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Coronavirus Induced Bear Market with Chris Vermeulen

Chris Vermeulen says money is moving just as it has in the past 5 waves of panic. This is a normal technical behavior in this type of market. There will be a huge move when money comes back into the stock market within several weeks. This will mark the first bounce in the bear market. All the countries of the world are pumping and dumping money into their economies.

Eventually, the music will come to an end. Dumping trillions may work out well for everyone, Americans, government, and investors. Whatever happens, it’s going to be a major plus for precious metals and mining stocks.

Click Here to Listen to the Audio

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

Four Key Questions To This Crisis Everyone is Asking

Recently, I was asked to participate in a live radio talk with Arnold Gay and Yasmin Wonkers at Money 89.3 Asia First and was sent the following questions to prepare for the show.  I thought this would be a great way to share my thoughts and expectations related to the Covid-19 virus, global economics and what the Central Banks are doing to combat this virus economic event.

The reality is that the bottom in the markets won’t set up until fear subsides and the unknowns related to this virus event are behind us.  Until then, the global markets will attempt to seek out the true valuation levels based on this fear and the unknowns.  This means true valuation could be much further away from current price levels as the virus event is still very fluid in nature.

I’ve included a few of our custom index charts to highlight exactly where the markets are currently situated and have attempted to explain my thinking related to these charts.  Please continue reading.

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

CUSTOM SMART CASH INDEX WEEKLY CHART

This first chart is our Custom Smart Cash Index Weekly Chart.  We had been expecting a breakdown in the US stock market last August/September 2019 (near the origination point of the line on the RSI pane) as our Super-Cycle system indicated a major breakdown was likely near the end of 2019 and into early 2020.

As the US Fed started pumping credit into the Repo market and the US/China trade deal settled over many months, a zombie-like price rally pushed prices higher through December 2019 and into early 2020.  We alerted our members that this was likely a blow-off rally and to prepare for greater risks.

You can see how dramatic the change in trend actually is on this chart.  We have broken the upward sloping price channel and moved all the way to the lower range of the GREEN downward sloping price channel.  This is HUGE.  Near these levels, we believe the US stock market will attempt to find support while continuing to rotate and setup additional “waterfall downside price events”.  These custom indexes help us to understand the “hidden side” of the market price action.

Chart by TradingView

WEEKLY CUSTOM US STOCK MARKET INDEX

This next Weekly chart is the Custom US Stock Market Index and we want you to pay very close attention to the fact that the recent lows have come all the way down to reach the upper range of the 2016 trading range.  Once the 2018 lows were breached, we knew the markets were setting up for a deeper downside price move.

We do believe this current level is likely to prompt some type of “Dead Cat Bounce” or moderate support though.  The entire range of 2016 (low, midpoint and high) are very much in play right now as these represent the current support levels for the US stock market.  We do believe some moderate support will be found near these levels – yet we have to wait for the price to confirm this bottom setup.

Chart by TradingView

WEEKLY CUSTOM VOLATILITY INDEX

This is our Weekly Custom Volatility Index and the extremely low price level on this chart suggests the US stock market may attempt to try to find moderate support soon.  We have not seen levels this low since 2009.  If the markets continue to push lower, this Custom Index will continue to stay below 6.0 as the price continues to decline.  Yet, we believe this extremely low price level may set up a bit of support near recent lows (within the 2016 range) and may set up a sideways FLAG formation before the next downside price leg.

Chart by TradingView

Please continue reading the questions (below) and answers/thoughts to those questions (below the questions).  We certainly hope this information helps you to understand and prepare for the next 6 to 12+ months as we believe the volatility and unknowns will persist for at least another 4 to 6+ months. But keep in mind the market dynamics change on a daily and weekly basis and if you want to safely navigate them and have a profitable year follow my analysis and ETF trades here

QUESTIONS:

1. Rates at zero, massive injections and coordinated central bank action… why isn’t the market convinced the situation is under control?

2. What are investors looking for now – A peak in coronavirus infection rates? A sense that a proper healthcare response is in place and won’t be overwhelmed?

3. The main issue seems to be that this is not a slowdown, but the sudden closure of economic activity, do you see massive fiscal support coming, including bailouts for sectors like airlines?

