Why You May Want to Avoid Buying Options This Week

If you do not understand implied volatility and you are buying put or call options or some combination, you have been warned!

The market continues to move very fast, has large swings, and one would think that makes it an excellent time to buy options for huge gains, right? Our Research Team believes that large Volatility swings will be here for a while. Once you understand the significant role Volatility plays in Option Pricing, you may want to avoid this investment construct for some time to come.

The VIX is at an extreme level and has only been over 50 only seven times in the past 25 years based on a daily closing price. It evident the last two trading sessions the investment sentiment has been bearish and option puts make money if price declines, which has been the popular trade of choice until now.

What many options traders do not understand, however, is that the price of options is configured using implied volatility.

The more volatility, the more expensive the options become to factor in the wild swings the underlying security may experience. This is reflected in the price the option trades off to factor in the fear and trepidation.

This can be seen in the substantial premium on top of the intrinsic pricing from the strike price.

Be sure to opt-in to our free market trend signals before closing this page, so you don’t miss our next special report!

For example, bank stocks are usually considered very conservative when implied volatility is under 20. This results in options being priced accordingly.

However, in the last few trading sessions, volatility has jumped, reaching 62 at one point this week already, which is more than 3x what you would want when simply buying options. This is a VERY HIGH RISK and a difficult time to buy options. Unfortunately, this is what most options traders do, they BUY options, and while it may work in most market conditions, this is most likely NOT the time you want to do so until such time Volatility and VIX begin to subside and we do not see that in the near future.

Let me try to explain in the most basic laymen terms because I know 95% of options trades don’t really get this, and it boggles my mind. As you know, or should know, buying options is one of the riskiest and hardest ways to profit from the market, in my opinion (and statistics continue to prove this out as MOST option buyers LOSE money). I traded options years ago and do very little options trading now, though they are still a great way to make money with certain trade setups and in certain market conditions.

OPTIONS RISK #1: TIME DECAY/THETA

In short, trying to time the market with an index, stock, sector, commodity, or currency is hard enough, but when you buy options, you make things a whole lot harder for yourself. Not only do you need to time this almost perfectly so that the underlying asset has time to move, but you need to time it with precision because now the time is your enemy (Theta).

Every day the option contract you bought is going to lose value because you lose time, and there are fewer days left for your asset to move in the direction to make up for the large premium embedded in the option price. Each day this time premium begins to erode. The closer you get to the time expiration, the faster the time premium decays.

OPTIONS RISK #2: IMPLIED VOLATILITY

This is the main issue I want to share and the reason for writing this article for you.

If options are valued in relation to implied volatility (which they are), then when the volatility is above 50 (62 as of Monday, March 9) and the option is worth $1,00.

Here is the issue, even if the price of your asset stays the same, but the fear in the market fades away as it always does from this extreme level, your option value will decline dramatically. I’m just using numbers out of thin air for the example so you can grasp the issues easily.

If implied volatility drops from 62 down to 35, the option contract value will go down with the volatility as well. The $1.00 contract priced with huge volatility could now be worth $0.85 overnight.

If you traded a short-term option contract, then you will also have time decay, and your option would drop even more to say $0.82.

Remember this is the type of price action you will experience and the VIX falling (and fear subsiding) and even if your asset price just stays the same you have the potential for a significant loss and is the reason why buying options during extreme high volatility is not the trade that should be taken.

OPTIONS TRADING TIP

If implied volatility is over 25 then 
it is usually better to be a seller of options, 
if it’s under 25, then its often better to be a buyer.

So what does a trader do? 

We encourage investors to use probabilities to work in your favor!

You could put on debit spreads: This way, some of the volatility is reduced as you sell a put or call, so the volatility premium is now in your favor, and time decay is mitigated.

OR

Sell it to those people that are so sure of this big move!

We have already identified that we are in a period where the VIX in an area very rarely seen. But since the VIX can stay here for a while, a more logical option move may be to sell calls going out into the future. Due to contango, it will retrace back down as the contango effect will begin to change as trader sentiment improves, and fear is reduced.

Credit spreads have so many advantages over simply buying calls and puts

  • Defined risk – Can only lose the difference of your strikes less the premium received.
  • If the trade starts to go against, you have backup options to manage risk.
  • Roll the trade to a future date giving your trade time to work out.
  • Sell another option spread opposite of your existing trade (if a put spread on place a credit call spread, this creates an iron condor) now giving you a larger cushion for the trade to work as you received more premium.
  • Buyback the offending strike at a loss and let the profitable strike run if you feel it has legs.
  • Buy a put to defend your spread further out in time as theta decay does not get affected as quickly.
  • Use a stop loss of 2x or 3x premium received etc.
  • or take possession of the stock
  • Income – selling out of the money credit spreads can be an effective way of generating a passive revenue stream

RISK REWARD is most important, and it is critical to get into the right trade at the right time. Remember that theta-neutral trades and buying options are when implied volatility is low. Selling options, when implied volatility is high, is your best option.

