Has the Equities Waterfall Event Started Or A Buying Opportunity?

Over the past 5+ days, a very clear change in market direction has taken place in the US and global markets.  Prior to this, the US markets were reacting to Q4 earnings data and minimizing the potential global pandemic of the Coronavirus.  The continued “rally to the peak” process was taking place and was very impressive from a purely euphoric trader standpoint.  Our researchers found it amazing that the markets continued to rally many weeks after the news of economic contraction and quarantines setup in China/Asia.

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We believe a number of critical factors may have pushed global investors away from their comfortable, happy, bullish attitude over the past 5+ days – most importantly the reality that the virus pandemic was very real and would continue to result in a more severe global economic contraction process and the outcome of the Caucus voting where Bernie Sanders appears to be leading almost every early voting event.  There are now two major concerns hanging over the global markets and the future of the US 2020 Presidential elections.  These two major issues may be enough to change investor sentiment and present a very real volatility event.

Uncertainty breeds fear and can cause traders to move away from risk.  We discussed these topics in research posts many months ago.

January 29, 2020: ARE WE SETTING UP FOR A WATERFALL SELLOFF?

November 11, 2019: WELCOME TO THE ZOMBIE-LAND OF INVESTING – PART II

September 24, 2019: IS SILVER ABOUT TO BECOME THE SUPER-HERO OF PRECIOUS METALS?

September 7, 2019: US STOCK MARKET HASN’T CLEARED THE STORM YET

Our researchers believe the underlying concerns that are becoming more evident to global traders are the very real facts that the global economy may continue to contract because of the spreading Corona Virus and risks of a global pandemic event and the fact that the US 2020 Presidential election process appears to be setting up to become a real battle between Donald Trump and Bernie Sanders.  Our researchers believe the combination of these two unknowns is creating an environment where global traders are fearful of the future growth opportunities within the US and global markets.

Bernie Sanders has been dominating the Caucus events in the US as a Socialist/Progressive candidate.  For many Americans, this is a frightening concept.  Even early into the Caucus voting cycle, it appears Mr. Sanders has taken a very clear leadership role headed into the 2020 Presidential election event.  Business and global investors are not going to like the concept of a Socialist/Progressive US Presidential candidate.  This is going to cause investors and business owners to avoid engaging in projects and opportunities until after the November 2020 elections.

Add into this fear contagion the fact that the Coronavirus event may continue to add to the global fear component of the US and global economy.  How much more risk is involved because of the spread of this virus over the next 12+ months and how will this concern complicate the concerns related to the US Presidential electing event?

DAILY DOW JONES INDUSTRIAL CHART

This Daily Dow Jones Industrial chart highlights the huge Gap lower that took place early on Monday, February 24, 2020.  This huge move resulted from an extended fear of a growing potential for a global pandemic event and a renewed fear that global economic activity may be greatly reduced over the next 12+ months.  We believe the extended fear of a potential Socialist/Progressive Democrat candidate may be adding to this massive decline in the global markets.

TRANSPORTATION INDEX DAILY CHART

The Transportation Index is an excellent measure of future economic activity expectations and investors belief that the global economy will recover from this potential contagion event.  On Monday, February 24, 2020, the Transportation Index collapsed below 10,600 on a Gap Down move as the markets collapsed.  This is a real sign that global investors suddenly believe the global markets will contract over the next 3 to 6+ months and are moving away from risky instruments in the US and global markets.

WEEKLY TRANSPORTATION INDEX

This Weekly Transportation index chart illustrates just how far the TRAN could move while still saying within the range of price activity from 2018 to 2019.  The TRAN could fall all the way to levels near 8,800 before reaching the lows of December 2018.  Thus, from current levels near 10,500, we could see a continued price decline in the global markets of at least 15% to 20% before we near the 2018 lows.

As our research team has been predicting, it appears a Waterfall event is beginning to take place.  This Gapping downside move may become the catalyst top in the global markets that presents a broader market rotation/decline.  As we’ve been warning, be prepared for broad sector market rotation and for precious metals to skyrocket as greater fear sets up in the global markets.  We hope you were paying attention to our research over the past 5+ months.  We’ve been all over this setup and have issued multiple warnings for all our friends and followers.

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.