4. Do you get a sense that the White House finally gets it, and is now moving to reassure markets and ordinary Americans?

ANSWERS/THOUGHTS:

The markets are not reacting to what the global central banks are doing right now and probably won’t react positively until two things happen: fear of the unknown subsides across the globe and the total scope of the global economic destruction is assessed (think of this as TRUE PRICE VALUATION).  Right now, we are in the midst of a self-actuating supply and demand-side economic contraction that will result in a renewed valuation level as markets digest the ongoing efforts to contain/stop this virus.  Where is the bottom, I have an idea of where the bottom might setup – but the price will be what dictates if that becomes true.

If 2018 lows fail to hold as a support level, then we are very likely going to attempt to reach the 2016 trading range and I believe the midpoint and low price range of 2016 are excellent support levels for the market. I show the SP500, Nasdaq and Dow Jones index analysis and prediction in this video below.

What we are looking for in terms of closure of this event (or at least a pathway out of it) is some type of established containment of the event, the spread of the infections and the ability for governments and economies to begin to advance forward again.  As long as we are stuck in reverse and do not have any real control of the forward objective (meaning consumers, corporations and governments are reacting to this event), then we will have no opportunity to properly estimate forward expectations and advancement in local and global economies – and that is the real problem.

The White House and most governments get it and are not missing any data with regards to this virus event.  I truly believe that once this virus event ends and the general population gets back to “business as normal”, the world’s economy will, fairly quickly, return to some form of normal – with advancing expectations, new technology and continued global economic and banking functions.  Until that happens, which is the effective containment and control of this virus event, then no amount of money or speech writing is going to change anything.

Far too many people are acting emotionally and afraid right now.  The facts are simple; until we get a proper handle on this virus event, there will continue to be extended threats to our economy, people, families and almost every aspect of our infrastructure, banking, society and more.  Once the virus event is mostly contained and settled, then we can get back to business cleaning up this mess and finding our way forward.

I’m not worried too much, my research team and I advised our clients to move into bonds and cash before the drop in equities and have been warning our members of a “zombie-rally) for the past 5+ months which took place as expected.  We called for a “volatile 2020 with a very strong potential for a breakdown in global markets” near August 2019.  This is playing out almost exactly like we expected (except we had no idea a virus event would be the cause).

I firmly believe the global leaders and dozens of technology firms will have a vaccine and new medical advancements to address the Covid-19 virus.  I believe this event will be mostly behind us in about 90+ days.  What happens at that point is still unknown, but I believe we will be able to see a pathway forward and I believe all nations will work together to strengthen our future.

In closing, I urge everyone to try to relax a bit and understand this is a broad (global) market event with a bunch of unknowns.  It is not like the Fed can just throw money at this problem and make it go away.  This is going to be a process where multiple nations and various industries and groups of people will have to work together to reduce and eliminate this threat.  Because of that, there are no real clear answers right now – other than to be prepared for a few months of quarantine to be safe.

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

Part III – Crunching Some Numbers – Virus, Market Crash, Rate Cuts

In this section of this multi-part research article related to the potential economic destruction of the Covid-19 virus event across the global markets (Part I, Part II).

We’re going to peer into data related to the GDP and other factors of the US economy.  Remember, the US economy is the largest single economy and consumption component in the world.  As we suggested in our earlier research, the US and China (combined) account for about 30% of the total global GDP each year.  The top 12+ GDP nations on the planet account for just under 80% of the total annual GDP for the globe.  What happens if economic activity and global GDP collapse for the next 24+ months because of the Covid-19 virus?

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

The second thing we want to discuss is the real potential for economic interruption within the global markets.  As of today, the US has declared an emergency status and many states and cities have already started to shut down schools, sporting events, entertainment venues and many other aspects of the US economy.  Additionally, a travel ban has been set up in an attempt to prevent the spread of the Covid-19 virus and the potential of an uncontrolled global contagion.  We believe these travel restrictions will stay in place for at least 60+ days and we believe the spread of this virus will continue for at least another 45+ days before potentially “leveling off”.