  • This is where we are right now.

I hope this helps shed some light on the basics of why buying options during high volatility is an uphill battle, no matter how good your timing is to predict the movement of the underlying asset you are trading.

In the near future, my team and I will make our options trades available to follow. As you know, timing the market is our specialty. Knowing what time frame an asset will rally or breakdown, and how far its first move will give us a distinct advantage to pinpoint the ideal option contracts to consider buying or selling for maximum short-term gains.

Happy Trading!

Chris Vermeulen
 www.TheTechnicalTraders.com 

Fear Reaches A Level Seen Only 4 Times Since 2008 – Signature Pattern

Since 2009 the stock market has had for major waves of investor fear (volatility) take place which was in 2010, 2011, 2015, and 2018. Each time the market corrected we saw a drop anywhere from 12% – 18% and both traders and investors became emotional and started selling assets in fear of lower prices. What we are experiencing right now is the same sort of setup once again.

These waves of panic selling are a signature pattern of a mini-crash and they have similar outcomes each time which I will share with you here so you know what to expect and how to trade this rare market condition.

It takes a lot to convince the masses to reach this level of fear. Each of these mini-market crashes there has been some catalysts to further induce fear/selling. This time its Covid-19 that is tipping the scales.

Only two assets have acted as a safe haven which is bonds, and gold. Once again everyone has been piling into these over the past week, and even more so on Friday with Bonds surging 6.5% at one point during the session.

What does it mean when everyone is buying bonds and gold like this?

Where should you put your money to work going forward?
If you are thinking of buying bonds or gold you may want to think again.

Take a look at the charts for gold and bonds below when fear and the volatility index (VIX) have reached the level we experienced last week.

WEEKLY CHART OF GOLD, AND THE VIX PERFORMANCE

The chart below is straight forward. The bottom yellow section is the level of fear (VIX), while the top candlestick chart is the price of gold.

This chart shows what happens to the price of gold when everyone becomes fearful. Gold tends to rally as fear rises and the VIX spikes. But once the VIX has spiked the price of gold will trade sideways for many weeks and eventually have a deeper correction.

While gold could see more fear-based buying in the next week or two I feel most of the upside potential has always been realized and your money will be stuck in an underperforming asset when it could be deployed elsewhere in the market.

WEEKLY CHART OF BONDS (TLT), AND THE VIX PERFORMANCE

The below chart of bonds is a little different in how it reacts to extreme broad-based fear. Bonds tend to trade sideways or higher for a few several weeks and this is because bonds are really the core safe-haven play amount investors and financial advisors.

When extreme fear hits the market and spooks the masses it can take weeks for all those buy and hold investors recognize the market weakness and take action selling their stocks and moving their money into bonds. This buying pressure on bonds is a slow trickle-in effect as advisors have clients call them and demand they put their money into a low-risk investment like bonds.

Bonds do have another interesting twist for last week’s particular price action. Only three times since 2008 have I seen bonds move 20% in value within a short period of time which is what they reached last week. Within  1-3 weeks from a 20%+ gain, the price of bonds has corrected on average 11.5%.

CONCLUDING THOUGHTS:

In short, my 23 years of technical analysis experience in reading charts, and statistical analysis is telling me we should be looking at different asset classes to trade over the next couple of months.

On Friday at the opening bell subscribers and I closed our TLT bond trade for a 20.07% gain. During that time the stock market crashed 14.5% which we avoided because of our technical analysis which closed our long SP500 position before the big drop.

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 short-term swing traders.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Have We Seen The Peak In The VIX?

The recent price breakdown in the US stock market (near the end of February 2020) prompted a very big spike in the VIX – could we see another HUGE spike with a deeper price selloff in the near future?

Our researchers believe this first downside price rotation in the US stock market may be just the first downside move in what may become a “waterfall” price event where price declines in a series of downside price waves reaching an ultimate support level.  The way the VIX works is to attempt to normalize implied volatility based on available options call and put data over a 30-day span.  The process of normalizing this data attempt to eradicate outlier data from the equation.  Thus, a VIX level of 40 has likely resulted in completed data that attempts to eliminate outlier data points that may have resulted in a much higher VIX value.

After this recent rally in the VIX level, the current normalization process will likely take the current range of the VIX (options data) into consideration for future VIX levels.  Thus, in order for the VIX to reach levels above 40 again, a much bigger downside price move would have to take place – possibly pushing the SPY to levels near $260 or lower.  A move like this would have to happen in an aggressive type of price decline in order for the VIX to rally back above 40.  Is this something we should expect in the near future?

Options Traders Be Aware: In our next post, we will touch one why trading options in this type of market condition is a major NO-NO.

Be sure to opt-in to our free market trend signals newsletter before closing this page so you don’t miss our next special report!