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Chris Vermeulen
www.TheTechnicalTraders.com

Yield Curve Patterns – What To Expect In 2020

Quite a bit of information can be gleaned from the US Treasury Yield Curve charts.  There are two very interesting components that we identified from the Yield Curve charts below.  First, the bottom in late 2018 was a very important price bottom in the US markets.  That low presented a very deep bottom in the Yield Curve 30Y-10Y chart.  We believe this bottom set up a very dynamic shift in the capital markets that present the current risk factor throughout must of the rest of the world.  Second, this same December 2018 price bottom set up a very unique consolidation pattern on the 10Y-3Y Yield Curve chart.  This pattern has been seen before, in late 1997-1998 and late 2005-2008.

The reality of these two patterns setting up in the Yield Curve charts suggests that the US and global markets are going to experience a surge in volatility and a very real potential that the US and global markets will contract over the next 6 to 24 months.  Within about 3 to 6+ months of these patterns setting up, one of two separate outcomes typically takes place.

A.  A continued US stock market price advance takes place pushing the Yield Curves lower and ultimately setting up a massive stock market top formation.

B.  A moderate price peak sets up where the Yield Curve levels begin to rise from these current levels while the US and global stock markets begin a moderate correction phase – eventually leading into the possibility of a massive price collapse.

Our research team believes the deep price rotation near the end of 2018 set up a very unique capital shift event that took place within the global markets.  Currently, there is well over $75 Trillion in the US and global markets.  This capital has become enough of a force in the global markets to act as the “moon and the tide”.  In a way, this capital, and the search for profits and safety, has propelled the global markets into a very fragile position.

This total amount of capital, in combination with the derivative markets and global credit markets, presents a significant risk for global central banks and nations.  Many foreign nations have pushed their debt levels to well over 100% of GDP.  Still, even more, have engaged in reckless lending and shadow banking practices that engage a further level of risk to the global markets.  Global central banks have taken on excessive debt levels and acquired assets after 2009 in order to help stabilize the global markets.  The combination of all of these facets of new capital, risk, and assets add a new dynamic to historical patterns in the Yield Curves.

Even though the patterns are similar in structure, the risks are far greater than in 2000 or 2008.  Before, the Central Banks were like a ship navigating the Tides of the seas.  Now, the Central Banks have become the Tides and the Moon – they are essentially an omnipresent force in all levels of assets, capital, risks, and contagion.

We believe the 30Y – 10Y yield curve may move slightly lower if any type of reprieve or complacency continues throughout the global markets that risk is not a factor going forward. This would suggest that the US stock market may continue to move a bit higher – possibly seeing the DOW breach the $30,000 level.  Otherwise, we believe the Yield Curve may continue to climb suggesting that a global market peak is setting up and a price reversion event is beginning to take place.

This 10Y – 3Y Yield Curve chart highlights the potential for a brief collapse in this level to below ZERO, yet it is not necessary at this point in time to confirm a potential major market peak.  Ideally, the future of the US and global stock markets depend on how these yield curves react at this juncture in time.  A deeper move to levels below ZERO will suggest a broader market peak is setting up.  A rally from these levels would suggest the peak has already set up and that real risk and fear are entering the global markets.

The NQ setup an Engulfing Bearish pattern after a very impressive rally from moderate rotation in December 2019.  We highlighted the potential that the US markets are rallying to a peak in a number of research articles recently.  The one we’ve included, below, is an excellent example of this type of research.

January 31, 2020: A COMBINATION TOPPING PATTERN IS SETTING UP

As we’ve been suggesting for many months, this is the time for skilled traders to become “cautious long traders”.  This upside move could end in a very violent manner as the Moon and Tide shift suddenly as fear and central bank paralysis setup in the markets.  We urge all our friends and followers to prepare for this eventual setup and to understand the total scope of this omnipresent capital/debt event.  This time will certainly be different because Central Banks have become banker, holders, guarantor and leveraged participants in the future outcome.

Our suggestion is to plan to setup your portfolio so you have sufficient cash in reserve in the event of an unexpected market decline.  We also suggest proper protection/hedge investments, such as precious metals and metals miner ETFs.  Currently, this single Engulfing Bearish pattern is not enough of a trigger to warn of any immediate action for traders – but the Yield Curve charts are clearly showing us the markets will either continue to rally to an ultimate peak or begin to setup that peak very quickly from current levels.

Think of it this way, we know the music will likely stop at some point in the near future, we just don’t know exactly when it will stop.  So, we have to prepare for the scramble for the chairs when it ends.

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

Chris Vermeulen
www.TheTechnicalTraders.com

Gold Rallies As Fear Take Center Stage

Gold has rallied extensively from the lows near $1560 over the past 2 weeks.  At first, this rally didn’t catch too much attention with traders, but now the rally has reached new highs above $1613 and may attempt a move above $1750 as metals continue to reflect the fear in the global markets.

