U.S. Stock Markets Could Rally Beyond Expectations

Late Sunday afternoon, President Trump surprised the global markets with the announcement of increased trade tariffs with China relating to the ongoing trade negotiations and delayed trade talks between the two global superpowers. The global markets reacted immediately upon the open Sunday night (Asian open). The VIX short position puts quite a bit of professional traders at risk of big losses today while those of us that were prepared for an increase in volatility and price rotation is poised for some incredible opportunities.

The U.S. stock market is set up for a price move that will likely make many people very wealthy while frustrating many others over the next few months. We’ve recently posted many articles regarding the 2020 U.S. Presidential election cycle and the fear cycle that comes from these major political events. In November 2016, we remember watching Gold rally $60 early in the election night, then fall $100 as news began reporting the surprise winner. There is so much capital, and future capital expectations that ride on these election cycles – it can actually drive the markets in one direction or another.

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Right now, we have two things we want to alert you to regarding our proprietary Fibonacci price modeling utility. First, the current trend is Bullish and the chance of a downside price move is still valid. Remember, one of the primary price rules within Fibonacci price theory is that price must ALWAYS attempt to seek out new highs and new lows – at all times. This means that once price establishes new price highs, any failure to continue establishing new price highs, through standard price rotation, will result in its price attempting to establish new price lows.

So, as we continue with our expectations, remember that any failure of price to continue the push higher means it WILL rotate lower and attempt to establish new price lows.

Taking a look at this IWM Monthly chart shows a very clear price rotation near the end of 2018 and that the current price has yet to rally above the October 2018 highs. In this instance, we have a FAILURE to establish new price highs within the current price move. We also have a new price low established in December 2018. This high and low sets up the range of $173.99 and $125.80. Fibonacci price theory tells us that PRICE WILL attempt to establish a new price high or new price low from within this range. Therefore, the price WILL either continue to rally higher and break the $173.99 level or price WILL reverse lower, without reaching the $173.99 level and target the $125.80 level.

Our modeling system is currently telling us that price and trend is bullish and that the current price level has clearly rallied above the Fibonacci price trigger levels near $143.50. Should price rotate lower and breach these Fibonacci price trigger levels, then we would expect the price to move much lower. Right now, we don’t expect that to happen based on a strong U.S. economy, employment and earnings.

This Monthly SPX chart shows a similar setup – yet the main difference is that the current HIGH PRICES are clearly above the October 2018 previous highs. Thus, in this instance the SPX has reached “new price highs” as a component of Fibonacci price theory and, because of this fact, must continue to strive for new price highs or risk failing and rotating lower to establish new price lows.

In fact, the past three trading sessions are proprietary SP500 index trading system issued two quick winning trades for members. The two trades pulled 2.5% and 2% out of the market in less than 24 hours from the entry prices. This momentum and trend trading system are going to be a new trading weapon for us to follow and trade the markets once we implement this into the member’s area for viewing the charts and signals at any time.

Take a look at last weeks trade and today’s trade which both hit T1 (Target 1).

Take a look at the chart below then consider what that last statement really means. It suggests that we have already reached into new price high territory. Fibonacci theory suggests that “once new price highs are established, the trend MUST continue to attempt to establish new higher price highs – OR FAIL and attempt to establish a new price low. Well, a failure at this level could mean a price move all the way back towards recent lows near December 2018 – near $2346.58. Therefore, it is critical that we see other markets, like the IWM, continue to push higher in an attempt to support this broader upside price move for all the U.S. major stocks.

The most important factor going forward is to be prepared to think and react very quickly to price rotations, news, and the election cycle process. Take a look at how volatile the market has become over the past 12 months and consider the fact that we could continue to see this type of volatility in the markets for the next 15+ months – at least through the election cycle process.

Remember also that the US economy is operating on very strong fundamentals, employment, and outputs. Disruption of future expectations could lead to a massive displacement of capital in the global markets. Watch crude oil, gold, silver and other commodities for any signs of weakness. And pay attention to the levels we are suggesting in this research post. If the SPX falls below $2600 – be prepared. If the IWM falls below $142 – be prepared. Price is always seeking out new price highs and new price lows. If it can’t get one side, it will attempt to get the other.

The global market “Shake out” that we wrote about weeks ago is just starting. Our expectations are that an increase in price volatility, as well as a minor price rotation, will take place in the U.S. markets before a continued upside price bias will drive prices higher again. There are two main drivers that will become leaders of any bigger rotation in the global markets – Metals and Commodities. If we begin to see a collapse in commodity prices, pretty much across the board, while metals breakout into a rally, then we are setting up for a bigger downside price move. Until that happens, continue to expect an upside price bias to continue in the U.S. stock market.

Secondly, should a massive currency revaluation event take place, where global currencies weaken as the U.S. Dollar stays strong, then we could be setting up for a “slow unraveling” of foreign debt markets and foreign equity markets. This would be almost like a “slow bleed out” as a currency devaluation event prompt incredible pricing pressures on local foreign governments to support their economies. These devaluation events, if they happen, could prompt a hyper inflation type of event that could disrupt weaker nations to such a degree that they could weaken world leading economies that have exposure to these foreign nations – Think China/Russia.

Our advice continues to be to look for opportunities as the volatility increases and continue to expect an upside price bias in the U.S. stock market – at least until we have any strong evidence that price trend has changed. Don’t buy into the doom-sayers just yet. In our opinion, this U.S. upside price move is not over yet.

