Archive for category: $SPY

Taking into account the Fed comments from last week, recently one of our technical analysts forecasted a correct S&P Index price range of $4348 to $4261. The market has since corrected to that level and is now bouncing.

With that said, investors have been panicking with the SPY ETF having an average outflow of more than $1 billion per day over the past ten days.

S&P 500 Index Panic Selling Wave – Daily Chart

Nasdaq Analysis Shows 30% of Stocks Trading At 52-Week Lows

Over the past twenty-five years, you can see the new 52-week lows on the Nasdaq. This may look like a buy signal and quick spike on the chart, but remember, the chart below is a condensed 25-year view. Some of these spikes can last several weeks, and the stock market can keep falling.

From a technical standpoint, stocks, in general, are oversold and are starting to bounce. The question we are all asking ourselves:

“Is this a bounce before lower prices, or the start of a rally?”

Only time will tell, so we wait, watch, and analyze what the market internals and money flow tell us. Over time we will know better and have a new confirmed trend to trade.

U.S. Treasury yields rose as the FED issued its update

FED Chair Powell confirmed last Wednesday that it’s on track to raise interest rates. This dialogue continues to increase risks that will impact the US stock market. In the month of March rate hikes will be implemented.

The FED has stepped in to save falling markets in the past, but this time will be different?

The FEDS rate hikes will play their own part in reducing economic growth. This year, it does not need to be catastrophic to the stock market’s performance.

Energy stocks spent the decade of 2010 to 2020 mired in weakness, but that trend is coming to an end. Crude oil has reached a seven-year high. Russia and COVID pressuring global oil supplies is one main reason why this is occurring.

What to buy in a post-interest rate hike world?

Regardless of how many times the central bank hikes rates in 2022, there are places, stocks, and sectors from which you will be able to keep profiting. Inflation is part of the reason rates are rising in the first place. Also, the indices have prepared for higher interest rates soon. It’s possible that it may have already been priced into the market.

Trader Tip – What Stocks to Buy Next?

The expensive growth technology stocks are hit disproportionately hard by rising interest rates. Their business models are trading profitability for the promise of higher profits tomorrow. These higher interest rates reduce the present-day value of those future profits.

On the other hand, value stocks tend to outperform in a rising-rate environment – especially if economic growth is on the rise. The FED plans to complete its bond-buying program in March and to let bonds mature as a preferred method of reducing its balance sheet over time. The timing and pace of balance sheet reduction were not explicit in their speech.

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Bank stocks also perform favorably in times of rising hikes. Rate hikes are particularly positive for the financial sector. So, the new trend to benefit from is from value stocks once the stock market turns favorable again to own equities.

Sentiment Reaches Severe Bearish Level

The chart below is the AAII Sentiment Survey. It reflects market participants are now extremely negative (bearish), the highest in 16-months. Similarly, bullish sentiment fell to an 18-month low. This widely followed measure of the mood of individual investors is an interesting contrarian indicator that suggests we may be closing into the end of the current market correction.

Concluding Thoughts:

The analysis of the broad stock market shows signs of instability and weakness from a long-term investor’s point of view. The near term indicates a short-term bottom has been put in place, and higher prices are likely over the next week or two.

What Trading Strategies Will Help You To Navigate Current Market Trends?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com 

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

The recent Fed comments should have helped settle the global market expectations related to if and when the Fed will start raising rates and/or taking further steps to curb inflation trends. Additionally, the Fed has been telegraphing its intentions very clearly over the past few months, providing ample time for traders and investors to alter their approach to pending monetary tightening actions. Read the full Fed Statement here.

In my opinion, foreign markets are more likely to see increased risks and declining price trends for two reasons. First, at-risk nations/borrowers struggle to reduce debt levels. Second, foreign market traders/investors struggle to adapt to the transition away from speculative “growth” trends. I think the US Dollar may continue to show strength over the next 4+ months as the foreign traders pile into US economic strength while the Fed initiates their tightening actions. So it makes sense to me that global markets would recoil from Fed tightening while debt-heavy corporations/nations seek relief from rising debt obligations.