We’ve been warning our friends and followers of the real potential in precious metals for many months – actually since early 2018.  Our predictive modeling system suggests Gold will rally above $1650 very quickly, then possibly stall a bit before continuing higher to target the $1750 range.

The one thing all skilled traders must consider is the longer-term fear that is building in the markets.  Many traders are concerned about the global economy with the Coronavirus spreading economic worries throughout Asia, Japan, and Europe.  We believe this fear will push precious metals continually higher over the next 24+ months with a real upside target above $2100 eventually.

Right now, skilled traders need to understand that wave after wave of higher price rotation will continue to happen in Gold and Silver.  If you missed the $1450 level and missed the $1550 level, this is your time to attempt to find your entry point near $1650 or below that level.  Ultimately, real fear has yet to result in a parabolic rally in Gold and Silver – but it is likely going to happen within the next 24+ months.

As skilled traders, our Fibonacci price modeling system is suggesting that any price rotation below $1550 would be an excellent buying opportunity.  These levels really depend on where the current rally ends and what happens in the global markets over the next 60+ days.

Less than 7 days ago, we published this research article suggesting that our ADL predictive modeling system was telling us that Gold would rally above $1650 within 15 to 30 days.  It is very likely this rally will start a multiple-leg upside price advance in precious metals where Silver will finally breach the $20 to $21 level as Gold advances higher.

February 13, 2020: PREDICTIVE MODELING SUGGESTS GOLD WILL BREAK ABOVE $1650 WITHIN 15~30 DAYS

Once fear really enters the markets, we’ll see huge sector rotation and a massive price reversion event take place.  Historically, Gold and Silver will react to this move, but the parabolic price move in precious metals will come 4 to 6+ months after the reversion event in the global markets.  So, from a historical standpoint, any entry-level near current price levels is exceptional.

Trust us, you really don’t want to miss this next move in precious metals.  Our Fibonacci price modeling system and Adaptive Dynamic Learning modeling system are suggesting price levels above $2400 as an ultimate upside price target for Gold.

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

Chris Vermeulen
www.TheTechnicalTraders.com

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

As we continue to get more and more information related to the Coronavirus spreading across Asia and Europe, the one thing we really must consider is the longer-term possibility that major global economies may contract in some manner as the Chinese economy is currently doing.  The news suggests over 700+ million people in China are quarantined.  This is a staggering number of people – nearly double the total population of the entire United States.

If the numbers presented by the Chinese are accurate, the Coronavirus has a very high infection rate, yet a moderately small mortality rate (2~3%).  Still, if this virus continues to spread throughout the world and infects more and more people, there is a very real potential that 20 to 50 million people may be killed because of this event.  It may become one of the biggest Black Swan events in recent history.

We really won’t know the total scope of the damage to the Chinese and Asian economies for another 35+ days – possibly longer.  The information we have been able to pull from available news sources and from the Chinese press is that hundreds of millions are quarantined, the Chinese Central Bank is pouring capital into their markets in order to support their frail economy and, just recently, President Xi suggested stimulus will not be enough – austerity measure will have to be put into place to protect China from creating a massive debt-trap because of this virus.

Austerity is a process of central bank planners cutting expenses, cutting expansion plans, cutting everything that is not necessary and planning for longer-term economic contraction.  It means the Chinese are preparing for a long battle and are attempting to protect their wealth and future from an extreme collapse event.

From an investor standpoint, FANG stocks have outperformed the S&P, NASDAQ and DOW JONES indexes by many multiples over the past 5~6 years.  The chart below highlights the rally in the markets that originated in late 2016 (think 2016 US Presidential Election) and the fact that foreign capital poured into the US stock market chasing expected returns promised by future President Trump.

It becomes very clear that the FANG stocks rallied very quickly after the elections were completed and continued to pull away from valuation levels of the S&P, NASDAQ and DOW JONES US indexes.  How far has the FANG index rallied above the other US major indexes? At some points, the FANG index was 30~40% higher than the biggest, most mature industries within the US.  In late 2018, everything contracted a bit – including the FANG index.

As or right now, the FANG index has risen nearly 274% from October 2014.  The S&P has risen nearly 60% over that same time.  The NASDAQ has risen 140% and the S&P 500 Info Tech Index rose 180%.  The reality is that capital has poured into the technology sector, FANG stocks and various other US stock market indexes chasing this incredible rally event.

