Are the Global Markets Shifting Away from U.S. Price Correlation?

Well over a month ago we warned our followers of a “capital market shift” that was taking place in the global markets. Nearly 3 months before that time, we warned that China’s economy was about to enter a sustained economic down trend cycle that could be dangerous to the global markets. Today, we offer further evidence that the global markets are, in fact, shifting away from a price correlation to the U.S. stock market and this move could be a warning sign that emerging markets and global markets could lead the world into an extended stagflation cycle.

Think about this for a minute, as we briefly discussed in our last article, what would happen if the U.S. markets continued to rally on a strong economy with strong consumer participation while the U.S. Fed was slow to raise interest rates while supporting a transitional shift of the US economy towards more manufacturing, technology, and expectations? How would the world’s economies react to such a shift given their current economic cycles and opportunities? Would they be able to keep up with the U.S. or would they start to trail further and further behind the U.S.?

It is our belief that any continued strengthening of the U.S. economy could, in fact, present real dangers for many of the world’s economies simply because they may fall completely out of sync with the U.S. stock market as their currencies, economies and consumer expectations fail to keep up with the U.S. capabilities. How all of this will play out over the next few months/years is our concern. We know it will result in some tremendous trading opportunities for investors, but it could also create a new class of undervalued assets that could present some real long term opportunity over the next 20+ years.

Let’s start by taking a look at our China/Asia custom index to show how the past 60+ days have more clearly shown this price disconnect happening. When you look at this chart, pay attention to how closely this custom index (the candles) have moved in relation to the SPY (the blue area chart overlaid onto the candles). Notice how the moves in the SPY were relatively closely mirrored by the custom index. This is a direct price correlation to the SPY over an extended period of time.

Now, focus on the last 6 - 9 bars on this chart and take a really close look at how the SPY has rallied higher while this custom index has stayed flat to lower over the same time frame. The only answer for this type of price disconnect is that a global capital shift could be underway that is driving capital out of certain markets and away from risk and danger. In other words, it is our opinion that the China/Asia markets are starting to be perceived as riskier and more dangerous in relation to the U.S. market and other more mature markets.

Now, let’s take a look at the BRICS custom index. YIKES!! What happened here? Through most of 2017, a price correlation can be seen where the BRICS index moved somewhat in unison with the SPY price activity – although in some cases a bit delayed. Yet, after March 2018, something dramatic happened. When the SPY rotated lower in late March 2018, the BRICS index stayed relatively flat near the highs. Then in May 2018, a price disconnect became very evident as the SPY began to rally while the BRICS index began to sell off – very dramatically. The BRICS index also broke through the BLUE price channel recently which is another sign that price trends/activities have shifted.

You should now be starting to see what we have been warning you about for months – the global capital market shift that is taking place. This is happening because mature nations and economies are capable of achieving great economic growth and stability than many foreign markets and because many foreign markets have squandered the last 10+ years attempting to expand externally and not support their fundamental economic needs. As we have used this example before, a flower only has two modes of operation – flower mode (expand) or survive (keep the core plant alive). We believe these foreign markets have been in “flower mode” for the past 10+ years and have failed to support the core elements of their economies.

Now, onto more examples, this time Western Europe. Again, this custom index is weighted with the SPY, so it should reflect some of the price support of the recent uptrend. Yet, we see the most recent few weeks of this chart have shown a dramatic downtrend? This would indicate that the European markets/currencies are disconnecting from the US majors at a much more dramatic pace, recently, that they have been over the past few years. Yikes!

What about India & SE Asia? Our custom India index has shown relatively FLAT recent price activity compared to the SPY. Overall, our opinion is that India has yet to completely diverge from the U.S. majors and we urge all investors to be aware that any further price breakdown in this India custom index will warn that the Indian/SE Asian economies are losing their battle to stay correlated to the U.S. markets going forward. Right now, there is evidence of weakness in the India custom index – yet there are limited signs of a broken correlation to the U.S. markets. It certainly shows that this price disconnect could be happening and likely is happening – yet we don’t have clear signs that this custom index is breaking to new lows (yet).