If you want to become a technical trader and pull money from the markets during times when most others cannot be sure to join the Wealth Trading Newsletter today. Plus, for a few days only I’m giving away and shipping Free Silver Rounds to subscribers who join our select membership levels.

Chris Vermeulen @ The Technical Traders

How Bitcoin Will Make You Big Money Again

If you are a Bitcoin fan or looking for the next opportunity for a Bitcoin rally, you may not have long to wait before a price breakout takes place. Our research team at The Technical Traders believes a price breakout may occur before the end of 2018 – the only question is will it be a breakout rally or a breakdown crash before the next mega rally?

Cryptos and, in particular, Bitcoin has increased in popularity and adoption over the past 24 months across the globe. Recently, Citigroup has announced new technology making Crypto transactions more secure and reducing the risk of such transactions. Additionally, Circle recently announced a US Dollar based Crypto currency that is backed by Goldman-Sachs. News from Europe is that the EU has been urged to adopt common Crypto Currency rules that will fuel more attention and enterprise on developing suitable Crypto solutions for the European markets.

All of this plays into our research that a breakout/breakdown is inevitable and it is just a matter of time before this coiling price consolidation “apexes” and expands.

This chart shows massive breakdown washout below $6000 taking it back to prices before crypto became popular in early 2017.

This next chart below shows our cycle analysis and how much bitcoin moved from our cycle bottoms to tops. We are now at NEARING a critical juncture of a $6000 breakdown which is clearly a support level, and a potential major cycle bottom or continuation down cycle. Huge money can be made from this extreme volatility that is about to unfold and savvy technical traders can see the profit potential unfolding.

We urge all traders to keep Cryptos in focus over the next few weeks and months. Our research team shares our proprietary analysis and research with our paid members regarding the Crypto currency trends and trades.

If you want to learn what we believe will be the next big move in the Crypto markets, then visit The Technical Traders to learn more. Our proprietary modeling systems are clearly showing us what we should expect over the next few weeks and months. As a member, you will have access to this research and benefit from our Daily Research Videos.

Chris Vermeulen

Hidden Gems Shows A Foreboding Future

A quick look at any of the US majors will show most investors that the markets have recently been pushing upward towards new all time highs. These traditional market instruments can be misleading at times when relating the actual underlying technical and fundamental price activities. Today, we are going to explore some research using our custom index instruments that we use to gauge and relate more of the underlying market price action.

What if we told you to prepare for a potentially massive price swing over the next few months? What if we told you that the US and Global markets are setting up for what could be the “October Surprise of 2017” and very few analysts have identified this trigger yet? Michael Bloomberg recently stated “I cannot for the life of me understand why the market keeps going up”. Want to know why this perception continues and what the underlying factors of market price activity are really telling technicians?

At ATP we provide full time dedicated research and trading signal solution for professional and active traders. Our research team has dedicated thousands or hours into developing a series of specialized modeling systems and analysis tools to assist us in finding successful trading opportunities as well as key market fundamentals. In the recent past, we have accurately predicted multiple VIX Spikes, in some cases to the exact day, and market signals that have proven to be great successes for our clients. Today, we’re going to share with you something that you may choose to believe or not – but within 60 days, we believe you’ll be searching the internet to find this article again knowing ATP (Active Trading Partners) accurately predicted one of the biggest moves of the 21st century. Are you ready?

Let’s start with the SPY. From the visual analysis of the chart, below, it would be difficult for anyone to clearly see the fragility of the US or Global markets. This chart is showing a clearly bullish trend with the perception that continued higher highs should prevail.

Additionally, when we review the QQQ we see a similar picture. Although the volatility is typically greater in the NASDAQ vs. the S&P, the QQQ chart presents a similar picture. Strong upward price activity in addition to historically consistent price advances. What could go wrong with these pictures – right? The markets are stronger than ever and as we’ve all heard “it’s different this time”.

Most readers are probably saying “yea, we’ve heard it before and we know – buy the dips”.

Recently, we shared some research with you regarding longer term time/price cycles (3/7/10 year cycles) and prior to that, we’ve been warning of a Sept 28~29, 2017 VIX Spike that could be massive and a “game changer” in terms of trend. We’ve been warning our members that this setup in price is leading us to be very cautious regarding new trading signals as volatility should continue to wane prior to this VIX Spike and market trends may be muted and short lived. We’ve still made a few calls for our clients, but we’ve tried to be very cautious in terms of timing and objectives.

Right now, the timing could not be any better to share this message with you and to “make it public” that we are making this prediction. A number of factors are lining up that may create a massive price correction in the near future and we want to help you protect your investments and learn to profit from this move and other future moves. So, as you read this article, it really does not matter if you believe our analysis or not – the proof will become evident (or not) within less than 60 days based on our research. One way or another, we will be proven correct or incorrect by the markets.

Over the past 6+ years, capital has circled the globe over and over attempting to find suitable ROI. It is our belief that this capital has rooted into investment vehicles that are capable of producing relatively secure and consistent returns based on the global economy continuing without any type of adverse event. In other words, global capital is rather stable right now in terms of sourcing ROI and capital deployment throughout the globe. It would take a relatively massive event to disrupt this capital process at the moment.