(source: https://www.theice.com/fangplus)

This Netflix Weekly chart highlights what we believe are some of the early signs of weakness in the FANG sector.  The sideways FLAG formation suggests NFLX has reached a peak in early 2018 and investors have shied away from pouring more capital into this symbol while the Technology index and FANG index have continued to rally over the past 8+ months.

This Weekly Custom FANG Index chart highlights the rally that took place after October 2018 and continues to drive new highs today.  This move on our Custom FANG index shows a very clear breakout rally taking place which is why we believe more foreign capital poured into the US markets as the US/China trade deal continued to plague the global markets and as BREXIT and other economic issues started to weigh on economic outputs.  What did investors do to avoid these risks?  Pour their capital into the hot US technology sector.

Another chart we like to review is our Custom Technology Index Weekly chart.  This chart shows a similar pattern to the FANG chart above, yet it presents a very clear picture of the excessive price rally and rotation that has taken place over the past 5+ months.  The real risk with this trend is that investors may start to believe “it will go on forever” and “there is no risk in these trades”.  There is a very high degree of risk in these trades.  Once the bubble bursts, the downside move may become very violent and shocking.

A reversion event, bubble burst event, in the technology sector as a result of the economic collapse in China and throughout other areas of the world may break this rally in the technology sector at some point and may push investors to re-evaluate their trading plans.  Until investors understand the risks setting up because of the Coronavirus and the potential for a 20%, 30%, even 40% decrease in economic activity and consumer spending may finally push global investors to really think about the true valuations within the FANG/Technology sector.

We writing this article to alert you to the very real fact that “what goes up – must come down” at some point.  Pay attention to how this plays out and what may cause global investors to suddenly change their opinion of the Technology sector.   A pullback in this sector may result in a -40% to -50% price reversion.

We believe the economic collapse and humanitarian crisis that is unfolding in China may be enough to put a massive dent in future expectations for 2020 and 2021.  You simply can’t have a major global economic collapse in this manner without having some type of cross-over event.  As we learned in 2008-09 with the US credit crisis – when a major economy collapses its assets and financial markets, the ripples spread across the globe.  China may become the next financial crisis event for the new decade.

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

Chris Vermeulen
www.TheTechnicalTraders.com

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

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

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

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

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

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

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

THE WEEKLY CHART OF APPLE (AAPL)

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

THE WEEKLY CHART OF FACEBOOK (FB)

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

THE WEEKLY CHART OF GOOGLE (GOOG)

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

CONCLUDING THOUGHTS:

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

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

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

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

Chris Vermeulen
www.TheTechnicalTraders.com

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.  Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.

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Technology Sector Setting Up For A Crash? Part II

In the first section of this article, we highlighted three key components/charts illustrating why the “rally to the peak” is very likely a result of a continued Capital Shift away from risk and into the US stock market as an attempt to avoid foreign market growth concerns.  This method of pouring capital into the US stock market is a process that is driving incredible asset rallies in the US technology sector.  Already the US technology sector (FANG and our Custom Technology Index charts) are up almost 15% in 2020.  How long will it last and when will it end?

Recently, China has revised the Coronavirus data with a sharp increase in infection cases – now over 40,000.  We believe the true number of infections in China are currently well above 250,000 from video content and other data we’ve researched.  We believe economic data originating from China for January and February 2020 will show a dramatic 60% to 80%+ decrease in activity for many of the major cities.  Satellite technology suggests manufacturing and consumer activity in most major Chinese cities is only a fraction of what would be considered normal – 10% to 20% or normal levels.

This means the manufacturing capacities in China have collapsed and that supply to the rest of the world will collapse as well.  This means major electronics manufacturers and suppliers will suddenly quickly experience shortages and outages very shortly.  This is why we believe the technology sector may come under severe pressure over the next 6+ months and why we believe the “high-flying” technology sector may be one of the biggest sector rotations of 2020.

Just how much of a “collapse” are we talking about?  How can anyone attempt to quantify the true scope of this potential “black swan” event and how it may result in sector rotation?

Let’s start with some of the basics.  First, the global economy has been focused on Chinese manufacturing and production of goods for more than the past 20+ years.  Over the past 10 to 15+ years, the Chinese economy has become the central hub of manufacturing and supply for some of the largest economies on the planet.  At this point in time, nearly every nation on the planet relies on China in some form for some essential goods that support their local economies.