The third thing we want to discuss is the economic fallout that is resulting from this Covid-19 event.  It has clearly become evident that exporting a large portion of our manufacturing capabilities to China and other nations puts the USA in a very dangerous situation.  China has threatened to withhold vital medical supplies and other items from the USA over the past few weeks as China attempts to blame the USA for initiating this virus event.  Simply put, America will not be held hostage by China under any circumstances.

Additionally, we believe other mature economies and nations are also starting to reconsider many policies and manufacturing processes related to this event.  Although we don’t have any real proof that this Covid-19 virus event originated in a Chinese lab in China, the very first instance of this virus was documented in China in November 2019 and didn’t really spread to any other country until well into 2020.  It makes perfect sense this Virus originated in China and spread throughout the Chinese New Year to other nations.

Debt and Banking capabilities become a real issue at times when consumers shift spending and economic habits.  Large sectors of the economy become “at-risk” very quickly.  The way our researchers put it is “isolated economic events may cause certain economic events to unfold, but extended economic events put greater pressure on even mostly healthy corporations and enterprises as lack of revenues and a shift in consumer activity can result in a broad market collapse”.

So, here we have the setup of the economic event and now we can speculate about the consequences.  Our researchers believe the immediate needs of all nations is to attempt to contain this virus event and to reconsider policies and manufacturing processes/locations to eliminate risks related to hostile countries.  Is it worth it to save a few pennies to manufacture something while putting your entire nation at risk when an event like this happens?

The funny thing about all major events, like this, is that usually cause people and nations to “shift gears”.  Remember after 9/11 how America shifted away from certain policies and came together to support our military against terrorists around the world?  Remember after the 2008-09 credit crisis how the US took immediate steps to attempt to prevent this type of financial event from happening again and how consumers were “shell-shocked” to re-enter the marketplace after the fallout?  This same type of social constriction happens all over the world as consumers/people act in a flock-mentality.

WHAT DO OUR RESEARCHERS BELIEVE IS THE MOST LIKELY OUTCOME FOR Q1 AND Q2 OF 2020?

We took the past 73 years of quarterly US GDP data and attempted to run two rolling Standard Deviations on them.  The first, a 12 quarter (roughly three years) rolling Standard Deviation.  The second, a full 10-year rolling Standard Deviation.  The purpose of this was to determine how volatile past economic events have been related to these standard deviation ranges.

There have only been a few economic events that meet any of the criteria similar to the Covid-19 virus event.  The closest was the 2008-09 Credit Crisis.  All other events were isolated US types of events related to bubble events and Federal Reserve functions.

1957-1958: a collapse in GDP growth (below the 12 QTR StdDev) took place where GDP contracted by nearly 10 billion (-2%), then almost immediately rebounded back to 2x StdDev growth by 1959.

Mid 1960 to mid-1961: GDP growth collapsed to below 1x StdDev range, at one point almost stalling in Q1 1961, then immediately rebounded back to 2x StdDev growth by the end of 1961.

Q1 1982 to Q1 1983: GDP growth stalled to levels near 0.5 StdDev range for a period of 12 months before slowly rebounding back to 1x+ levels by late 1983 into 1984.

Q3 1990 to Q4 1991: GDP growth stalled to nearly 0.6 of the StdDev range, then rebounded back to 1.5x StdDev range by Q2 1992

Q4 2000 to Q3 2002: The Dot Com bubble and the 9/11 terrorist attacks resulted in an extended contraction in GDP expansion throughout this time.  By Q4 2001, GDP growth was only 0.53x the StdDev range.  Growth finally rebounded in late 2002.

Q1 2008 to Q1 2010: The Credit Crisis really took a toll on GDP.  Throughout most of 2008, GDP levels were still positive and above 0.5x the StdDev range.  Yet in Q3 2008, everything turned negative and GDP reached an extreme (-2.088x) StdDev range in Q3 2009.  Gdp rebounded back to 2x StdDev range in Q1 2010.

Q3 2015 to Q3 2016: This was an election year GDP contraction.  GDP continued to grow, but fell below the 1x StdDev range that seems to be very consistent.  Q4 2016 returned to levels above 1x StdDev.