Foreign Markets Struggle For Support Before US Fed Monetary Tightening

In a continuing downward slide, global market equity indexes continue to move lower after the US Fed comments this week. In this article, I wrote about this dynamic on August 3, 2021: US Markets Stall Near End Of July As Global Markets Retreat – Are We Ready For An August Surprise? At that time, I suggested the US markets were stalling while the global markets continued to decline.

Now, nearly five months later, we’ve seen the US market trend moderately higher, attempting to struggle to new highs and exhibit deep downward price trends, while the global markets have continued to trend lower. As we move closer to the US Fed pushing interest rates higher, I expect these trends to become even more volatile and pronounced.

US Equities May Find Support After The Fed Raises Rates

The current dynamic in the global markets is that capital is seeking investments where safety and profitable returns dominate over risks. As the global markets transition ahead of the Fed rate increases, I believe the US markets will continue to dominate global assets in opportunities, safety, and returns. Once the Fed starts to raise interest rates, a brief period of volatility throughout the global markets may occur. Still, that volatility should quickly settle as traders chase a stronger US Dollar, US Dollar-based Dividends, and a potential “melt-up” of the US Equity market (particularly the Dow Jones, S&P500, and possibly the Russell 2000).

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Unless the US Fed takes very aggressive action in raising rates too quickly, I believe, at least initially, the US equity markets will continue to benefit from perceived strengths compared to many global equities/indexes.

This means there will be many opportunities for traders and investors in 2022 and 2023 – we have to be patient in waiting for the chance to profit from these big trends. Jumping ahead of this volatility could be dangerous if you are on the wrong side of the price trend. Instead, wait for the right opportunities while you protect your capital from extreme risks. Let the markets tell you when opportunities are perfect – don’t try to force a trade to happen.

On December 28, 2021, I published this research article showing how my Adaptive Dynamic Learning (ADL) Predictive Modeling system expects price to trend in 2022 and early 2023: Predictive Modeling Suggests 710 Rally In SPY And QQQ Before April 2022. I strongly suggest taking a look at the recent downside price trends in relation to the lower range of the ADL Predictive Modeling expectations. If my ADL Predictive Modeling system is accurate, we may see a relatively strong recovery in the US stock market throughout the rest of 2022 and beyond.

Strategies To Help You Protect And Grow Your Wealth

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com 

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Many companies regularly distribute a portion of their profits in the form of a dividend to attract investors and incentivize them to remain long-term shareholders. But most companies, ETFs, and commodities don’t pay a dividend at all. When there’s no dividend, the only opportunity for income or a profit comes from a capital gain (or loss) from selling the position.

Wouldn’t it be nice to get regular payouts from “no dividend” investments? As a dividend, these payouts could be used for income. Or, if left invested, our cost-basis could be further reduced with every payout.

A Commodity ETF Example

While the strategy presented here can work on any stock or ETF that has options, it works best with relatively lower-priced products under about $25. A commodity ETF such as SLV – currently trading around $22 a share — is an ideal candidate.

Like gold, silver has historically been used as a physical store of wealth and a hedge against inflation. But long-term charts on gold and silver show that these products often go sideways for a long time before having a significant move. Historically such investments have required buying, holding, and waiting – sometimes for a very long time.

One way to compensate for the lack of a dividend on silver is to purchase shares of SLV and write Call options against those shares.  This is a relatively simple options strategy of writing “Covered Calls”.   

Two Ways to Open the Trade

We want to buy low and sell high by purchasing shares on weakness and selling Calls on strength. We can also sell Puts on weakness as an alternative to purchasing shares. The Profit and Loss graph of selling a Put is the same as for selling a Covered Call.