This image showing the size and scope of global economies may highlight just how interconnected we really are.  The Chinese economy is 15.4% of the total global economy when taken as a whole compared to other global economies.  Yet, China supplies a very large number of these other nations with cheap goods, essential components for industry and manufacturing as well as a very large number of everyday essential items for consumers.  So, when we attempt to consider a “shut-down” of the Chinese economy as they attempt to deal with this virus, try to think about how long it would take for the supply chain to dry up and then what?

Source: visualcapitalist.com

Try to take a moment and think about the total scope of what we’re dealing with in regards to this Corona Virus outbreak.  Take a minute to review this graphic from InvestmentWatchBlog.com showing some of the “Best” US firms and how many rely on China for manufacturing/supply of critical components or generate a large portion of their revenues from China.

Source: investmentwatchblog.com

It has been over 45 days since the end of 2019.  China knew about this virus fairly early in December 2019.  So, in reality, it has been over 75 days since this outbreak first started. The data accumulated by Johns Hopkins CSSE started on January 20, 2020.  Since that time, China has experienced a more than 4000% increase in new Corona Virus cases – that is only about 21 days.  The number of infected has risen to well over 64,000 and we believe that number (reported by the Chinese government) may be only a fraction (1/8th to 1/6th) of the real infected rate.

Source: gisanddata.maps.arcgis.com

Not all technology companies rely on China to supply products and software.  Many technology companies have strong core business enterprises that are independent of Chinese manufacturing.  Yet we continue to believe the disruption in manufacturing and supply from China will disrupt forward earnings data enough to potentially send the technology sector much lower than current levels.  Additionally, if capital rushes out of technology in search of a more suitable opportunity – where will that capital find a new home?

What happens if this “shut down” of the Chinese economy lasts for more than 6+ months and what happens to the world economy as a result of this virus outbreak?  In Part III of this research article, we’ll try to share our insight a bit further and attempt to show you where real opportunity exists as this rotation plays out.

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

Chris Vermeulen
www.TheTechnicalTraders.com

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.  Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.

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

One thing that continues to amaze our research team is the total scale and scope of the Capital Shift which is taking place across the globe.  For almost 5+ years, foreign investors have been piling into the US stock market chasing the stronger US dollar and continued advancement of US share prices.  It is almost like there is no other place on the planet that will allow investors to pool capital into such a variety of strong assets while protecting against foreign capital risks.  Yet the one big question remains – when will a price reversion event hit the US stock market?

So many researchers, even our team of researchers, believe we have found the keys to unlocking when the price reversion event will take place.  Time-honored technical analysis techniques have set up very clear triggers that were negated by higher prices and continued upside trending.  What is certain at this point is that the Capital Shift is going to continue until it stops – at some point in the future.

Our research team decided to take a look at the FANG index and the individual symbols that make up that sector to see where the real strength and weakness exist.  Our goal was to attempt to understand how and when a potential price reversion event may take place and how this event may be correlated to the global contraction event related to the Coronavirus spreading across the planed while paralyzing certain economies.  Could the Coronavirus event be the catalyst that sets off a breakdown in the technology sector?

There are three components we want to start our focus on in this, Part I, of this research article.  First, the very real possibility that we are “rallying to a peak” at some point in the near future.  Second, the Custom Volatility Index highlighting continued overbought price action and the very real potential for a breakdown in price from these inflated levels.  Lastly, the FANG index itself suggesting we are very near to upper price boundaries after capital has poured back into the US markets in early 2020.

These three components suggest a market that is full of over-enthusiastic optimism and capital that has poured into the US stock market chasing gains that were clearly expected as 2019 came to a close.  Yet, in early 2020, a new risk suddenly became known, the Coronavirus, and this risk has already begun to devastate China’s economy and economic activity.  What happens if this sudden collapse in economic activity spreads over the next 30+ days and how will it change future expectations in the US stock markets?

CUSTOM TECHNOLOGY INDEX WEEKLY CHART

This Custom Technology Index Weekly chart highlights what we clearly believe is the “rally to the peak” type of price action related to the continued Capital Shift taking place in the global markets.  The breakout to the upside in November 2019 prompted a concentrated pooling of capital into the US markets.  After the end of the year, when institutional investors started engaging in the markets again, it was rumored that more than multiple-billions reentered the markets in early January 2020.  It is obvious when you look at this chart.

By the second week of the new year, capital continued to pour into the technology sector – pushing it higher by nearly 15% in less than 45 days.  That is an amazing rally to start off 2020 and could possibly be the “rally to the peak” process we’ve been hinting about.