What this shows us is that a -2x StdDev range is not uncommon and that a bigger move could take place with the right global economic setup.  A 3x or 4x GDP reversion (downside collapse) is also not out of the question if certain circumstances setup to present such an event.

IN CONCLUSION

This lengthy article and extensive research, our researchers do believe a 2x to 3x GDP reversion event is on the immediate horizon.  Given current data points and the fact that we’ve had little “transition” from previous growth phases to this potential new contraction phase, we believe the GDP contraction for Q1 2020 is likely going to be -10% or more from previous levels.  We believe Q2 GDP contraction may actually be higher (-12% or more).  This will be the result of China’s contracting and quarantining economy as well as the fallout from the continued spread of the Covid-19 virus throughout the rest of the world.

We believe Q4 2020 may result in a positive GDP quarter before further GDP contraction takes place in early 2021. We believe this will likely be the result of extended global economic malaise, global banking issues, global credit, and corporate earnings issues and the possibility that a global asset revaluation event may be taking place (similar to the 2008-09 Credit Crisis event).  This time, though, we believe it will be foreign markets engaging in a Credit Crisis and asset revaluation process that will drag the US economy into a 2021~2023 slump.

A 2x StdDev GDP event right now would be a collapse of $1.65T.  A 3x StdDev GDP event right now would be a collapse of $2.486T.  A 4x StdDev GDP event (God forbid), right now would be a collapse of $3.316T.  Remember, it is not really the size that matters – it is the length of time this contraction takes place.

Be prepared for some really ugly earnings data in Q1 an Q2 of this year, then we’ll figure out if our expectations were accurate or not and what we should be doing to plan going forward.

The type of market condition I think we have entered could be here for a long time, and it’s going to be a traders’ market, which means you must have a trading strategy, plan your trades, and trade your plan. It’s amazing how simple a few trading rules that are written down on paper can save you thousands of dollars a week or month from locking in gains or cutting losses.

I have this mini trading strategy mastery course if you want to take control of your trades and override your emotional issues. And also if you want to start making money from home which is the only option going forward the next 3-6 months from the looks of it my trading as a business program is something to think about doing.

– If you hold winners until they turn into losers

– Taking too large of a position and get stuck with a drawdown so large that if you close the position you will lose 10-50% of your trading account

– have mastered the art of buying high and selling low repeatedly?

All these things happen to most traders, and they can easily be overcome with a logical game plan I cover in the crash courses, pun intended 🙂

In short, if you have lost money with your trading account this year giving back years of gains, I think it’s worth joining my trading newsletter so you can stay on top of the markets and if you really want to excel take my mini-courses. I take the loud, emotional, and complex markets and deliver simple common sense commentary and a couple of winning trades each month for you to follow.

My trading is nothing extreme or crazy exciting because I’m not an adrenaline trading junky. I only want to grow my entire portfolio 2-4% a month with a couple of conservative ETF trades. Earning a 22%-48% return on my capital every year without the stress of being caught up in this type of market, and knowing I have a proven bear market trading strategy incase this market continues to fall is a comforting thought.

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

Crunching Some Numbers – Our Researchers Share Their Data – Part II

Continuing our earlier multi-part research post related to our extensive number crunching and predictive modeling systems expectations going forward many years, (Part I) this second part will highlight some existing data points and start to discuss the concepts of what the Covid-19 virus event may do to the immediate global economy.  Remember, in the first part of this article, we shared research related to the US Fed Funds Rate (FFR) and how the Covid-19 virus event may create an environment of economic malaise over the next 12 to 24+ months as well as potentially disrupt the population and deficits over a 5+ year span.

This type of event is very similar to war (think WWII) in the sense that consumer spending changes, population growth, and levels change, GDP changes and deficits change for all involved.  Our researchers modeled the GDP levels from 2017 will now with the intent of attempting to identify probable outcomes of GDP output throughout the world over the next 5+ years.  Throughout these types of events, a massive capital shift takes place where consumers within areas impacted by war shift their spending and purchasing habits to address the immediate real needs of their attempted survival.  Speculation vanishes.  People only spend on things they are confident they can afford to risk their money on.  Anyone who is able to take advantage of the displaced or disparaged has a real opportunity to create some real gains if they don’t become the next displaced or disparaged individual.