Asia/China are pushing the upper bounds of a rather wide trading channel and price action is setting up like the SPY and QQQ charts, above. A clear upper boundary is evident as well as our custom vibrational/frequency analysis arcs that are warning us of a potential change in price trend. You can see from the Red Arrow we’ve drawn, any attempt to retest the channel lows would equate to an 8% decrease in current prices.

Still, there is more evidence that we are setting up for a potentially massive global price move. The metals markets are the “fear/greed” gauge of the planet (or at least they have been for hundreds of years). When the metals spike higher, fear is entering the markets and investors avoid share price risks. When the metals trail lower, greed is entering the markets and investors chase share price value.

Without going into too much detail, this custom metals chart should tell you all you need to know. Our analysis is that we are nearing the completion of Wave C within an initial Wave 1 (bottom formation) from the lows in Dec 2016. Our prediction is that the completion of Wave #5 will end somewhere above the $56 level on this chart (> 20%+ from current levels). The completion of this Wave #5 will lead to the creation of a quick corrective wave, followed by a larger and more aggressive upward expansion wave that could quickly take out the $75~95 levels. Quite possibly before the end of Q1 2018.

We’ve termed this move the “Rip your face off Metals Rally”. You can see from this metals chart that we have identified multiple cycle and vibrational/frequency cycles that are lining up between now and the end of 2017. It is critical to understand the in order for this move to happen, a great deal of fear needs to reenter the global markets. What would cause that to happen??

Now for the “Hidden Gem”....

We’ve presented some interesting and, we believe, accurate market technical analysis. We’ve also been presenting previous research regarding our VIX Spikes and other analysis that has been accurate and timely. Currently, our next VIX Spike projection is Sept 28~29, 2017. We believe this VIX Spike could be much larger than the last spike highs and could lead to, or correlate with, a disruptive market event. We have ideas of what that event might be like, but we don’t know exactly what will happen at this time or if the event will even become evident in early October 2017. All we do know is the following....

The Head-n-Shoulders pattern we first predicted back in June/July of this year has nearly completed and we have only about 10~14 trading days before the Neck Line will be retested. This is the Hidden Gem. This is our custom US Index that we use to filter out the noise of price activity and to more clearly identify underlying technical and price pattern formations. You saw from the earlier charts that the Head n Shoulders pattern was not clearly visible on the SPY or QQQ charts – but on THIS chart, you can’t miss it.

It is a little tough to see on this small chart but, one can see the correlation of our cycle analysis, the key dates of September 28~29 aligning perfectly with vibration/frequency cycles originating from the start of the “head” formation. We have only about 10~14 trading days before the Neck Line will likely be retested and, should it fail, we could see a massive price move to the downside.

What you should expect over the next 10~14 trading days is simple to understand.

Expect continued price volatility and expanded rotation in the US majors.

• Expect the VIX to stay below 10.00 for only a day or two longer before hinting at a bigger spike move (meaning moving above 10 or 11 as a primer)
• Expect the metals markets to form a potential bottom pattern and begin to inch higher as fear reenters the markets _ Expect certain sectors to show signs of weakness prior to this move (possibly technology, healthcare, bio-tech, financials, lending)
• Expect the US majors to appear to “dip” within a 2~4% range and expect the news cycles to continue the “buy the dip” mantra.

The real key to all of this is what happens AFTER October 1st and for the next 30~60 days after. This event will play out as a massive event or a non event. What we do know is that this event has been setting up for over 5 months and has played out almost exactly as we have predicted. Now, we are 10+ days away from a critical event horizon and we are alerting you well in advance that it is, possibly, going to be a bigger event.

Now, I urge all of you to visit our website to learn more about what we do and how we provide this type of advanced analysis and research for our clients. We also provide clear and timely trading signals to our clients to assist them in finding profitable trading opportunities based on our research. Our team of dedicated analysts and researchers do our best to bring you the best, most accurate and advanced research we can deliver. The fact that we called this Head-n-Shoulders formation back in June/July and called multiple VIX Spike events should be enough evidence to consider this call at least a strong possibility.

If you want to take full advantage of the markets to profit from these moves, then join us today here at the Active Trading Partners and become a member.

Our Next Technical Price Targets for Gold & Silver

I have pointed out earlier, gold is forming a possible short term top. It is on the verge of completing a bearish ‘Head and Shoulder’ pattern. The pattern is confirmed if gold closes below $1220/oz. The downside pattern target for this setup is $1138/oz. 

If gold starts to rally and breaks out to the upside, then we should see the $1396 level be reached based on technical analysis.

I will open a new long gold position when the time feels right. With technical analysis strongly suggesting gold and silver have bottomed, New breakouts to the upside in metals and mining stocks can be bought.

On the other hand, silver has formed an almost perfect cup and handle pattern and has broken out of it. It has reached its first target objective; chances are that silver will either consolidate or pullback after having met its target or move up to $18.70/oz. levels, which is the pattern target of the ‘Cup and Handle’ pattern formation. However, new buying is not advised at current levels due to a poor risk-reward ratio.

If you have not read the post about what the Silver COT data is warning us about be sure to read this short post: Click Here

If we take a look and monitor the gold/silver ratio closely, recently, the ratio had touched its resistance of the past 20 years. Every time the ratio has returned from the resistance, the minimum it has retraced is to the levels of 45.

There are no reasons to believe that it will be any different this time around. Hypothetically, if gold were to remain at $1236/oz. and if the ratio corrects to 45, silver will reach $27.5/oz., which is a 62% increase from current levels.