Our researchers believe the likelihood of a price decline like this is greater than 60% at this time.  We believe a Waterfall type of price event is unfolding where the price will attempt to source out true support levels as global central banks position ahead of any economic fallout for Q1 and Q2 of 2020.  It is because of these expectations that we believe global traders and investors will suddenly pull capital away from risk, into CASH and safe-havens while the unknowns of the global economic situation play out.  This dramatic shift from just 30 days ago may push the VIX to levels above 50 or 60 if we experience another aggressive selloff.

Liquidity becomes a major problem as Algos begin to pull capital out of the markets – like the FLASH CRASH of years ago.  This type of activity is already happening as many of our Algos and those of some of our friends have already started identifying severe risk factors in the markets as ATR and VIX have skyrocketed.  This lack of liquidity in the global markets could prompt an extended FLASH CRASH type of price event over the next 30 to 60+ days – possibly multiple FLASH events.

DAILY VIX CHART

This Daily VIX chart highlights the scale of the second Waterfall price event that recently took place.  The first Waterfall price move took place in early February and was very minor – yet our researchers caught it.

WEEKLY VIX CHART

This Weekly VIX chart highlights what we believe to be a likely scenario where VIX normalizes to levels below 25 over the next 2~3 weeks before another downside Waterfall event takes place as Q1 earnings data is about to hit the markets (near the end of March or early April).  It makes perfect sense to us that revisions and announcements will begin to hit the news wires relating to missed earnings and profit expectations near the end of March 2020.  If the Coronavirus is still working its way through Europe, the Middle East, and North America, we could be set up for a shocking April 2020 as Q1 earnings are announced.  This is what we believe will send the VIX skyrocketing to levels above 45~50 potentially.

A 25 to 35 day period of relative calm (2~3+ weeks) before earnings data starts to funnel into the news cycle.  Come early April, if companies have not yet already adjusted guidance, we could be in for a series of surprises that shock the US stock market and send the VIX skyrocketing.

SMART CASH INDEX SHOW GLOBAL EQUITY TREND

Our Smart Cash Index has recently broken below historical support channels and may begin to move into a new downward price channel soon.  This would be the first time in over 8+ years that this lower price channel has been seriously threatened in this manner.  A new downward price channel setup could indicate some extended downside price moves are in our future.  These types of downside price moves could indicate a broader global move away from risk as trader attempt to move capital into the safety of CASH and other investments.

CONCLUDING THOUGHTS:

As we’ve been warning for many months, 2020 is sure to be a very exciting year for skilled traders.  Don’t miss any of these incredible opportunities for broad sector swings and bigger moves in the US and Global stock markets.  These are the types of price swings that can make fortunes for skilled traders who are ahead of the bigger moves.

In fact, on Friday while traders and investors were down 15% with equities subscribers and I locked in 20.07% profit on our TLT trade and we avoided the equities collapse all together using my proven technical analysis strategies.

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.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-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 Bar!

Chris Vermeulen
www.TheTechnicalTraders.com

Emergency Technical Traders Market Crash Update & Video Analysis

The US stock market opened Sunday, March 8, 2020, dramatically lower.  Oil collapsed 25% to near $30.  Gold shot higher to levels just above $1700.  All of the major US indexes were lower than 5%.  As of this morning, the US major indexes are lower by 6.40%, and oil down 23%. Bonds are set to open 7-8% higher at this time.

As mentioned in yesterday’s update, we could see metals and miners get hit with margin calls, and silver took a beating last night down over 5%, and miners are down 5% in pre-market, so things could get uglier yet.

The war on oil has officially started. To me, it’s a typical bully/bad guy move. When everyone is bleeding, and in trouble like the financial markets, everyone’s mental state, and our health, the true bullies and bad guys (sharks) come out of the woodwork. Russia is being difficult and will keep production high for oil; the Saudis are giving out hug discounts on oil and jacking up their production to flood the market with their oil and take as much of the market share possibly. When blood is in the water, the sharks attack.

This oil war is going to devastate the USA and Canadian oil sectors and businesses if the price of oil trades between $20-35 per barrel, which I think is what will happen and could last a few years.

The US futures for stock hit a circuit breaker and halted futures trading of the Indexes once a 5% drop took place, but ETF and regular stocks will continue to trade. The next round of circuit breakers are only during regular trading hours and was implemented after the May 10, 2010, flash crash.

This new set of circuit breakers have never been hit before which are:
A drop of 7% stock halt for 15 minutes.
A drop of 13% stocks halt for 15 minutes.
A drop of 20% stocks halt for the rest of the session.

This is a huge breakdown in the US markets and indicates much greater weakness within the global markets and further concern that the COVID-19 virus may continue to disrupt the US and European markets (as well as others).