If we sell Puts, we’ll likely have shares “Put” to us at some point and will then own the shares at the strike price we sold minus the premiums collected. Having shares put to us at a reduced cost basis is part of the plan. When we sell an Out-of-the-Money (OTM) Put, we’re methodically nudging the statistics in our favor by “buying low” when there is a pull-back in the underlying. We can alternately think of selling a Put as a Limit Order to buy shares with the limit price equal to the strike price we sold.

When shares are “Put” to us, we then sell Calls against the shares we now own. And the cost (or basis) of the shares we purchased will have been reduced by the cumulative option premium collected by selling Puts.

Trade Management

We may not have a great opportunity to sell option premium in every possible cycle. There will likely be times where the underlying will be in a pullback, and we may want to wait for the price to recover before selling Calls. Actual expiration cycle outcomes are likely to be a mix of having Calls expire worthless in some cycles and having shares called away in other cycles.

Writing Covered Calls is a relatively low-maintenance strategy that doesn’t have to be watched continuously. Once we write Calls, the shares will either be called away or not. But we do have to be patient and let time decay in the options we sold work for us.

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If the Calls we sold expire worthless, we still own the shares. In this case, we sell Calls again for some future expiration cycle and collect more option premium.

If our Calls expire In-the-Money (ITM), the Calls will be exercised, and the shares will be called away. The shares are purchased by our counterparty at the strike price we sold, and we no longer own the shares. As the Call seller, we keep the premium and any gain on the shares. In this case, we start the process again by buying shares or selling Puts.

Upside and Downside Risks

Writing Covered Calls (and selling Puts) is a neutral to bullish strategy. There can be sustained downtrends, price shocks, and changes in volatility that can affect strategy performance. As with any strategy, it’s important to ask and understand “What could possibly go wrong?” before getting involved.

There’s always a tradeoff when selling Covered Calls. In exchange for collecting option premium, profit is limited to the amount of premium collected plus any appreciation in shares up to the strike price. For that reason, I tend to sell Out-of-the-Money (OTM) Calls.

Keeping probability in our favor and letting time decay work for us are benefits of selling a Covered Call (or Put). As option sellers, we don’t need large up moves to make a profit. We have the statistical odds in our favor and option time decay working for us. The underlying share price can go up, sideways, or even down a bit, and we can still profit. The “Synthetic Dividend” is one of my favorite ways to generate repeatable profits.

What Else Is There To Know About Options Trading?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.   

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to subscribe, click here:  TheTechnicalTraders.com.

Enjoy your day!

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com

The timing of the super-cycle in commodities and the incredible speculative rally in the US & Global markets over the past 4+ years is hard to ignore. Even though these rallies are exciting and profitable when everything seems to be skyrocketing, traders need to continue focusing on the broader market cycles.

The next 5+ years could be very interesting for global traders and investors. Not only are major cycles aligning to present a potentially large global market price rotation, but global central banks have also played a major role in supercharging the speculative bobble phase of nearly all global assets over the past 10+ years. These events are unique because the planet has not seen anything like this in more than 85+ years.

Today, we will explore how these cycles align and how traders should prepare to profit from the potentially broad market cycles over the next 10+ years.

Follow Consumers When Attempting To Understand Market Psychology

Consumer and trader psychology plays a massive role in the speed and amplitude of these major market cycles. Optimism drives significant risk-taking and the desire to share in the profit-taking of major market rallies. Fear and uncertainty usually shock people into a period of inaction—panic and pessimism shift traders into a process of protectionism and a move to safety.

We are currently still in the Euphoria Phase of the market trend. We are starting to see some fear and uncertainty move into trader psychology, but we have not yet seen a roll-over in price to qualify as the Complacency Phase. What this means is that we may still have more opportunities for a continued price rally soon.

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I’ve often shared my belief that people need to be keenly aware of their surroundings and what is happening worldwide. Simply paying attention to how friends spend their time and money and how businesses are operating can lead to a better understanding of the local economy. For example, watching to see if commercial properties are suddenly filling with new shops or becoming vacant at a faster pace can tell you quite a bit about the local and regional economy.