Here is some data we used to model what we believe will happen over the next 2 to 5+ years as a result of the Covid-19 virus event.  We are using this global data as a basis for our modeling going forward and attempting to align 2018 and 2019 data with that reported by the St. Louis Federal Reserve data.  Our objective is to attempt to identify the scope and extend of any potential change in economic cycles going forward and to prepare our friends and followers of what to expect.

This data illustrates the scale and scope of the total global GDP output of all the nations on the planet for 2017.  It is important to understand that China and the United States are the two biggest GDP producers of all nations.  Between the US and China, both nations produce roughly 40% of the world’s total GDP annually.  When you consider all nations producing more than $1.5T in annual GDP on this graphic, these 12+ nations (including OTHERS) produce nearly 78% of the world’s total GDP annually.

The nations that make up this list of top GDP producing nations are:

These nations (and the group of nations listed as OTHERS) total almost 80% of total annual GDP across the entire planet.  Keeping in mind that we are attempting to model the Covid-19 virus event, which nations are likely to be the hardest hit on this list?  Obviously China, Japan, Germany, Italy, South Korea, and the United States are all prime targets of the Covid-19 virus event.  Brazil, Canada, France, India, and Others are secondary targets for GDP disruption.  Yet, their proximity to the price candidates makes them fairly easy targets for future GDP disruption related to the Covid-19 virus.

The point we are trying to make by illustrating this is that 80% of the world’s total GDP is at risk over the next 24+ months related to shifting consumer spending, central bank activities, asset valuation levels and much more.  We’re not talking about 4% or 5% of the world – we’re clearly showing you that 80% of the world’s total economic output is within the cross-hairs of this virus event.

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

Our modeling suggests the 2017 GDP levels presented by the image (above) and the subsequent yearly REAL GDP levels presented by the St. Louis Federal Reserve deliver this data as a basis for our modeling system.

Our attempted modeling of the Covid-19 virus event across global economies is based, in part, on what happened in the 2008-09 Credit Crisis event.  Throughout that span of time (2008 to 2009), US GDP fell -3.36% over 12 to 16 months.  The difference between this Credit Crisis event and the Covid-19 event is that the Covid-19 event appears to be disrupting a broader segment of economic sectors across dozens of nations/cities all at once.  Whereas the Credit Crisis event resulted in somewhat isolated asset and economic contractions related to banking, insurance, credit, and assets – the Covid-19 virus event appears to be much broader in scope and consequences.  Our researchers believe the Covid-19 virus event will reach nearly every segment of the global economy in some way or form – causing some type of economic disruption either in supply, demand or overall consumer activity related to the sector/economic component.  Therefore, we believe the scope of the contagion event related to Covid-19 will be, at a minimum, 2x to 3x the scale and scope of the Credit Crisis.

We’ve come to the conclusion that the disruption to earnings, revenues, expenses and other economic factors across a broad spectrum of global economic outputs may look something like this.

This image has an empty alt attribute; its file name is image.png

We believe Q1 and Q2 of this year will be a disaster for almost all nations.  We believe there is a chance Q3 and Q4 2020 may see a moderately strong recovery (or the start of a recovery).  We believe winter 2020 and into 2021 may bring further influenza type illness and may begin the process anew.  Or, we believe the recovery process may be somewhat stalled in 2021 as we believe the fallout from the previous year may still be taking place across multiple asset classes and corporate level and banking/insurance level industries.  We believe that by mid-2022 and early 2023, the global economy will begin to find a solid foundation for future economic growth and that global GDP may begin to move higher overall.

We are basing our modeling process on the information we have gained from our experience in the markets and from living through the 2008-09 Credit Crisis event.  Far too many people fail to understand the contagion event process that takes place when consumers abandon traditional spending patterns as income levels become more “at-risk”.  As we’ve suggested many times in previous articles, consumer spending and the “flock mentality” is not something to underestimate.  Current GDP levels are calculated mostly by consumer spending activity.  Think about what that means going forward.

Here are some St. Louis Federal Reserve data charts that we used in attempting to model these results.