CUSTOM VOLATILITY INDEX WEEKLY CHART

This Custom Volatility Index Weekly Chart is something we use to determine how overbought or oversold the US stock market is in relation to historical VIX weighted price ranges.  When this index is above the GREEN middle range, the US stock market is reaching into extremely bullish trending and overbought territory.  When this index is below the GREEN middle range, the US stock market is reaching extreme bearish trending and oversold territory.  The GREEN middle range is a neutral zone for trading.

Obviously, as VIX spikes and price levels collapse, we can see this Custom Volatility Index falling to levels below 6.0.  As price trends higher with moderately low VIX levels, we continue to see this Custom Volatility Index hover above 12~14.  The downside rotation in the US stock market (the -600 pt Dow day) pushed this Custom Volatility Index from near 22 to 14 – a big reversion event on this chart.  Now, the current level is back above 18 and pushing higher – the rally to the peak is setting up.

FANG WEEKLY CHART

Lastly, this FANG Weekly chart highlights the concentration of capital that has pushed the technology sector, and particularly the FANG stocks, much higher in 2020.  The reality of the situation is that until forward expectations, guidance or global economic functions change, this rally will likely continue for some time.  Our concern is that global market expectations could change very quickly in relative terms because of global economic functions and contractions related to the Corona Virus.

We recently authored an article suggesting that the entire Belt Road sector could become a risk factor if China is pushed into a very deep economic crisis.  China’s banking sector recently underwent a stress test where China’s economy dipped below expected GDP levels.  Nearly 15% of China’s banks will become insolvent if GDP drops below 5.5%.  Nearly 50% of China’s banks will become insolvent if GDP drops below 4.5%.  What happens if China’s GDP drops to 0.5% for a 4 to a 6-month span of time and the Chinese economy sputters in recovery after this Coronavirus event settles?

What happens to the Belt Road Initiative and the projects/relationships China has with those nations if, all a sudden, China enters a “Credit Crisis” in excess of $5 to $6 trillion US dollars.  Bloomberg recently reported that China Home Sales plunged 90% in the first week of February.  You don’t have to be a genius to understand the risks associated with that type of plunge in a key economic growth component.

If our research team is correct, this “rally to the peak” will continue in the US for as long as risk factors stay mildly calm for the US.  Once risk levels elevate across to a point where the US investors and economy may become threatened, then traders will likely begin to bail out of overvalued sectors, like Technology, and into safe-haven investments.  It is critical that skilled traders be prepared for this move because when it happened, it may happen very quickly and violently.

Join my Market Timing Signals Alert Newsletter if you like what you read here and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own.

Chris Vermeulen
www.TheTechnicalTraders.com

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.  Visit our web site to learn how to take advantage of our members-only research and trading signals.

Shipping Rates Plunge, Commodities and Stocks May Follow

An almost immediate reaction to the Coronavirus outbreak in China and throughout most of the world has sent shock-wave through the global markets – particularly seen in Shipping and Oil.  The actions within China to attempt to contain the virus spread include shutting down entire cities and setting up mass quarantine events.  It is estimated that as many as 8+ million people were quarantined within cities in China throughout the Chinese New Year.

Chinese President, Xi Jinping, warned recently that the Coronavirus, and the efforts to stop it, may greatly reduce the Chinese economy over the next few months.  The Chinese President urged top officials to refrain from “more restrictive measures” to contain the virus.  It is our opinion that more restrictive measures are essential to efforts to contain the spread of this virus and that further contraction in the Chinese economy, as well as other economies, are almost set in stone at this point.

Information we’ve received from some friends living in China and Hong Kong suggest travel is very restricted, face masks are very scarce, people are staying inside their homes and surviving as family units within very close contact with one another.  They are scared, trapped and unable to do anything other than try to wait this out.  Imagine what this is doing to the local economies, shops, offices, and businesses?

Reflectively, global shipping rates have collapsed over the past 30+ days as one of the first signs of the contraction in the global markets.  As of December 31, 2019, both Tanker and Dry-Bulk rates were hovering near $14,000 per day.  Now, this rate is near $2500 per day – a -82% decrease.  As you consider the broader aspects of this massive decrease in shipping rates, consider the global contagion event that may setup if the Belt-Road region is adversely hit with the Corona Virus.

Source: Bloomberg.com

SEA SHIPPING SECTOR ETF – DAILY CHART

Shipping stocks are taking a beating. Factories are shut down, the product is not being shipped, and even product ready to be shipped many don’t want to take delivery for the time being.

From a short term standpoint, this sector is looking oversold, but depending on how much the virus spreads we could see another 20% from the current price.