Lastly, let's take a look at our Russia/Eastern Europe custom index for signs of a price disconnect. This chart is somewhat similar to the India chart (above). There are signs of weakness and downside price rotation while the SPY has been rallying, yet there is not massive disconnect evident on the right edge of the chart. We believe the recent downside price rotation within this custom index are the early warning signs of a price disconnect in the early stages of setting up (just like in the India chart). We believe these charts clearly show that the US market (and other mature economies) are advancing beyond the functional capabilities of many emerging and foreign markets. What will come from this, if it continues to play out as we expect, is a huge number of opportunities for traders and investors.

The next 3 to 5 years are likely to be very interesting and exciting for traders and investors. These types of moves don’t happen too often and should these markets continue to rotate as we are expecting, we could see some very big currency and foreign market moves over the next few months and years. You owe it to yourself to stay ahead of this move and learn how to profits from the extended volatility that will likely result from this price disconnect.

We believe we have nailed this analysis as we have correctly called the weakness in China/Asia as well as the global capital shift that is starting to play out in the global markets. We already know what will likely move and when we should expect these opportunities to set up. We are preparing our valued subscribers for this move and protecting them by providing them even more detailed research and analysis than you are seeing here.

Visit The Technical Traders to learn how this could be the biggest opportunity of your trading and investing life and how you need a qualified and dedicated team of researchers to help you stay ahead of these moves over the next 2+ years with our long term discounted subscription plan and Save 39%. There will come a time when you will be wishing you had access to our proprietary research and member only trade alerts and investment positions. Become a technical trader today [just visit here] and prosper with us!

Chris Vermeulen
Technical Traders Ltd.

Adam Hewison: Do You See the Trees In a Forest, Or Do You Just See the Forest?

There is a saying that goes like this “can’t see the forest for the trees” is a reference to people who get so involved with the details of an issue that they lose sight of the big picture.

If your involved in the markets, it is easy to fall into the trap of just looking at the minute or hourly charts, rather than considering the market as a whole.

When you can’t see the market for the minutia, it means that you are deeply involved in a situation, and you are perhaps focusing too much on the inner workings of the market, and not enough on the big trends.

With all of this talk of problems in Greece, defaults, contagion and a host of other problems in Europe, it is easy for traders to get distracted, and not see the forest for the trees.

The most important element in trading in my opinion, is the direction the major trend for that market. It doesn’t really matter what the news is, if the market is doing something else. As traders I believe we have to look at the forest in this case the big trends in the marketplace.

Let’s look at them now: S&P 500 index major trend down. Gold major trend up. Metals major trend down. Crude oil major trend down. Dollar index major trend up. CRB index major trend down.

So, there you have it, all the major trends in all the markets we are dealing with right now. Everything else is just individual trees, that don’t mean a heck of a lot in the big picture.
It takes a tremendous amount of energy to move a market and change a major trend. This kind of energy normally does not happen in one or two days. As they say in statistics, one data point does not make a trend.

Let's take a look at the SP 500 including our Trend Analysis and Trade Triangles.....

The S&P 500 index rallied based on the vote in Germany to bailout Greece. This is far from a done deal. As mentioned in yesterday’s post, we thought that rallies in this market would run into problems, which they have today. A close below the 1163 area would be negative. Last month, the S&P 500 closed at 1218.89 and last week it closed at 1136.43.

So while the market is higher for the week, it is sharply lower for the month and the quarter. The big picture for this market is down. At the moment this index is trapped in a trading range bound by 1120 on the downside and 1220 on the upside. We are looking for this market to break down and be on the defensive for the next several weeks. Intermediate and Long term traders should continue to be short this index.

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = – 75

The U.S. stock indexes closed higher today in more volatile trading. The stock market got a boost from some upbeat U.S. economic data released earlier today, and on some ideas of an improvement in the EU debt crisis. If all three stock indexes drop and close below their August lows, that would be extremely bearish for the stock indexes and for most commodity markets.


