{"id":172641,"date":"2020-06-24T08:15:30","date_gmt":"2020-06-24T12:15:30","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=172641"},"modified":"2020-06-24T07:57:32","modified_gmt":"2020-06-24T11:57:32","slug":"us-stock-market-enters-parabolic-price-move-be-prepared-part-i","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/06\/us-stock-market-enters-parabolic-price-move-be-prepared-part-i\/","title":{"rendered":"US Stock Market Enters Parabolic Price Move – Be Prepared, Part I"},"content":{"rendered":"
June 24, 2020<\/div>
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By TheTechnicalTraders<\/u><\/a>\u00a0<\/strong><\/p>\n

– After the recent COVID-19 virus event and the global market concerns that will warrant caution for skilled traders and investors, the US stock markets have entered an upside parabolic trend that will likely end with a massive price collapse \u2013 extremely volatile and aggressive in nature.\u00a0 Our research team continues to warn of the unpredictable nature of the current price rally and the fact that the upside parabolic price trend appears more prominent in the NASDAQ sector.\u00a0 If history has taught us anything, it is that these types of parabolic moves can last a while and that they always end in a deep downside price correction \u2013 usually 61% to 75% of the last upside price trend.<\/p>\n

Our research and trading team has been advising friends and followers to stay very cautious of the current markets (excluding Gold, Miners, and certain other protective sectors).\u00a0 We don\u2019t believe this rally warrants any exposure greater than 15 to 20% given the current global economic environment and the hyper-parabolic nature of the current price move.\u00a0 We believe the opportunity presented by the upside advances does not negate the potential risks of a massive collapse event taking place in the near future.\u00a0 In other words, we\u2019re more cautious of how ugly and aggressive the end of this parabolic move will be than willing to try to find some opportunities in an already hyper-extended parabolic upside price trend.<\/p>\n

Still, there are opportunities to be had in this trend for skilled short-term technical traders.\u00a0 A number of sectors continue to perform quite well and using proper position sizing for trades may allow for quick targets of 5% to 10% or more.\u00a0 We urge all of our friends and followers to be cautious of the current rally in the markets as we\u2019ve only seen this happen three other times over the past 100 years: 1927~29, 1986~87, 1996~99.\u00a0 The collapse after the 1929 peak resulted in a 90% decline in prices.\u00a0 After 1987, the markets collapsed by nearly 36%.\u00a0 After the DOT COM market peak in 1999, the markets collapsed near 51%.\u00a0 Are the markets preparing for a massive collapse event right now with this hyper-parabolic upside price trend?<\/p>\n

NASDAQ MONTHLY CHARTS<\/strong><\/h3>\n

This monthly NQ, NASDAQ E-Mini Futures, chart highlights the upside parabolic price move that is currently taking place.\u00a0 It also highlights the similar type of price movement that took place in the late 1990s.\u00a0 In theory, the buying power driving the markets higher can last more than 12 to 15 months in some cases.\u00a0 Prior to the peak in 1929, the parabolic move started near June 1926 and peaked in July 1929 \u2013 approximately 3 years.\u00a0 In 1986, the rally in price was shorter \u2013 only lasting from November 1985 to August 1987 \u2013 about 21 months.\u00a0 The rally to the DOT COM peak in 1999 started near March 1995 and lasted a total of approximately 51 months (just over 5 years).<\/p>\n

The current rally, as we identify the start of the parabolic price trend, started after the 2015~16 sideways price range.\u00a0 Our research team considers the start of this current upside move as initiating near July 2016 and continuing through to today \u2013 totaling almost 4 years in length.\u00a0 If we discount the 2015~16 sideways price channel and consider the 2012 to 2020 Fed-induced price rally as the \u201ctotal scope\u201d of the parabolic range, then we can easily total more than 7 years into this incredible parabolic price move.\u00a0 This move is truly unlike anything we\u2019ve seen in the recent history of the US stock market \u2013 and the crazy component to all of this is it is happening at a time when the global markets have just been derailed by a global virus pandemic.<\/p>

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What comes next?\u00a0 Well, if history is any teacher \u2013 a peak in price sets up, volatility starts to explode and a collapse in price initiates at some point in the future that completely deflates the bubble.<\/p>\n