CHINA’S BELT-ROAD INFRASTRUCTURE PROJECTS

China’s Belt-Road Initiative consists of massive infrastructure, port, and other projects throughout Europe, Asia, India, Pakistan, Iran, Turkey, Russia, Africa, and other nations.  These projects have been initiated over the past 5+ years and are well underway.  We believe the spread of the Coronavirus may follow a path along with the Belt and Road projects and potentially infect a larger number of individuals over the next 30+ days than originally expected.  If this virus moves into the Middle East or Africa, containment may become very difficult.

The reality is that Shipping and Commodities could see a dramatic price decline as this virus outbreak continues over the next 60+ days.  Reports are already starting to hit the news wires that Autos and manufacturing supplies are starting to pile up and ports in China.  Without a functioning manufacturing sector and workers to keep everything running, China’s economy will grind to a halt very quickly.

This translates into lower Oil prices, lower raw material prices and higher metals prices.  A capital shift will continue to take place throughout the world where capital will move away from risky environments and towards more secure investment environments.  Thus, capital will move away from Asia, India, the Middle East and potentially Europe and towards the USA, Canada and possibly Mexico.  Everything depends on what happens over the next 60 to 90+ days with regards to this virus outbreak.

MONTHLY CRUDE OIL CHART

This Monthly Crude Oil chart shows how quickly Oil rotated lower in January 2020.  Currently, Oil is trading near $50 per barrel and may break lower towards the $44 to $46 price level before finding any real support.  Overall, our research team believes Oil may reach as low as $35 to $36 ppb before reaching a bottom.  You can read our earlier research here: https://www.thetechnicaltraders.com/oil-begins-to-move-lower-will-our-predictions-come-true.  Within that research post, dated November 19, 2019, we highlighted our earlier predictive modeling research from July 2019 suggesting Oil would break substantially lower in November 2019 and again in February 2020.  We predicted this downside move in Oil nearly 8+ before it happened.

Transportation Index Monthly Chart

This Transportation Index Monthly chart highlights the sideways FLAG formation setting up in the US Transportation sector.  If the US market breaks lower as a result of lower global economic activity, we believe we will see the Transportation Index fall very quickly to levels below $9,500.  A breakdown in the Transportation Index would be an early warning sign that the US economy is headed towards a recession or contraction event.  Global shipping has already confirmed this event is taking place – yet the US Transportation sector has not shown much weakness.

Traders need to be very aware of the risks in the markets and the continued Capital Shift that is taking place throughout the planet.  Capital is running away from risk and pouring into more stable markets.  The ultimate risks to the global economy are for those nations where debt/economy levels are fragile, to begin with – which is why we highlighted the Belt Road project.  If China enters a protective mode where the Chinese Central Bank attempts to bail out Chinese companies/initiatives, we believe the Belt Road project could become a great risk.  And we believe this could happen very quickly given the current market environment.

The dynamics of global markets are changing very quickly.  It is time for traders to prepare for bigger volatility and large range sector rotation.  Follow our research, learn how we can help you stay ahead of these bigger moves in the markets.  2020 is going to be a fantastic year for skilled traders – you just have to stay ahead of the risks and be prepared to take advantage of the opportunities as they are presented.

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

Chris Vermeulen
www.TheTechnicalTraders.com

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.  Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.

2020 – A Close Look At What To Expect

Quite a bit has changed in the global markets and future expectations over the past 4+ weeks.  Q4 2019 ended with a bang.  US/China Trade Deal, US signing the USMCA Continental Free Trade Agreement, BREXIT and now the Wuhan Virus.  On top of all of that, we’ve learned that Germany and Japan have entered a technical recession.  As Q4-2019 earnings continue to push the US stock market higher – what should traders expect going forward in 2020?

Volatility, Sector Rotation, and Continued US Stock Market Strength.

Our researchers have been pouring over our charts and predictive modeling tools to attempt to identify any signs of weakness or major price rotation.  There are early warning signs that the US Stock Market may be setting up for a moderate downside price rotation within the first 6 months of 2020, but we believe the continued Capital Shift that has been taking place over the past 24+ months will continue to drive foreign investment into the US and North American stock markets for quite a while in 2020 and 2021.

The interesting component to all of this, which should keep investor’s attention and really get them excited, is the chance that some type of foreign market disruption may take place in 2020 and 2021.  There are a number of things that could potentially disrupt foreign market expectations.

First on the list is this virus event in China (that seems to be spreading rapidly).  Second would be the news that Japan and Germany have entered a recession.  Further down the list is the very real possibility that many Asian and foreign nations could see a dramatic decrease in GDP and economic activity throughout much of 2020 and 2021.