Get 10 Trading Lessons FREE

The SP 500 Could Bottom at 1096-1100....Here is Why

From Stock Market Club contributor David Banister......

The markets bottomed last Friday at 1168 roughly on the SP 500, then violently reversed with a 47 point rally to 1215. I had forecasted a likely short term bottom at 1176/1188 ranges with a possible 60 point rally coming. With that said, I didn’t think it would all happen in nearly 1 trading day.

On Friday night, as most now know… Standard and Poor’s downgraded the US Debt rating to aa+ from AAA. I would suspect that the bigger players already knew this a few days prior and were short the market with that information. My pure speculation here is that within the first hour that some of these same participants will have covered their shorts and probably be looking to buy some calls or get long certain stocks if there is short term panic and we reach oversold short term extremes.

Clearly though the patterns suggest we are in a bear cycle as evidenced by the 1233 break last week, but there will be tons of trading opportunities with violent rallies along the way as well, trying to time those will be the hard part.

One of the downsides to owning shares in companies in the public markets is that panic and hysteria can very quickly mis-price a security that represents shares in a company to well below where it would be valued as a private ongoing business. This however also represents opportunity for those with the right time horizon and the stomach to accumulate when there is a mis-pricing of those securities.

I can already find many samples of small cap firms where they are not trading dramatically above cash per share and certainly below total fair value per share given their assets. I will be looking at some point to scale into a few of these companies given that they are trading below a fair private value in the public markets.

With that said, where does the broader market go on Monday? Nobody knows, and certainly the sentiment gauges as of last Wednesday had turned historically very bearish prior to the Thursday and Friday drops.

Note below we have an increase as of last Wednesday of Bears by 18% to historically extremely high levels. Bulls were down to 27%, which is historically about 12 points below the average.....

Many traders who were formerly clinging bullish were caught in a stop loss and margin call induced liquidation late in the week. I would guess that hangers on will be equally caught on Monday this week in margin calls and possible stop loss sweeps.

The smart thing to do is not panic and make sure you understand the valuation of the business you own shares in if you have stocks, and decide how crazy the market participants may get in their voting near term.

When the SP 500 fell below my 1233 line in the sand, it pretty much confirmed a new Bear Market for me, even with the 1168 pivot on Friday. The last very outside shot for Bulls intermediately was for 1168 to hold and run, but we may or may not do that on Monday or this coming week. The Elliott Wave patterns are confirmed bearish with the 1233 break, and so other than some miraculous turnaround off the 1168 pivot that holds…we must remain cautious.

I was looking for a trading range from 1176-1260/80 for a while as MOST LIKELY…. but all we can do is find out to what extent cool heads prevail or not this coming week and I’ll update from there. Right now the weekly charts are super oversold like November of 2008. With that said, I make a case for a possible bottom around 1096 now on the SP 500 as possible worst case.

In this history of the markets, we had a major bottom on the SP 500 in 1974 which was followed by a 25 year bull cycle to 1999. On March 9th 2009, we bottomed at 666 and re-traced a Fibonacci 61.8% of that entire 25 year bull cycle over 8-9 years in ABC Fashion, which would makes sense.

Just prior to that I forecasted a major bottom on February 25th with an article, “Is the Market about to Bottom and Nobody Knows It?” You can Google it to find it.

Now with hindsight, we see 1370 hit on the Bin Laden killing and that was a 78.6% retracement of the 07 highs to 09 lows. However, dialing back to the 1974 low, we rallied into 1977 in 3 wave fashion to the 1977 highs, went sideways awhile… we then had a major drop from 107 to about 87 on the Index over about 12 months… corrected a good 20%. 

Does history repeat in 2009-11? We rallied in 3 waves, we have gone sideways… and then we drop 20% or so? If so, that takes the SP 500 to about 1096… Another 104 points. At 1096 that would represent a 38% Fibonacci retracement of the Bull cycle from 666 to 1370.

Food for thought… if you’d like to get more frequent forecast updates on the SP500, Gold, and Silver please look at Market Trend Forecast.Com and take advantage of our 33% discount option.