A potential further decrease in M2 (velocity of money) throughout this Covid-19 virus event is very likely.  This is one of the primary reasons we believe this event may last more than 24 months in total span.  We believe the continued decline of the M2 velocity level is a very strong indication that historical levels of economic activity (1965 through 1995) simply are not present in today’s global economic world.  This complicates how money is used within the global market – it is being engaged as active money transactions by a -30% ration than 1995 levels. If M2 continues to decline, we believe the consequence of this move will relate to an even slower recovery from the Covid-19 virus event.

In the next part of this article, we’ll explore the real data points and outlier expectations of the 2020 Covid-19 virus event.

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

Crunching Some Numbers – Our Researchers Share Their Data – Part I

This is one of those articles that are packed with resources showing your what to expect for various assets both long-term and short-term and will guide you through these volatile times and this year.

Our friends and followers continue to contact us asking what to expect and what should they be doing with their assets and trades?  Our research and analysis have been very clear up to this point; we warned of a Zombie Rally in early November and early December 2019, we warned that Oil would fall below $40 on November 15, 2019, and we warned of a global Black Swan event on January 26, 2020.

January 26, 2020: THE BLACK SWAN EVENT BEGINS

December 2, 2019: IS THE CURRENT RALLY A TRUE VALUATION RALLY OR EUPHORIA?

November 15, 2019: WHEN OIL COLLAPSES BELOW $40 WHAT HAPPENS? PART III

November 10, 2019: WELCOME TO THE ZOMBIE-LAND OF INVESTING – PART I

All of this research, in addition to our other research, was very clear that we believed the upside price rally that began in September/October 2019 was a “Zombie-like” price advance that didn’t have a supporting fundamental or technical foundation.  We were warning clients and followers to use this advance as a means to move away from risk and into more of a cash position – in preparation for a future event that we believed was setting up.  One of the clearest examples of our research team attempting to prepare our followers for what we expected in early 2020 was this post.

December 20, 2019: WHO SAID TRADERS AND INVESTOR ARE EMOTIONAL RIGHT NOW?

LIVE FROM NASDAQ

On Friday I was on TV “live from NASDAQ with TD Ameritrade” talking about the technical breakdown on the charts and what to expect here

S&P 500 TOPPING CHART PATTERN

This article highlighted our belief that a major topping pattern was set up and that this same price pattern happened just before other major peaks in the US stock market.  The Stealth, Awareness, and Mania Phases seemed to be in place – the only thing left was the Blow Off Phase.

This article, today, is going to attempt to share some additional research data developed by our team to help you better understand the potential future outcome of this unfolding event.  As with anything we share related to making future price predictions or analysis, this is all based on our research team’s understanding of various global economic fundamentals and expectations related to capital functions throughout the global economic environment.

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

Let’s get started…

FED FUND RATE & EXPECTATIONS

First, we want to share with you our modeling of the US economy and the Fed Funds Rate Optimal Levels which will assist all of us in understanding the future expectations and actions by the US Fed related to future economic modeling.  This chart, created by our research team in early 2018, attempts to model the optimal US Fed Funds Rate (FFR) levels based on a decline in population and GDP while US Deficits also decline moderately after 2020 – in other words, more of the same type of global economic functions.

If the Covid-19 virus pushes the GDP lower while government expenses increase and consumer spending/activity decreases, we believe this model is most likely a proper representation of what to expect by the US Fed going forward.  As you can see, this modeling system draws an expected FFR level in BLUE, a high variance level in PINK and a low variance level in GREY/TURQUOISE.  After the near-zero rates after the 2008-09 credit crisis, our model expected the Fed to begin raising rates in 2013 and for rates to peak near 2017.  We believe the US Fed was behind the curve in their actions to adjust the FFR levels throughout most of the past 8+ years.  Although, The US Fed has positioned current rates very near to where our predictive modeling system expects for 2020; between 1.25~1.50%.

The future of this model suggests the US Fed will normalize rates near 1.0% as early as 2022 or 2023 and keep rates near 1.0% until sometime near 2027 or so.  This model suggests a substantial advance in the US stock market may take place sometime between 2022 and 2028 – before it appears the US Fed will have to address another type of crisis event in near late 2028, or 2029, or early 2030.