Hence, it is prudent to stay with silver for a better return compared to gold once price has a pause to regroup before the next rally.

How to Trade Gold & Silver Conclusion:

Buying gold and silver offer different rate of returns to the investors. If an investor is able to time both the precious metals, then the total returns will be ‘astronomically high’ in the future.

My timing ‘cycles’ provide signals both for the short term and the long term. The price action of both gold and silver along with my cycles have been showing VERY strong “Cycle Skew”, which I explain in detail in my book “Technical Trading Mastery”. This cycle skew is telling us that precious metals are now in a strong uptrend and is another confirming indicator that support much higher prices long term.

During the first half of a bull market trading price patterns and upside breakouts tend to work very well. Because interest in the sector is growing and more buyers continue to enter that market, price pattern breakouts are the last chance to get a position before price has its next rally higher.

I will continue to inform my subscribers of new swing trades, and even more importantly the long term investing "Set it and Forget It" ETF trades to ride out the new bull and bear markets for massive profits.

Keep following me to know more at: www.The Gold and Oil Guy.com

Chris Vermeulen

Believe It or Not, It’s Happening to Gold

Last night as I was going over my charts and running my end of the day analysis the charts jumped out at me with a trade setup and wanted to share my cycle chart for gold with you. The price chart of gold below is exactly what my cycle analysis told us to look for last week WELL ahead of the today’s news and its things play out I as I feel they will then we stand to make some pretty good money as gold falls in value during the month of April.

If you have been following my work for any length of time then you know big price movements in the market like today (Tuesday, March 29th) based around the FED news ARE NOT and SHOULD NOT be of any surprise. In fact, this charts told use about today’s pop 2 weeks ago and we have been waiting for it ever since. The news is simply the best way to get the masses on board with market moves and gets them on the wrong side of the market before it makes a big move in the other direction, most times… not always, though.

Take a look at this chart below. You’ll see two cycle indicators, one pink and one blue. The pink cycle line is a cluster of various cycles blended together which allows us to view the overall market trend of biased looking forward 5 – 30 days. The blue cycle line is a cluster of much shorter time frame cycles in this tells us when we should expect strong moves in the same direction of the pink cycles or counter trend pullbacks within the trend.

One quick point to note with cycle trading is that the height and depth of the cycle does not mean the price will rise or fall to those levels, it simply tells us if the market has an upward or downward bias. The current cycle analysis for gold along with the current price is telling us that today the short term cycle topped which is the blue line and our main trend cycle is already heading lower. The odds favor gold should roll over and make new multi-month Lows in August.

Gold Trading Conclusion:

In short, we have been waiting for gold to have a technical breakdown and to retrace back up into a short term overbought condition. Today Tuesday, March 29 it looks as though we finally have the setup. Over the next 5 to 15 days I expect gold to drop along with silver and gold stocks. There are many ways to play this through inverse exchange traded funds or short selling gold, silver or gold stocks.

This year and 2017 I believe are going to be incredible years for both traders and investors. If treated correctly, it can be a life changing experience financially for some individuals. Join my pre-market video newsletter and start your day with a hot cup of coffee and my market forecast video.

Sign up right here > www.The Gold & Oil Guy.com

Chris Vermeulen

Balloons in Search of Needles

By John Mauldin

I love waterfalls. I’ve seen some of the world’s best, and they always have an impact. The big ones leave me awestruck at nature’s power. It was about 20 years ago that I did a boat trip on the upper Zambezi, ending at Victoria Falls. Such a placid river, full of game and hippopotamuses (and the occasional croc); and then you begin to hear the roar of the falls from miles away.

Unbelievably majestic. From there the Zambezi River turns into a whitewater rafting dream, offering numerous class 5 thrills. Of course, you wouldn’t want to run them without a serious professional at the helm. When you’re looking at an 8 foot high wall of water in front of you that you are going to have to go up (because it’s in the way); well, let’s just say it’s a rush.

If there were rapids like this in the United States, it’s doubtful professional outfits could get enough liability insurance to make a business of running them. In Zimbabwe we just signed a piece of paper. Our guides swore nobody had ever been lost – well, except for a few people who disobeyed the rules and leaped in the water in the calm sections because it was 100° out. That’s where the crocs are.

They promised we wouldn’t run into any in the rapids, which was good. More than a few of us got dumped in the water trying to run the rapids, but they had teams of kayakers who got you out quickly. The canyon below the falls is unbelievable, and below that is the even more impressive Bakota Gorge.

And yes, you then had to walk to the top of the canyon up a switchback trail to get home. I would do it all over again in a heartbeat, but I would spend at least three months training for the hike out. That was most definitely not in the full-disclosure-of-risks one-page piece of paper.

It would be hard to miss an analogy to the stock market. Everything’s peaceful and calm, you’re drinking some fabulous wine, eating some fantastic fresh game and fish, looking at all the beautiful animals as you drift easily with the current. Anybody can steer the boat in a bull market. Until the rapids hit and the bottom falls out.

As an aside, while the large waterfalls are majestic and awe-inspiring, the smaller ones are more hypnotic. I love the sound of falling water. I could listen for hours. The one place I don’t like to see waterfalls is on stock charts. Those leave me awestruck at the market’s power. They do have the power to focus the mind, however, especially when we own the shares that just went over the falls.