The potential that multiple billion-dollar disruptions in the US and other foreign markets, including travel, leisure, autos, hospitality, and many others, may see a continued decline in sales and incomes over the next 6+ months.  We don’t believe we will truly understand the total scope of this COVID-19 virus event until possibly well after July 2020.

The crazy part is I’m in a little secluded town in Canada, and people are starting to panic and buy food and toilet paper for their bunker stash. Almost everyone I talked to this weekend while out snowboarding has been affected by manufacturing, trade show cancellations, travel restrictions, etc..  We are in a full out global crisis that seems to affect everyone in some way no matter their location, occupation, or business.

There will be some great opportunities to find and execute incredible trading opportunities – yet the risks are very high right now for volatility and price rotation.  Think of the markets like a body of water in a severe storm.  The waters are very choppy, unstable, and chaotic – just like the markets.

Unless you have the right information, skills, and vehicle to navigate these waters, there is a very high probability that a dangerous outcome could happen. I closed out our last position on Friday with our TLT bond trade for a 20.07% profit and we are 100% cash watching this market VS trying to survive it.

Right now, Cash is king.
Waiting for proper setups and understanding risks is critical.  Timing your entries and targets is critical.  Learning to stay away from excessive risk is essential.

We’ll scan the markets for you and find the best opportunities that set up over the next week.

We appreciate your loyalty and want to continue to deliver superior analysis and research.  Please be well aware that the current market environment is very dangerous for traders.  The VIX recently touched above 50.  We believe it could reach levels above 75~90 still.  These are incredible levels for the VIX.

WATCH VIDEO ANALYSIS

Stay tuned for more free info, but if you like what you read here and
watched then subscribe to the premium trading newsletter today and
get this information EVERY MORNING before the opening bell – CLICK HERE

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

TLT Trade of the Year and What Is Next!

We just closed out our TLT position, which opened up 20.07% from our entry price, amazing. Who said bonds are dull and boring? haha

Only three times since 2008 have I seen bonds rally more than 20% from a new swing trade entry. Each time the move was short-lived, and the price collapsed after it within a few weeks. My goal is not to try and time tops and bottoms for the best entry and exit level. That is a gambler/losing strategy. Sure it pays big if you luck out and nail the timing, but they are few and far between, and the losses from trying will eat up any previous gain.

What I do is follow the price using my proven technical trading experience and tools, which I have acquired since 1997 and then apply position management to limit risk. I then use my trading systems for statistical analysis, so I know the odds for trade are favorable to win and also to pinpoint profit taking levels just like today’s TLT position closure.

Sure, TLT could pop and rally another 5-10%, but its highly unlikely, and it’s fear/volatility driven, so any spike higher from here is likely to drop straight back down shortly after. We got the low-risk easy money portion of the trade, and we are back in cash while everyone today is freaking out and losing money and piling into bonds because of fear, which is likely a top for the price of bonds for a while.

The bottom line, we avoided the stock market crash. We will not be trading inverse ETFs on the stock market until we enter a bear market. Until then, we avoid market corrections by moving to cash, then into bonds just like we have done with TLT. The SP500 is down 14% from the high a few weeks ago, and our TLT bond position is up 20% as of today.

We also made some good money on GDXJ for those who follow our trading strategy and position management. The last couple of weeks has been a tremendous learning experience, in my opinion. The recent price action amplifies how critical position management is (targets, stops) are for our long term trading success. No one knows where the price will ultimately move to or reverse, but through the use of technical analysis and our trading systems, we can consistently pull money out of the market each year.

Yes, we will have small losing trades from time to time like SSO, and UNG but when we do take a loss, they don’t cause much damage to our overall account because of our position sizing and stop levels. I was once told by my trading mentor in 2001 that you should be proud of yourself for taking a loss.

Taking a loss (closing a losing trade) means you are following rules, managing risk, and that you can accept your timing for the trade was wrong. That has stuck with me and pops into my head every time I have to bite the bullet and close out a losing trade.

The stock market is down 9.5% for the year as of today, our account is positive and making money, not many can say that right now. The Power of Technical Analysis!

Remember, successful trading is not about having a bunch of positions you have open, and thinking you always need to own something. It’s about limiting/avoided risk when the odds are unfavorable, and getting back into the market when they do become favorable. Cash is a position and sometimes its the best and only position to be in like right now.

Thanks, everyone, for the kind and uplifting emails, it really is amazing to navigate the market like this with all of you.

HAPPY MEMBERS MAKING MONEY!

Hi Chris, Many thanks for your sterling work. The beauty of your work is that you cover all asset classes to identify setups. One key lesson we learnt is to trust the bond market more than the equities market when the trend between the two asset classes diverges. 
Regards, Yusuf

Hi Chris,
I just wanted to send a quick note to tell you how impressed I am with your service and your trading system.  I’ve followed/subscribed to several folks over the past several years and have never seen anything like what you provide. Your timely and accurate technical analysis of the major markets is incredible and perfectly aligns with my preferred swing trading approach. My favorite part of the day is watching (and learning from) your morning videos. And to know that my account is steadily increasing in the face of utter market panic is invaluable.

