity.
In addition; global demand remained flat, growing at just 1.1% and even declining for some regions during 2014. Demand for oil in the U.S. grew just 0.6% against production growth of 16% during 2014.
Europe registered extremely slow growth in demand, and Asia was plagued by a slowdown in China which registered the lowest growth in its demand for oil in the last five years. Consequently, a global surplus was created courtesy of excess supply and lack of demand, with the U.S. and Iraq contributing to it the most.
In response to the falling prices, OPEC members met in the November of 2014, in Vienna, to discuss the strategy forward. Advocated by Saudi Arabia, the most influential member of the cartel, along with support from other GCC countries in the OPEC, the cartel reluctantly agreed to maintain its current production levels.
This sent WTI Crude Oil and Brent Oil prices below $70, much to the annoyance of Russia (non-OPEC), Nigeria and Venezuela, who desperately needed oil close to $90 to meet their then economic goals.
For Saudi Arabia, the strategy was to leverage their low-cost of production advantage in the market and send prices falling beyond such levels so that high-cost competitors (U.S. Shale producers are the highest cost producers in the market) are driven out and the market defines a higher equilibrium price from the resulting correction. The GCC region, with a combined $2.5 trillion in exchange reserves, braced itself for lower prices, even to the levels of $20 per barrel.
By the end of September 2014, according to data from Baker Hughes, U.S. Shale rigs registered their highest number in as many years at 1,931. However, they also registered their very first decline to 1,917 at the end of November 2014, following OPEC’s first meeting after price falls and its decision to maintain production levels. By June 2015, in time for the next OPEC meeting, U.S. Shale rigs had already declined to just 875 by the end of May; a 54% decline.
The Saudi Arabia strategy was spot on; a classic real-life example of predatory price tactics being used by a market leader, showing its dominant power in the form of deep foreign-exchange pockets and the low costs of production. Furthermore, on the week ending on the date of the most recent OPEC meeting held on December 4th, 2015, the U.S. rig count was down even more to only 737; a 62% decline. Despite increased pressure from the likes of Venezuela, the GCC lobby was able to ensure that production levels were maintained for the foreseeable future.
Moving forward; the U.S. production will decline by 600,000 bpd, according to a forecast by the International Energy Agency. Furthermore, news from Iraq is that its production will also decline in 2016 as the battle with militants gets more expensive and foreign companies like British Petroleum have already cut operational budgets for next year, hinting production slowdowns. A few companies in the Kurdish region have even shut down all production, owing to outstanding dues on their contracts with the government.
Hence, for the coming year, global oil supply is very much likely to be curtailed. However, Iran’s recent disclosure of ambitions to double its output once sanctions are lifted next year, and call for $30 billion in investment in its oil and gas industry, is very much likely to spoil any case for a significant price rebound.
The same also led Saudi Arabia and its GCC partners to turn down any requests from other less-economically strong members of OPEC to cut production, in their December 2015, meeting. Under the current scenarios members like Venezuela, Algeria and Nigeria, given their dependence on oil revenues to run their economies, cannot afford to cut their own production but, as members of the cartel, can plea to cut its production share to make room for price improvements, which they can benefit from i.e. forego its market share.
With news coming from Iran, and the successful delivery of a knockout punch to a six-year shale boom in the U.S., Saudi Arabia feared it would lose share to Iran if it cut its own production. Oil prices will be influenced increasingly by the political scuffles betweenSaudi Arabia and its allies and Iran. The deadlock and increased uncertainty over Saudi Arabia and Iran’s ties have sent prices plunging further. The Global Hedge Fund industry is increasing its short position for the short-term, which stood at 154 million barrels on November 17th, 2015, when prices hit $40 per barrel; all of this indicating a prolonged bear market for oil.
One important factor that needs to be discussed is the $1+ trillions of junk bonds holding up the shale and other marginal producers. As you know, that has been teetering and looked like a crash not long ago. The pressure is still there. As the shale becomes more impaired, the probability of a high-yield market crash looks very high. If that market crashes, what happens to oil? Wouldn’t there be feedback effects between the oil and the crashing junk market, with a final sudden shutdown of marginal production? Could this be the catalyst for a quick reversal of oil price?
The strategic interests, primarily of the U.S. and Saudi Arabia; the Saudis have strategically decided to go all in to maintain their market share by maximizing oil production, even though the effect on prices is to drive them down even further. In the near term, they have substantial reserves to cover any budget shortfalls due to low prices. More importantly, in the intermediate term, they want to force marginal producers out of business and damage Iran’s hopes of reaping a windfall due to the lifting of sanctions. This is something they have in common with the strategic interests of the U.S. which also include damaging the capabilities of Russia and ISIS. It’s certainly complicated sorting out the projected knock-on effects, but no doubt they are there and very important.
Moreover, despite a more than 50% decline in its oil revenues, the International Monetary Fund has maintained Saudi Arabia’s economy to grow at 3.5% for 2015, buoyed by increasing government spending and oil production. According to data by Deutsche Bank and IMF; in order to balance its fiscal books, Saudi Arabia needs an oil price of $105. But the petroleum sector only accounts for 45% of its GDP, and as of June 2015, according to the Saudi Arabian Monetary Agency, the country had combined foreign reserves of $650 billion. The only challenge for Saudi Arabia is to introduce slight taxes to balance its fiscal books. As for the balance of payments deficit; the country has asserted its will to depend on its reserves for the foreseeable future.
The above are some of the advantages which only Saudi Arabia and a couple of other GCC members in the OPEC enjoy, which will help them sustain their strategy even beyond 2016 if required. But I believe it won’t take that long. International pressure from other OPEC members, and even the global oil corporations’ lobby will push leaders on both sides to negotiate a deal to streamline prices.
With the U.S. players more or less out by the end of 2016, the OPEC will be in more control of price fluctuations and, therefore, in light of any deal between Iran and Saudi Arabia (both OPEC members) and even Russia (non-OPEC), will alter global supply for prices to rebound, thus controlling prices again.
What we see now in oil price manipulation is just the mid-way point. Lots of opportunity in oil and oil related companies will slowly start to present themselves over the next year which I will share my trades and long term investment pays with subscribers of my newsletter at TheGoldAndOilGuy.com
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Chris Vermeulen