The US stock market is having the most turbulent year we’ve seen in a while.  It’s not terrible by historical standards, but we have a full quarter to go. And next week it’ll be October, a month in which the stock market has run into trouble before. With all that in mind, this week I want to take a look at where stocks stand and maybe offer a thought or two about the events that could bring us to the next waterfall.

Not Niagara Falls Yet
Here is how the waterfall looks so far this year. Barely a 10% move peak to trough, and it lasted for just a few days. We see a lot of jostling, followed by the harrowing plunge in August, and then a partial (less than halfway) recovery. Where do we go from here?

Let’s start with the macro view. Back in July I showed you some research that I did with Ed Easterling of Crestmont Research. This was before the China sell-off accelerated into the headlines, so it is very interesting to read again in hindsight. (See “It’s Not Over Till the Fat Lady Goes on a P/E Diet”).

Our view is that we are still in a secular bear market, and have been since the 2000 Tech Wreck. You may find that view surprising, since the benchmarks have roughly tripled since the 2009 low. Our analysis looks at price/earnings ratios to identify when bull and bear markets begin or end. P/E multiples were close to 50 in year 2000. In order for that bear market to end, they needed to drop into the very low double digit or single-digit range, which has been the signal for the end of every long term secular bear cycle for over 100 years. That hasn’t happened during the intervening 15 years.

Can a secular bear market last 15 years? Yes. Some have lasted even longer, like 1966-1981 and 1901-1920. So this one isn’t unprecedented. And please note that the long-term secular cycles can have cyclical movements inside them. Again, we see secular cycles in terms of valuation and the shorter cyclical cycles in terms of price. (Unless this time is different) long-term secular bear market cycles will always end in a period of low valuations.

Currently, P/E ratios (or any other valuation metric you want to use) are not low enough to provide the boost that typically starts a new bull market. They were closer in 2009 than today, but have never dipped into the area that would mark the end of the bear market and the onset of the new bull. We’re still riding the same bear.

What’s taking so long? Our best guess is that stocks were so richly valued at the 2000 peak that it is taking the better part of a generation to work off that excess. In order for this bear to end – and the new bull cycle to begin – valuations need to tumble. That can happen only if prices drop considerably or earnings rise without pulling prices higher.

Obviously, there can be many trading opportunities within a secular bull or bear cycle, but Ed’s research says we have three long-term options from here.

1. If P/E ratios decline toward 10 or below, we will be near the end of this secular bear. A new bull cycle should follow.
2. If P/E ratios stay near where they are, we will be in what Ed calls “secular hibernation.” This would mean a lot of sideways price movement, with dividends having to deliver the lion’s share of stock market returns.
3. If P/E/ ratios rise further, we will go back into the kind of “secular bubble” that created the Tech Wreck. I recall those years vividly, and I would rather not relive them.

Now, combine this market situation with what appears to be a global economic slowdown. China is a big factor, but not the only one. The entire developed world is in slow-growth mode. At some point it will likely dip into recession territory. Canada is already there. I don’t think they will be alone for long. Japan and Europe are weak.

I think the next true move to lower valuations will be a cyclical bear market combined with a recession. Can the stock market hold on to today’s valuations in a recession? Nothing is impossible, but I wouldn’t bet the farm on it, either. I can’t find an example of stock prices and valuations staying in place in the midst of a recession. Prices can fall slowly or they can fall fast, but I feel confident they will do one or the other.

Speaking of Bubbles
Our old friend Robert Shiller popped up last week in a Financial Times interview. Shiller is the father of CAPE, the cyclically adjusted price/earnings multiple, which looks back ten years to account for earnings cyclicality. He is also a Yale professor and a Nobel economics laureate.

Shiller’s CAPE has been saying for several years that stocks are seriously overvalued. In his FT interview, Shiller dropped the “B” word: It looks to me a bit like a bubble again, with essentially a tripling of stock prices since 2009 in just six years and at the same time people losing confidence in the valuation of the market.

When will the bubble burst? Shiller is less helpful there. He said the recent bout of volatility “shows that people are thinking something, worried thoughts. It suggests to me that many people are re-evaluating their exposure to the stock market. I’m not being very helpful about market timing, but I can easily see aftershocks coming.

Now, if you aren’t very confident about timing, it’s arguably better not to use words like bubble and aftershock. You can be sure the media and analysts will jump all over them, just as I’m doing right now.
In any case, Ed Easterling and Bob Shiller reach similar conclusions (though for different reasons). Neither sees a very bullish future, though both are unsure about timing. So when will we know the end is nigh? Sadly, we probably won’t, unless we begin to see signs that a recession is building in the United States.

Balloons in Search of Needles
As the old proverb goes, no one rings a bell at the top. The same applies at the bottom. Let’s imagine the stock market as a whole bunch of balloons. One or two can pop loudly and everyone will jump and then laugh it off. You now have deflated debris hanging from your string. Eventually, enough balloons will pop that the weight of the debris overwhelms the remaining balloons’ ability to keep the string aloft. Then your whole bunch falls down.

The last balloon to pop wasn’t any bigger or smaller than the others; it just happened to be last. In like manner, some kind of catalyst sets off every market collapse. It is usually something that would be survivable by itself. The plunge occurs because of all the previous balloons that bit the dust, but pundits and the media always like to point the finger at the most recent event.