Thanks so much for all you do!
Ryan M.

If you want to become part of an exquisite trading newsletter where you can learn to reach the charts, spot trades, profit targets, stops, and be force-fed winning trades like this TLT trade, and our GDXJ trade then join my Wealth Building Trading Newsletter Today!

Click Here: https://www.thetechnicaltraders.com/#pricing  

Chris Vermeulen
Chief Market Strategist
Technical Traders Ltd.

US Fed Panics – Predictive Modeling Shows You What’s Next

March 3, 2020: the US Fed issued an emergency rate cut of 0.50% to move rates to levels near 1.0% as a result of global economic concerns related to the spread of the Coronavirus and the potential damage it may do to the global major economies.  President Trump had been suggesting the US Fed needed to be ahead of the risks associated with future market expectations to allow for increased liquidity and global economic function.  Yet, we believe this move by the US Fed came at the wrong time for most investors and traders.

The global markets had already begun a process of revaluing risk in the markets near the end of February 2020.  After the Q1 earnings data was digested and the newest Chinese data became available, investors suddenly understood the risks that we had been warning about for most of January and February.  Suddenly, the US markets collapsed and traders were revaluing forward expectations.

Now that the US Fed has engaged in a 0.50% rate cut, the real risk solidifies in investor minds as “hey, the Fed is acting in a manner to ease money supply in preparation for a broad global slowdown”.  What does this mean for skilled traders?  We’ll explore the future price action using our Adaptive Dynamic Learning modeling system.

DOW JONES WEEKLY CHART

This INDU Weekly chart showing the ADL predictive modeling system results suggests the INDU will likely rotate near current lows (near 27,000) with very high volatility.  Current volatility ranges on the INDU suggest the US markets could rotate 1000 points a day very easily over the next few weeks.  Near early April, our ADL modeling system is suggesting the INDU will attempt to rally back to near 29,500 setting up a potential Double-Top formation.  Our earlier research suggests the INDU/YM will likely form a bottom well before the S&P and NASDAQ – so this aligns with our earlier research.

Once the Double-Top sets up – all bets are off as risk will be extremely high for another breakdown event.  We believe a true bottom will form/setup sometime between May and June 2020.  Therefore, any recovery in the INDU to levels near 29,500 before the end of April would strongly suggest the markets are setting up for a Q1 earnings collapse – and a potential for a much deeper price low to set up as a real bottom.

NASDAQ WEEKLY CHART

This NQ Weekly Chart highlights a shorter-term ADL projected price outcome.  The reason we went further back in time to produce these results is because these ADL results aligned with price quite efficiently and also illustrated the perceived weakness in price throughout the end of 2019.  Notice the CYAN DASH lines below the price in December 2019 – these are the ADL predictive price levels for that span of time.  Near the early January 2020 price bars, the ADL predictive modeling system identified price levels that almost mirrored the NQ price activity.  Currently, the ADL system is predicting the NQ will find temporary support near 9000 for a few weeks before breaking lower to levels near 8000~8200.

This price move, which is opposite that of the INDU, suggests the tech-heavy NASDAQ may continue to experience price pressure with a potential for a downside “waterfall” price event setting up.

TRANSPORTATION WEEKLY CHART

Lastly, this TRAN (Transportation Index) Weekly chart highlights was we believe to be a more true valuation event setting up over the next 60 to 90+ days.  This ADL chart suggests the TRAN price will almost immediately move back to levels near 11,000 (with a potential for a new high print above 11,300), then consolidate near 10,800 before breaking lower in late April or early May.  This type of price action aligns with the Q1 results reflecting an economic contraction while optimistic investors attempt to push price levels back towards recent highs before the reality sets into the markets.  The real forward expectations of Q2-2020 and Q3-2020 may be a fraction of levels reported for Q4-2019.

The US Fed is attempting to front-load the global markets with easier monetary policy to allow for unknown risks that may span 6 months out or longer.  Our researchers believe the US stock market will set up a major bottom sometime between May and June 2020 (possibly a bit later) and from that point we expect the US markets to begin to move gradually higher.  We believe this move will be similar to the downside price collapse that happened in January 2018 when the markets formed a clear Double-Bottom and began to move higher after May 2018 – eventually peaking above all-time highs.

Although the Fed fired an emergency rate cut of -0.50%, the reality is that investors may see this as a “miss” in terms of hitting a target.  Yes, it eases capital flows and sets investor expectations to believe the US Fed is prepared for this risk – but it also diminishes the potential for the US Fed to take decisive action in Q2 or Q3 of 2020 if the markets collapse as we expect.

As we’ve been saying for many months, 2020 is sure to be an incredible year for skilled traders.  Pay attention to our research to prepare for the biggest moves in the markets.