Open your eyes and talk to people around your home town. Please pay attention to the global economic factors and ask questions about how people feel or how their business is doing. Sometimes, it is really that simple.

The 9~10 Year Appreciation/Depreciation Cycle Phase – And The Excess Transition Phase

I remember how the economy shifted before the DOT COM bubble burst and ahead of the 2008-09 housing market crash. Suddenly, the local economy and psychology shifted from optimism into fear, shock, and uncertainty. Many people I talked to were not aware of the broad market cycles that continue to drive market sentiment, but they were aware of the potential crisis that was building around them.

My research into various cycle phases suggests that a 9~10 year Appreciation/Depreciation cycle may be a key factor in understanding various cycle trends and lengths. I’ve also identified an 18 to 30-month transitional phase, which I call the “Excess Phase,” that takes place near the beginning of new Appreciation/Depreciation cycle phases.

The major Appreciation/Depreciation cycle phase usually drives price advance or decline periods. The Excess Phase, the transitional 18 to 30 month period when one cycle ends and another begins, usually reflects a very opportunistic and profitable extreme cycle process. This is often when extreme volatility in market trends can produce very large price trends and sudden price rotations.

Global Market May Shift Into The Depreciation Cycle Suddenly In The Future

Shortly after the COVID-19 crisis in February 2020, I published an article related to the expectations of a “transitory inflation” trend. My research suggested the US markets would rally after the COVID-19 bottom, then peak and roll over into a diminishing cycle amplitude-phase – possibly lasting many years.

Although my research suggested this peak in cycle amplitude was likely in early 2021, it appears the markets pushed the expansion cycle phase higher throughout most of 2021 and suddenly shifted expectations near the end of 2021. Now, in early 2022, it appears we are shifting direction much faster than many traders expected. Yet, I will warn you that we have not broken into a broad market downtrend at this time. Instead, we still see the initial shift away from the Euphoria phase (possibly).

I’ve shared many articles on the shifting global market cycles and how they would create incredible opportunities for traders over the next 10+ years. Let’s take a minute to review these past research articles:

• July 29, 2021: THE INADVERTENT DEBT INFLATION TRAP – IS IT TIME TO FACE THE MUSIC?
• June 15, 2021: WHAT DOES THE FED MEAN BY “TRANSITORY INFLATION” AND WHY IS IT IMPORTANT TO UNDERSTAND?
• December 15, 2020: LONG TERM GOLD US DOLLAR CYCLES SHOW BIG TRENDS FOR METALS – PART 2

25+ Months Into An Excess Phase – What Next?

Currently, we’re starting to see some shock in the markets, with the US major indexes rolling downward after the US Fed indicated tightening and rate increases are likely in 2022. My research suggested the transition from an Appreciation cycle into a Depreciation cycle took place in December 2019 – nearly 25 months ago. Additionally, over the past 25+ months, the market trends have resulted in a massive Excess Phase rally – likely prompted by the COVID crisis and a huge speculative wave by consumers/investors. What next?

At this point, it is a little too early to determine if this is a market peak or if the US markets continue to rally higher – attempting to establish a new higher peak in this Excess Phase Rally. Yet, one thing is certain; we are starting to see some real fear in consumers and traders due to the diminishing expectations related to the US Economic growth rates and the US Fed.

Traders should keep these broad market cycles near the front of their thinking as they attempt to navigate the trends over the next 12+ months. I believe 2022 could see another rally higher, possibly resulting in the SPY moving above $500 before finally reaching a peak price level. After that peak is reached, I believe the US market will roll over into the Complacency phase and transition into the Anxiety/Denial phase fairly quickly.

How To Position Yourself For What May Come

These huge market cycle phases and trends will present incredible opportunities for traders. Learning how to prepare for these big cycle phases and profit from them should be near the top of the list for anyone with money in the markets right now. In my opinion, waiting to prepare for these shifting trends only creates great risks for investors/traders as the Excess Phase Peak appears to be nearing an end.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com 

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com