So, if Easterling and Shiller are right, balloons are popping and making investors nervous, but there’s not enough damage yet to drag down the whole bundle. What are some candidates for the last balloon? A Chinese “hard landing” is probably the biggest, most obvious balloon right now. And actually, China is big enough for multiple balloons. Their stock market downturn produced one pop already. Beijing’s currency adjustment may have been another one.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best selling author, and Chairman of Mauldin Economics – please click here.

The article Thoughts from the Frontline: Balloons in Search of Needles was originally published at mauldineconomics.com.

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A Correction Fireside Chat with the "10th Man"

By Jared Dillian 

I don’t really enjoy these things like I used to. Keep in mind, I’ve traded through a lot of blowups, going back to 1997...1998...2001...2002-2003...2007-2009...2011...Today. They all kind of feel the same after a while.

Nobody wins from corrections except for the traders, which today mostly means computers. I forget who said this: “In bear markets, bulls lose money and bears lose money. Everyone loses money. The purpose of a bear market is to destroy capital.”....And that’s what is going on today.

For starters, long-term investors inevitably get sucked into the media MARKET TURMOIL spin cycle and puke their well-researched, treasured positions at the worst possible time. But I’m not trying to minimize the significance of a correction, because some corrections turn into bona fide bear markets. And if you are in a bear market, you should get out. If it is only a correction, you probably want to add to your holdings.

How can you tell the difference?

My Opinion: This Is a Correction

So what were the two big bear markets in the last 20 years? The dot com bust, and the global financial crisis. Two generational bear markets in a 10 year span. Hopefully something we’ll never see again. In one case, we had the biggest stock market bubble ever and in the other, the biggest housing/debt crisis ever.

Both good reasons for a bear market.

What are we selling off for again? Something wrong with China?

Again, not to minimize what is going on in China, because it is now the world’s second-largest economy. Forget the GDP statistics. After a decade of ridiculous overinvestment, it is possible that they’re on the cusp of a very serious recession, whether they admit it or not. But the good news is that the yuan is strong and can weaken a lot, and interest rates are high and can come down a lot. China has a lot of policy tools it can use (unlike the United States).

Let’s think about these “minor” corrections over the last 20 years.....
1997: Asian Financial Crisis
1998: Russia/Long-Term Capital Management (LTCM)
2001: 9/11
2011: Greece

All of these were VIX 40+ events.

In retrospect, these “crises” look kind of silly, even junior varsity. The Thai baht broke—big deal.

Russia’s debt default was only a problem because it was a surprise. And the amount of money LTCM was down—about $7 billion—is peanuts by today’s standards. After 9/11, stocks were down 20% in a week. The ultimate buying opportunity.

And in hindsight, we can see that the market greatly underestimated the ECB’s commitment to the euro.
So what are we going to say when we look back at this correction in 10-20 years? What will we name it? Will we call it the China crisis? I mean, if it’s a VIX 40 event, it needs a name.

I try to have what I call forward hindsight. Like, I pretend it’s the future and I’m looking back at the present as if it were the past. My guess is that we will think this was pretty stupid.

What to Buy

I saw a sell-side research note yesterday suggesting that this crisis is marking the capitulation bottom in emerging markets. I haven’t fully evaluated that statement, but I have a hunch that it is correct. China is cheap, by the way. But if China is too scary, they are just giving away India. I literally cannot buy enough. And I have a hunch that Brazil’s president, Dilma Rousseff, is going to be impeached and the situation in Brazil is going to improve relatively soon.

Think about it. The most contrarian trade on the board. Long the big, old, bloated, corrupt, ugly, bear market BRICs. Also the scariest trade. But the scary trades are often the good trades. There’s more. If you think we’re in the midst of a generational health care/biotech bull market, prices are a lot more attractive today than they were a few weeks ago. I also like gold here because central banks are no longer omnipotent.

That reminds me—there was something I wanted to say on China. The reason everyone hates China isn’t because of the economic situation. It’s because they made complete fools of themselves trying to prop up the stock market. So virtually overnight, we went from “China can do anything” to “China is full of incompetent idiots.” Zero confidence in the authorities.

You want to know when this crisis is going to end? When China manages to restore confidence. When they have that “whatever it takes” moment, like Draghi. If they keep easing monetary policy, sooner or later there will be an effect.

I Am Bored

I used to get all revved up about this stuff. That’s when I made my living timing tops and bottoms. I don’t do that anymore. I do fundamental work, and I go to the gym and play racquetball. The mark-to-market is a nuisance. Also, if you can’t get excited about a VIX 50 event, you have probably been trading for too long.
There is a silver lining. The disaster scenario, where the credit markets collapse due to lack of liquidity, isn’t happening. Everyone is hiding and too scared to trade.

Honestly, high-grade credit isn’t acting all that bad. And it shouldn’t. I don’t see any big changes in the default rate. Anyway, if you want to go be a hero and bid with both hands, be my guest. It’s best to be careful and average into stuff. These prices will look pretty good a couple of months from now, I think.


Jared Dillian

If you enjoyed Jared's article, you can sign up for The 10th Man, a free weekly letter, at mauldineconomics.com. Follow Jared on Twitter @dailydirtnap

The article The 10th Man: A Correction Fireside Chat was originally published at mauldineconomics.com.

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The Crazy Man’s Guide to the Bond Market

By John Mauldin

I invite you to inspect the following chart of 10 year interest rates in the US. If you don’t have a lot of experience with these things, let me clue you in: This is a very scary looking chart. It’s a classic head and shoulders bottom in yields.