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.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-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 Bar!

Chris Vermeulen
www.TheTechnicalTraders.com

Stock Market & Flu Breakdown Metrics – Where’s The Bottom?

The end of February was brutal for traders that were not prepared for the breakdown in the US stock markets.  The breakdown in price actually started on February 20th and 21st.  Most traders didn’t pay attention to these minor downside price rotations in the Technology sector (NQ) and the Financial sector.  The early downside price rotations in key sectors gave traders a bit of a warning that the markets were starting to shift away from the earnings-driven rally that had set up the recent peaks.

The other item that concerned the markets was the spread of the Corona Virus into Italy, Iran and other areas without known contact to areas of the virus origin.  Obviously, there had to be some process of contact for the virus to spread – but there are concerns now that the virus could be active within various societies throughout the incubation period and spreading to people in densely populated cities in these areas.  The idea of a “super spreader” event becomes very real if societies are not able to identify and contain the sources of these transmissions.

The fear that gripped the markets last week had been telegraphed for many weeks with the news and speculation that China and Asia were going to be hit with much weaker economic data in Q1 of 2020.  Almost anyone with a bit of common sense should understand the economic complications associated with quarantining millions of people for well over 30+ days would destroy economic activity in China. Even environmental data (NASA) suggests the Chinese economic activity has collapsed in 2020.

(Source: https://earthobservatory.nasa.gov)

It is time for skilled traders and investors to come to the realization that a Deflationary Recession is very likely given the scale and scope of the Corona Virus spread.  Although the numbers pale in comparison to the common Flu/Cold, the economic implications are far more severe.  As the virus spreads into the Middle East, Europe and Africa (think Belt Road Initiative) and early signs that it has already spread into parts of South America, one has to begin to wonder if this event could be something similar to Plague or Pandemic events of the past?

(Source: https://gisanddata.maps.arcgis.com)

As skilled traders, we need to try to stay ahead of these events, attempt to predict where risks and opportunities will arise and work to protect our assets while attempting to trade within these market events.  What happens if this event turns into an extended downside price rotation?  What happens if, collectively, the global central banks can’t support the markets as consumers globally move away from traditional spending and shopping activities?  What are the longer-term implications of this event as it unfolds?  Could this Virus event turn into a Global Deflationary Depression?

There are a few positives we need to report originating out of the US and Israel.  News of a potential vaccine produced by a Texas firm and an Israeli firm has been announced over the past 10+ days.  Both firms believe they will be able to engage in human trials of these vaccines within a few weeks.  Our advanced technology and computerized modeling systems allow us to respond to these types of virus events much faster than ever before.  If these vaccines are successful and can be distributed in mass throughout the globe, we may see this virus event come to a sudden positive conclusion.

The other good news is that the Corona Virus appears to be far less deadly than even the common Flu or Cold.  Currently, the reported numbers are (roughly) 87,000 infected and 3,000 deaths.  That results in a 3.4% mortality rate.  The 2019 mortality rate for pneumonia and influenza was 6.9% (Source: https://www.cdc.gov/).  The reality of the situation on the ground is that we will know more about these data points as we progress further in time.  Numbers change as the total scope of the issue is determined.

As skilled traders, our objective is to protect capital and identify opportunities for profits.  As horrible as it may seem to look at this global event and try to find ways to profit from it – that is really our main objective.  We’ve been getting calls from friends and clients asking us “should I buy airlines and other sectors right now?  This seeming like an incredible opportunity to buy into this weakness?”.  Our answer is a bit more complicated as we are attempting to predict the future event and we don’t believe the bottom has setup/formed yet.  The simple answer is “NO, you should not be buying into this weakness until we know a bottom has setup and risks to the global economy are more settled”.

Still, there are different opinions from institutional and private investors regarding the total scope of this event.  UBS recently issued a BUY for “rich clients” to take advantage of this drop in prices in Chinese and Emerging Markets (Source: https://finance.yahoo.com).  We don’t agree with this analysis quite yet – unless you have a very deep threshold for risk and potential losses.  Our research suggests the bottom will likely complete in May or June of 2020.

This ES chart highlights the downside rotation in price last week and the fact that our Dynamic Rotation modeling system is still suggesting the Weekly trend has not changed to Bearish from Bullish.  The fact is this downside price rotation is still above the YELLOW dashed line which represents trend support.  The Daily chart of the ES, below the Weekly chart, shows the Dynamic Rotation modeling system has already changed from a Bullish trend to moderate Bearish trend.  Because of this, skilled traders need to immediately protect open long positions and consider adjusting their portfolio allocations in preparation of extended downside price moves.

Our researchers believe the ultimate support level on the ES chart is near the $2590 level.  Price may pause near the $2975 level as this level coincides with previous tops in the market and identifies as moderate support.  Yet, we believe the ultimate support level is really near the $2590 level and that is the price this downside move will initially target.