How this chart plays into the current Covid-19 expectations is simple, the US Fed will have to attempt to lower rates while stimulating the US and global economies in conjunction with other Central Banks.  This modeling system does not take into consideration a pandemic event or other type of Black Swan event.  It does take into consideration modeled optimal levels based on a decrease in population, a decrease in GDP and an increase in US Deficits.

CONCLUDING THOUGHTS:

The point of this article is to share some of our data and our future expectations with you, our friends and followers.  As we continue to post additional sections/parts of this article, we’ll dig deeper into our research and forward expectations.  Remember, we’ve just highlighted two charts that show potential global economic expectations well into and past 2030.  We’ve also shared some predictive modeling that suggests a period between 2021~22 and 2027 should be relatively calm and trendy (likely Bullish) for the US markets.  Keep this in mind as we continue our future article posts.

The type of market condition I think we have entered could be here for a while, a year or three, and it’s going to be a traders market, which means you must have a trading strategy, plan your trades, and trade your plan. It’s amazing how simple a few trading rules are written down on paper can save you thousands of dollars a year from locking in gains, or cutting losses. I have this mini trading strategy mastery course if you want to take control of your trades and override your emotional issues. It’s easy to hold winners until they turn into losers, taking to large of a position, or maybe you have masted the art of buying high and selling low repeatedly? Yikes! It happens to most traders, and it can easily be overcome with a logical game plan I cover in the crash course, pun intended 🙂

In short, if you have lost money with your trading account this year, holding some big losing trades that were big winners just a couple of weeks ago, I think it’s worth joining my trading newsletter so you can stay on top of the markets. I take the loud, emotional, and complex market and deliver simple common sense commentary and a couple of winning trades each month.

My trading is nothing extreme or crazy exciting because I’m not an adrenaline trading junky. I only want to grow my entire portfolio 2-4% a month with a couple of conservative ETF trades. Making 22%-48% return on my capital every year without the stress of being caught up in this type of market, feeling like I always need to be in a trad, and knowing I have a proven bear market trading strategy incase this market continues to fall is crucial for capital preservation, and my health.

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

Where’s the Bottom? – Cycles Paint A Clear Picture

Has the selloff ended?  When will it end?  What will the bottom look like and am I at risk of taking further losses?  What should I do?

Do you want to take a guess at how many of our friends and family members are calling us over the past week or so asking these questions?  Personally, I get bombarded with dozens of emails every day from friends and other family members asking “where’s the bottom?  What should I do?”.

This post is going to help you understand the structure of the markets and what is really happening.  Price always attempts to seek out new price highs or new price lows.  In this case, we are seeking out new price lows with a downside price rotation.  Price structure, which is normally discussed in Elliot Wave structures is the process of setting up new higher high or lower low waves as price rotates in a defined wave structure.  Keep in mind the broader wave structure that is currently unfolding.

Over the past 16+ months, we’ve suggested that the price rotation in 2018 was a Wave 4 downside price rotation of a Wave C upside price structure.  If our analysis is correct, the last rally we just experienced (ending near February 1, 2020) was the end of a Wave 5 upside price move that completed the Wave C upside price structure.  This would indicate a very real possibility that the current downside price trend is a Wave 4 downside price move.

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For readers that are not familiar with the Elliot Wave process/structure, each major wave (1 through 5 or A through C) can consist of various types of minor wave structures (as you can see from the middle chart in the example above.  The major wave 1 could consist of a 5 wave minor wave structure (as shown).  The major wave 2 could consist of a 3 wave minor wave structure (as shown) or even a downside 5 wave structure.

Going even further, each of these minor wave structure could consist of even smaller price wave structures.  These types of price rotations often populate in 1, 3, 5, 7, 9, 13 and 21 wave structures.  Unlocking the major wave count and minor wave count can help us unlock swing trading and day trading opportunities.

So, to put into context what we are attempting to convey to you is that we believe the peak in early February 2020 was the end of a major wave 3 and the start of a major wave 4 (to the downside).  Because the upside price wave 3 originated after the 2009-10 price bottom, we believe true support in the markets is likely the midpoint of the 2018 price rotation range or near the low price levels of 2018.  These price levels represent a very clear support level and low price target level that continues to follow the price structure rules of Fibonacci and Elliot Wave.  If the 2018 lows are breached and the markets continue to push lower, then we fall back to the 2016 price lows and midpoint level.