If you’re one of those people who’s scornful of technical analysis, don’t be. Now, I don’t pay much attention to complicated stuff like Elliott Wave or Gann Angles, but there are some very basic technical formations that work reliably most of the time.

I had the good fortune of taking out a mortgage when 10-year rates were at 1.9%, which goes to show that the only time you get to top-tick stuff is by accident.

Now, this is actually not the low in yields. 10 year yields got to 1.4% a few years ago.

Of course, interest rates are even lower in Europe. Take Germany, for example:

I think that these interest rates (which are at 700 year lows in Europe) signify a bubble. Other people don’t, though—they point to x, y, and z as signs of deflation.

I’m very weary of the inflation/deflation argument. A lot of people lost a lot of money betting on inflation when there were obvious signs of inflation (QE). And I fear that a lot of people will lose a lot of money betting on deflation when there are obvious signs of deflation.

I’m a trader at heart, and I try not to get too attached to my views. I pay attention to price. And right now, the price action is telling me that the bond market might be in trouble.

Central Banks Buy High and Sell Low

The first thing you need to know about central banks is that they are the worst traders in the world. The worst. Probably the most famous example in the modern era was the Bank of England under Gordon Brown’s leadership puking its gold holdings—on the absolute lows, between 1999 and 2002. The idea was they had this gold sitting there not generating any yield, so why not sell the gold and buy paper that would generate some yield?

Whoops…..

A less famous example of bad trading by public officials would be the US Treasury’s decision to issue floating rate debt. Now, if the government has floating-rate liabilities, it should want interest rates to stay low, right?.......Whoops!

The all-time lows in rates. To the exact day.

So with all this in mind, don’t you think it’s interesting that the ECB is going to buy European debt—at 700-year low yields? At negative yields, in some cases? Central banks do not buy things on the lows. They buy things on the highs.

Of course, the ECB is not trying to make money on these transactions. Which is the whole point!

The Worst Investors in US History Strike Again

Betting on the end of what is a 30 year interest rate cycle is not a productive use of our time. This bond market has claimed the careers of many investors. It reportedly hastened the retirement of Stan Druckenmiller, arguably the greatest investor of all time, who bet against bonds heavily, thinking yields could not go any lower. They did.

Let me impart some wisdom here: The first rule of finance is that there are no rules in finance. Nothing works all the time. My favorite dumb rule of finance is the one that says your percentage allocation in bonds should be equal to your age. So if you are 60, you should be 60% in bonds.

My guess is that if interest rates rise 2%-3%, people won’t be saying that anymore.

You know what I worry about? I worry about the baby boomers. I worry about this generation, the worst investors in US history, who got carried out in the tech bear market in 2000 and got caned in the financial crisis of 2008, and after having been hammered twice in the span of 10 years in the stock market, went all-in on bonds.

Why? Bonds are safe. Everyone knows stocks are not safe.

Now, in retirement, none of these people expect their bond mutual funds to get cut in half, which would happen if interest rates went up about 3% - 5%.

Imagine if they did!

The disclaimer to all of this is that I’ve been a bond bear for many years, and I’ve been wrong. But for the first time, I think we have something approaching consensus that yields will stay low forever. People who think interest rates are going up are starting to sound crazy. I am starting to sound crazy. That probably means I’m close to being right.

If 10 year rates get above 3%, the previous high, we will know for sure. If that happens, pick up the Batphone, call the White House, sell everything. Why?

If you are still ignoring charts when they are making higher lows and higher highs, God help you.


Jared Dillian

The article The 10th Man: The Crazy Man’s Guide to the Bond Market was originally published at mauldineconomics.com.

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Will Warren Buffett Really Let This Deep Value Slip By?

By Jeff Clark, Senior Precious Metals Analyst

Right now, even the staunchest gold investors are weary of the years-long drubbing the gold price has taken since its $1,921 peak in August 2011. Whether the frustrating experience is the work of a market rigging conspiracy, government manipulation of data to hide inflation, those blindingly loyal Keynesians who keep pounding us with messages that gold is nothing but a “shiny bitcoin,” or the gullibility of mainstream investors who tell themselves that, gee, since Warren Buffett is a billionaire, his “gold has no utility” mantra must be right, it hasn’t been fun. The nasty downcycle has offered no respite.

That’s all about to change.

If there’s one constant in the resource sector, it’s the boom-bust-repeat cycle that over the past 40 years has been almost predictable. This is particularly the case with gold stocks.

We charted every major cycle for gold stocks (producers) from 1975—when gold again became legal to own in the US—to the present. You can easily see that not only do gold stocks cycle up and down repeatedly, but the percentage gains for buyers at a cycle bottom can be downright mouthwatering.

What’s interesting about where we sit today in early 2015 is that gold stocks have now logged the second-deepest bear market since 1975—rougher even than the selloff following the 1980 mania.

This history teaches three “how to get rich” lessons.

1. For the recent bear market, the bottom for gold stocks is almost certainly in.

2. The next major cycle in gold stocks will be up.

3. The profits could be spectacular, because as the patterns show, triple-digit gains have been common.

Gold stocks have finished the bust that tormented investors for more than three years and are now preparing for another boom. All you have to do is hold on and wait for the next cycle to begin. No timing required.