This NQ chart also highlights the immediate downside price rotation in the NASDAQ and how the Weekly chart has yet to confirm any new Bearish price trend.  The Weekly chart still shows confirmed bullish price trends and suggests the recent downside price rotation was within volatility ranges.  The Daily chart has already changed from a Bullish to moderate Bearish trend.  Again, this suggests skilled traders should immediately attempt to lock in profits and prepare for any further downside price trends.

True support on the NQ chart is currently $6575.  This suggests the NQ has another 2000 points to fall (-23.5%) before any real price support will be found.  Be prepared for this move.

This SPY chart more clearly shows the scope of the downside price rotation.  The Weekly chart has already changed from GREEN to YELLOW – indicating a change in rotation price trend from Bullish to NEUTRAL on the Weekly chart.  The Daily chart shows a trend change from Bullish to Moderate Bearish (Pink) to BEARISH (Red).  This suggests the SPY price reaction has more clearly illustrated the risks of this downside price move and suggests extended downside trending may continue.

Our ultimate support level for the SPY is near $262 – another $35 lower (-11.75%).  If these ultimate support levels are reached, the total downside price rotation for all of these charts would total more than -20%.  Certainly more than a simple 8~10% correction.

This is why we believe skilled traders need to pay attention to our recent research and understand the total scope and scale of this move.  We’ve already been warning our friends and followers of the potential risks setting up in the markets.

February 24, 2020: HAS THE EQUITIES WATERFALL EVENT STARTED OR A BUYING OPPORTUNITY?

February 19, 2020: IS THE TECHNOLOGY SECTOR SETTING UP FOR A CRASH? PART III

We can’t make this warning clear enough for all of you right now – prepare for deeper downside price rotation and prepare for the potential of a Deflationary Recession event over the next 6+ months.

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.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-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 Bar!

Chris Vermeulen
www.TheTechnicalTraders.com

Gold Sets Up For Another Massive Move Higher

Our research team believes the recent downward price activity in Gold and Silver are indicative of past price patterns we saw in Gold over the 2007 to 2012 rally.  Throughout almost every rally in precious metals (Gold), there have been a number of moderate to serious price corrections taking place within that extended rally.  The current downside move is moderately small compared to historical price rotation in Gold and potentially sets up a massive upside potential rally to levels above $2100 per ounce.

WEEKLY GOLD PRICE PATTERN FROM 2007 – 2017

This chart, below, highlights the downside price rotation that took place just before and as the US stock markets collapsed in late 2008 and 2009.  Notice how Gold collapsed nearly 28% right as extreme market weakness began to become present in the US stock market.  Then, pay attention to how Gold rallied from $730 in multiple upside price legs to a peak just below $1900 – well above 110%.  Could the same pattern already be setting up in 2020?

WEEKLY GOLD CHART TREND IS CLEARLY UP

This current Gold chart highlights what we believe is a similar price pattern where Gold collapsed as the downturn in the US stock market took place between October 2018 and December 2018.  Subsequently, Gold then rallied to levels nearing the previous peak levels (near $1380), then rallied even further to $1540.  We believe the current downside price rotation is similar to the downside price rotation that took place in August/Sept 2010 – just before Gold rallied from $1050 to $1890 (+85%).  If a similar type of rally were to take place from the current $1587 lows, the peak price of Gold may be near $2935.

GOLD/SILVER RATIO WEEKLY CHART SCREAM BARGIN

This last chart highlights the true potential for a Silver rally based on historical levels of the Gold to Silver Ratio.  There has never been a time in history since 1990) that the Gold to Silver ratio has been this high (93.9).  Historically, traditional levels are closer to 74~76.  If gold rallies above $2100 and the Gold to Silver ratio contracts to the historical 74 to 76 level, Silver will likely rally to levels above $40 to $50 per ounce.  If gold rallies to our projected peak level of $2935 and the ratio reverts, Silver could rally to levels well above $65 per ounce.

This downside move in both Gold and Silver are an incredible opportunity for skilled traders.  Don’t miss the opportunity to get into a precious metals position near these levels – before the real rally begins.

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.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-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 Bar!

Chris Vermeulen
www.TheTechnicalTraders.com

Is This A Repeat of February 2018 Market Crash?

Back in early 2018, after a dramatic rally in early January 2018, the US stock market collapsed suddenly and violently – falling nearly 12% in a matter of just 9 trading days.  Our researchers asked the question, is the current collapse similar to this type of move and could we expect a sudden market bottom to setup?

Although there are similarities between the setups of these two events, our researchers believe there are two unique differences between the selloff in 2018 and the current selloff.  We’ll attempt to cover these components and setups in detail.

Make sure to opt-in to our free market trend signals newsletter before closing this page so you don’t miss our next special report!