It is far too early to make any real predictions, but traders need to be aware of the longer-term consequences of global markets entering a contraction phase related to a confluence of events that prompts central bank intervention while consumers, financial sectors and manufacturing and industrial sectors are pummeled.  Imagine what the global markets would look like if 25% to 55% of Asia, Europe, and Africa see a dramatic decrease in economic output, GDP and financial sector activities (on top of the potential for massive loan defaults).  It may spark another Credit Crisis Event – this time throughout the Emerging and Foreign markets.

A massive surge in US stock market valuation has taken place since the start of 2020.  It is very likely that foreign capital poured into the US stock market expecting continued price advancement and very strong earnings from Q4 2019.  This valuation appreciation really started to take place in early 2019 and continued throughout the past 14+ months.  We believe this valuation appreciation is foreign capital dumping into the US markets to chasing the strong US economic expectations.

We believe this surge into the US stock markets will continue until something changes future expectations.  The US Presidential election cycle would usually be enough to cause some sideways trading in the US stock market – maybe not this time.

The fact that Japan and Germany, as well as China very soon, have entered an economic recession would usually be enough to cause some sideways price rotation in the US stock market – maybe not this time.  The potential wide-spread economic contraction related to the Wuhan virus would normally be enough to cause some contraction or sideways trading in the US stock market – maybe not this time.

There is still a risk that price could revert to middle or lower price channel levels at any time in the future.  We’ve highlighted these levels on the charts below.  Yet, we have to caution traders that the foreign markets may be setting up for one of the largest capital shift events in recent history.  If any of these contagion events roil the foreign markets while the US economic activity and data continue to perform well, then we could be setting up for a massive shift away from risky foreign markets/emerging markets and watch global capital pour into Safe-Havens (metals/miners) and pour into the US stock market (US, Canada, Mexico).

We’ve authored numerous articles about how the foreign markets gorged themselves on debt after 2009 while easy money policies allowed them to borrow US dollars very cheaply.  We’ve highlighted how this debt is now hanging over these corporations, manufacturers and investors heads as a liability.  The recent REPO market activity suggests liquidity risks already exist in the global markets.  If these liquidity issues extend further, we could see a much broader market rotation within the US and foreign markets.

DOW JONES INDUSTRIAL AVERAGE – QUARTERLY CHART

Currently, the US stock market appears to be near the upper range of a defined price channel.  Near these levels, it is not uncommon to see some downside price rotation to set up a new price advance within the price channels.  This INDU chart highlights the extended price channel trend, originating from 2008, and the more recent price channel (yellow) originating from 2015.  Any breakdown of these channels could prompt a much broader downside price move.

S&P 500 – QUARTERLY CHART

This SPY chart highlights the extended upside price trend in the US stock markets.  The SPY has recently breached the upper price channel level.  It may be setting up a new faster price channel, yet we believe this rally in early Q1 2020 is more of a reaction to the very strong 2019 US economic data and the continued capital shift pouring capital into the US markets.  A correction from these levels to near $275 would not be out of the question.

TRANSPORTATION SECTOR – QUARTERLY CHART

This Transportation Index (TRAN) chart presents a very clear price channel and shows a moderate weakness recently in this sector.  The fact that the TRAN has consolidated into a middle range of the price channel while the other US stock market indexes continue to push higher suggests the valuation advance in the US stock market is mostly “capital chasing strength of the US economy” than a true economic expansion event.

2020 will likely continue to see more volatility, more price rotation, more US stock market strength and further risks of a reversion event.  We believe forward guidance for Q1 and Q2 will be revised lower as a result of these new global economic conditions originating from Asia, Europe, and Japan.

If the virus event spreads into Africa and the Middle East (think Belt-Road), then we could see a much broader correction event.  In the meantime, prepare for weaker future earnings related to the shut down of industry and consumer sectors throughout much of Asia.

If this “shut down” type of quarantining process extends throughout other areas of the world, then we need to start to expect a much broader economic contraction event.  Minor events can be absorbed by the broader markets.  Major events where global economies contract for many months or quarters can present a very dangerous event for investors.

Overall, we may see another 20 to 40+ days of “sliding higher” in the US stock market before we see any real risks become present for investors.  This means you should start preparing for any potential unknowns right now.  Plan accordingly as this event will likely result in a sudden and potentially violent change in price trend.

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

Chris Vermeulen
www.TheTechnicalTraders.com

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.  Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.