The only thing we don’t know is if Mr. Buffett will see this chart and jump on the in-your-face deep value that gold stocks are showing right now.

Gold stocks will soon go vertical again—just as they have many times in the past—and investors with just a smidgen of patience will see their gold portfolios driven by a hurricane-force bull market. Virtually all gold stocks will go much higher. As in the past, gains for the strongest juniors will be 10-to-1, and you can expect a few superstars to return 100-to-1.

I talk about this rich opportunity with some of the most successful investors in the gold sector—Pierre Lassaonde, Frank Holmes, Rick Rule, Bob Quartermain, Ron Netolitzky, Doug Casey, and Louis James. Check out our free webcast, Going Vertical, a can’t miss one hour event that will show you the life-changing profits waiting just ahead.

And yes, we extend our invitation to Warren Buffett.

The article Will Warren Buffett Really Let This Deep Value Slip By? was originally published at caseyresearch.com.

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Investors That Do Not Understand The Power Of Seven Will Lose Money in 2015

Investors and traders around the world continually search to find or increase their edge in the financial markets to boost profits. The next few months are going to be critical for investors because the number seven is now in play for the stock market.

What does this mean?

In magical lore seven is a magical number., While all numbers are ascribed certain properties and energies, seven is a number of power, a lucky number, a number of psychic and mystical powers, of secrecy and the search for truth. Seven is used 735 times in the bible and if you total up all words including “sevenfold” and “seventh” there is a total of 860 references.

The origin of seven’s power lies in the lunar cycle. The moon has four phases lasts about seven days. The Sumerians gave the week seven days. Life cycles on earth also have phases demarcated by seven, and there are seven years to each stage of human growth, seven colors to the rainbow, seven notes in the musical scale, seven petitions in the Lord’s Prayer, and seven deadly sins.

More importantly for investors the number seven and multiples of seven have a powerful influence on money. The U.S. stock market is now trading in the seventh year window and it should not be taken lightly. While I could go into a lot more detail about how I use seven in my algorithmic trading strategy to swing trade the S&P 500 index. This article focuses on the investing outlook.

I am fortunate enough that I have been trading since 1997 and have seen the how the stock market cycles affect human behavior and businesses specifically the financial newsletter industry which I have been involved in since the first day my trading career. The stock market appears to be nearing a critical turning point that will change the lives and behaviors of investors for years to come.

The good news is that I have experienced four of these turning points and human behavior shifts in my career before and we currently entering the fifth turning point. I feel obligated to share this valuable insight with those of you who read my work. The next major market move could have a dramatic impact on your wealth and retirement years.

Insight on Investor Behavior and Business

Being heavily involved in the financial newsletter industry I have not only seen but survived several of these major cycles which forced many newsletters to go out of business. The cycles at play here are the market trend and the behavior of traders and investors.

The combined forces of these two cycles are what cleanse the newsletter industry of poor quality services. It becomes almost impossible to obtain new clients without word of mouth/referrals from happy users and if the quality of the newsletter is poor, eventually they lack enough users to make it feasible to operate. Unfortunately it’s the brutal truth, and over the last couple years I am seeing newsletters and even to top trading magazines that have been around for decades closing their doors.

The business cycle can easily be explained by observing the chart below of the SP500 index. In short, when the stock market has been rising for six or more months investors start to become confident in that they can make money on their own. And in fact they can if they buy and hold during a bull market.

But what happens as the market continues to rise for many years is that more and more investors and traders realize they can make money on their own.  The longer the uptrend remains intact the less will need the help of a trading and investing newsletter making it difficult to get new customers in this highly competitive industry.

Currently investors are behaving almost identical to what I saw during 1999 – 2001, from 2006 – 2007, and now 2014 – 2015 market tops.

Did you notice anything with those market tops? They are 7 years apart…

Let’s now take a look at the best times in the business cycle where traders and investors are in desperate need of help and start subscribing to multiple paid financial newsletter services. The strongest times for business took place during 2002 – 2003, and again in 2008 – 2010. This is when investor not only lost most of their wealth, but their faith in how they invest, who they invest with, and the stock market as a whole.

Did you notice any these also? They are 7 years apart also…

 Investors 7 Year Financial Outlook

Those of you who follow me know that I do not pick market tops or bottoms. Rather I focus on identifying trends and cycles in the market and only trade and invest with the active confirmed trend.

You also know that trying to pick market tops and bottoms is a suckers game and a sure fire way to lose a lot of money and build a serious complex that the market is manipulated, not tradable, and that it may be time for you to give up on trading all together.

Well, I am here to say that the market is tradeable, and can generate traders and investors a boat load of money once you understand how and why it moves. Most importantly you need to understand money/position management and be patient for consistent long term gains.

Take a look at the chart below for a clear visual of 7 year cycle highs and lows at play.

 

While I do not invest based on this major seven year cycle I do actively trade a smaller market cycle which provides roughly 35 – 65 trades per year. This strategy allows me to profit during these major bull markets and also during the multi-year bear markets when the majority of investors are losing boat loads of their hard earned money.

The reason I do not invest in the seven year cycle is because the market can still have 30+% price swings within bull and bear markets and that type of volatility is beyond what I am comfortable with. Also because I can actively invest with my automated trading system so I don’t need to lift a finger or watch the stock market each day, week or month.

I hope you found this report useful in some way, and I ask that you share it with others.

Chris Vermeulen
www.The Gold & Oil Guy.com

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