FIRST, THE SIMILARITIES:

_  The contraction in market price just before the end of the year in 2017 was indicative of a market that had rallied to extended valuation levels, then stalled in December as the year-end selling took over.

_  The renewed rally in early January was a process of capital re-engaging in the market as future expectations continued to drive and exuberant investor confidence in the markets.

These two similarities between 2018 and 2020 seem fundamental.

Yet, there are differences that may drive a further price contraction event – beyond what we saw in 2018.

_  The US/China trade deal disrupted market fundamentals over the past 6+ months and established a more diminished function of global economics as the trade tensions continued

_  The foreign market capital shift process, where foreign capital poured into the US stock market over the past 12+ months and supported the US Dollar was a process of avoiding foreign market risks.  This process trapped a large portion of foreign capital in the US markets prior to the 2020 collapse.

_  Global geopolitical functions are far more fragile than they were in 2018.  After BREXIT was completed and prior to the signing of the US/China trade deal, a number of concerns existed throughout the world and are still valid.

_  The Wuhan Corona Virus has changed what global investors expect and how both supply and demand economic functions are being addressed world-wide.

The potential of an early price bottom setting up after this 2020 price collapse is very real.  Yet, the ultimate bottom in the markets may be much lower than the 11% or 12% price decline that happened in 2018.  The scale and scope of the Corona Virus event, should it continue beyond April 2020 (and possibility well into June or July 2020), could extend the price decline even further.  Ultimately, this extended risk function may push the US and global markets to deeper lows before a bottom sets up – yet the outcome may be very similar.

After the double bottom in 2018 setup, a slow and stead price advance continued until the SPY price rallied to new highs in September 2018.  A very similar type of price activity may take place in 2020 after the ultimate bottom in price sets up.

Our researchers believe the ultimate bottom in the SPY will likely happen near $251 – near the middle of the 2018 price range.  Ideally, the event that takes place to create this price decline will likely happen in a “waterfall” event structure.  This means we may see a series of 3 to 9+ day selloffs culminating in a major market bottom near $251.

If our research team is correct in this analysis, a bottom will likely form in the SPY and near $251 to $265 where and extended bottom pattern may setup.  We may see a double-bottom type of pattern as we saw in 2018.  Ultimately, we believe the bottom will setup sometime in mid-2020 and the remainder of the year will continue to support an extended price rally into the end of 2020.

Are we looking at a similar type of price event like we saw in early 2018?  Ideally, yes.  Although, we believe this downside price move will be deeper in terms of the total price decline (likely 18% to 25%) and will end when price valuation levels reach a point where global investors feel opportunity exists beyond risk.

Right now, we believe an incredible opportunity for skilled investors is present and that incredible market sector price rotations are taking place.  We believe the devaluation process will move the markets lower by at least 15% to 20% or more.  That suggests the bottom in the SPY is likely near $251 before we see any real opportunity for price to form a support base and begin to rally higher.

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.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-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 Bar!

Chris Vermeulen
www.TheTechnicalTraders.com

SPY Breaks Below Fibonacci Bearish Trigger Level

Our research team wanted to share this chart with our friends and followers.  This dramatic breakdown in price over the past 4+ days has resulted in a very clear bearish trigger which was confirmed by our Adaptive Fibonacci Price Modeling system.  We believe this downside move will target the $251 level on the SPY over the next few weeks and months.

SOME RECENT HEADLINE ARTICLES WORTH READING:

On January 23, 2020, we issued a warning that the Put/Call ratio was warning of a potential Flash Crash

On January 24, 2020, we issued a research post related to the Wuhan Wipeout the markets

On January 26, 2020, we issued this research post about the start of a Black Swan event

On January 29, 2020, we issued this research post about a potential WaterFall selloff

Clearly, we were well ahead of this correction and issued multiple warnings to our friends and followers. This week we locked in 9.48% on GDXJ at the open on Monday, and today we are writing to suggest that $251 on the SPY is real support (see the magenta/purple area/line on this chart) and pay attention to the real risks at play in the markets.

This would suggest that the major markets will wipe out about 25% of the valuations in the major averages (ES, NQ, and YM), before finding any real support.  Obviously, there is a level near $208 that appears in RED on this chart.  If $251 fails to hold as support, then we immediately start to look at that $208 level for ultimate support.

This is the time when you want skilled researchers and traders backing you up and sourcing real solid trade opportunities for you.  We’ve been warning about this move for many months, suggesting that 2020 was going to be an incredible year for skilled traders and warning that a large downside price rotation was likely after August 2019.

In fact, one of our researchers predicted this move back in February/March 2019.  Visit www.TheTechnicalTraders.com to learn how we can help you stay ahead of these massive trends and find real opportunities in the markets.

Make sure to opt-in to our free market trend signals newsletter before closing this page so you don’t miss our next special report!

Chris Vermeulen
Technical Traders Ltd.