WEEKLY YM CHART – DOW JONES

This Weekly YM chart highlights the two lower MAGENTA lines that we believe represent clear price support for the Dow Jones (24,000 & 21,450).  At this point, the YM has already moved below the 24,000 level and closed trading on Monday, March 9, near 23,900.  Although this price level has breached the 24,000 level, we do not consider “support” a hard level (like concrete).  It is like water in many cases and it matters what price does when it reaches this level.  If price finds support near this level, it will begin to bottom out and potentially trade sideways before attempting to move higher.  If not, the price may stall near this 24,000 level before breaking down to the 21,450 level (or lower).

We do believe the INDU/YM will put in a bottom before the ES and NQ do.  Thus, we believe support will be found in the INDU/YM well before support is found in the other major US stock market indexes.

SPY WEEKLY CHART – S&P 500

This SPY Weekly chart highlights the same setup with the two MAGENTA lines we’ve drawn.  The first level of support for SPY is $261~$262.  We believe this midpoint of 2018 high to the low trading range will offer a fairly strong support level for the SPY to attempt to set up a price bottom.  Below that, the $234 level (the lower range of the 2018 trading year) would provide very clear support for the SPY.

The same type of price theory and expectations are at play on this chart as with the YM chart above.  The YM has already reached our first level of support, yet the SPY is still $12 away from this first support level.  This would suggest the YM may begin to set up some type of price support while the SPY may continue to trail a bit lower over time.

If this first level of support does not hold, then we would be looking for the 2018 price low levels (near $234) to become the next target for support.  Ultimately, the price must either continue to attempt to break previous low price points as it attempts to establish “new price lows” or, at some point, it will fail to break past lows and that is where it will find support.  The midpoint, often called the “belt line” (a Japanese Candlestick term) is used by technicians for two reasons: first, it represents 50% of a defined price range and, second, Japanese Candlestick theory teaches us the BeltLine is “the center of control” or price.  Once price breaks this level, then further trending may continue.

NQ WEEKLY CHART – NASDAQ

Lastly, this NQ Weekly chart with the three MAGENTA lines drawn on it.  The top line is the 2018 price peak level.  The middle line is the midpoint of the 2018 trading range.  The lower line is the bottom of the 2018 trading range.

The NQ has been the high-flying sector in the US stock market for many months.  You can see the massive rally that took place near the end of 2019 pushing the NQ up to nearly 10,000 before the recent correction.  Compared to the YM and SPY charts, it is easy to see the NQ rallied much stronger than the others.  This is why we believe the downside price move in the NQ could also be far greater in scope than the YM or SPY.

If the NQ falls to our midpoint level (near 6795), the NQ must call another -1100 points to reach this level.  Whereas the YM has already reached this critical price level and the SPY is only about $12 away from that same level.  Therefore, the NQ, in our opinion, could continue to trend broadly lower throughout Q1 and possibly into Q2 before finding any real support.

The low price range of 2018 puts final support for the NQ near 5,832.  From current levels, if price falls to this support level, it would total an additional -2066 point decline (-26.11%).  It would also represent a massive -40% selloff from the peak set in February 2020 (near 9763).

Where’s the bottom?  What’s next?  Our advice would be NOT to chase this selloff and NOT to attempt to bottom pick this move.  We believe the Covid-19 virus event will last well past April/May 2020 and we believe both Q1 and Q2 results will be far below expectations.  Therefore, we don’t believe any real bottom will setup before May, June or July of 2020 – after Q2 earnings are announced and contingent on the virus event subsiding and earnings starting to recover.  Otherwise, we could be “searching for a bottom” for quite a while yet.

Still, massive price rotations are taking place in the major markets and various sectors.  If you are a skilled trader and are able to manage risk properly, you should be able to identify multiple opportunities over the next 90+ days for incredible trades.  We know we certainly are finding them.

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

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

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Chris Vermeulen
Chief Market Strategist
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

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

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.