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The most prominent example of a price bubble that many traders are familiar with is the story of the South Sea Company (1719 to 1721).\u00a0 Prior to the peak in this bubble story, the South Sea Company began as an act of English Parliament (source: https:\/\/engl3164.wordpress.com\/2012\/10\/31\/the-south-sea-bubble\/<\/a> ).\u00a0 As stated from our source\u2026<\/p>\n

At this time, the English government was deeply in debt.\u00a0 Harley, the Earl of Oxford, came up with a scheme to free England of this debt while capitalizing on what was perceived as a largely untapped gold and silver market in South America.\u00a0 Harley proposed that Parliament could create an independent company that would assume all of England\u2019s debt and, in exchange, would be able to charge the government yearly interest until the original sum was repaid.\u00a0 The company would be able to afford to assume this debt because England would grant it a monopoly on trade from South America.\u00a0 The company would prosper, English influence would be extended further into the New World, and the English government would become free of debt.\u00a0 This plan was so popular that it was called \u201cthe earl of Oxford\u2019s masterpiece\u201d (Carswell, 1969).<\/p><\/blockquote>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 It took several years to form the company and work out the details of the agreement.\u00a0 By 1720, the South Seas Company was formed and received \u00a330,981,712 in debt from the English government in exchange for a promise that the English government would pay \u00a3600,000 per year interest.\u00a0 However, the plan had already begun to show major weaknesses, even before taking on this huge debt.\u00a0 The success of the plan rested on the assumption that a monopoly on English trade with Latin America was worth almost limitless profit.\u00a0 Certainly, Spain was enjoying great profit in extracting gold and silver from this area.\u00a0 Yet a major problem was that Spain owned the rights to South American trade and would allow England only one ship\u2019s worth of trade per year for the entire continent and only on the condition England pay 25% of the profits to Spain in addition to a 5% tax.\u00a0 Even this small concession ceased entirely in 1718 when England declared war on Spain (Carswell, 1969).<\/p><\/blockquote>\n

We want all of our readers to understand the psychological aspect of this past bubble \u2013 the idea that the plan could not fail and would provide almost limitless success if executed as planned set off a \u201cno fear rally\u201d that eventually resulted in a massive price bubble.<\/p>\n

The next major point that is critical to the understanding of how a price bubble function is the following statement from the same source\u2026<\/p>\n

Regardless of the fact that the South Seas company was an unproven company already sunk deeply in debt, with no realistic prospects of profit, it was perceived as an almost infallible opportunity.\u00a0 As with all economic bubbles, the public\u2019s perception of its potential was far greater than its actual value.\u00a0 For this reason, stock prices soared.\u00a0 Modern economists have argued that some investors may have been fully aware that this was an artificial market that was bound to fail.\u00a0 However, realizing that stock prices would continue to climb until the bubble burst, it would still have been profitable to buy stock with the intention of selling before prices inevitably plummeted (Temmin and Voth, 2003).<\/p><\/blockquote>\n

What could go wrong with this plan for investors?\u00a0 It seemed as if nothing could fail \u2013 there was almost no risk and everyone had incredibly high expectations of future success and profits\u2026\u00a0 Then, more good news for traders and investors..\u00a0 More shell companies promising future greatness to continue to hype the markets\u2026<\/p>\n

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Unfortunately, investors in the South Seas Company were not the only individuals to lose money during this time.\u00a0 Many businessmen, realizing the potential for profit in such an artificial market, began similar schemes to create companies with inflated stock prices.\u00a0 Hundreds of companies were formed within only a few months, with thousands of individuals rushing to buy stock.\u00a0 Ultimately, these companies went the way of the South Sea Company.\u00a0 Countless investors lost fortunes while many dishonest market speculators became rich (Carswell, 1969).<\/p>\n

(Source: https:\/\/engl3164.wordpress.com\/2012\/10\/31\/the-south-sea-bubble\/<\/a> ) <\/cite><\/p><\/blockquote>\n

Eventually, when reality set back into the minds of these investors, many had lost entire fortunes, families, and futures.\u00a0 Some of these company founders were hunted down and killed because of the anger and frustration of many investors and others.\u00a0 The reality of the situation is that nothing is without risk \u2013 just like the stock market valuations today.<\/p>\n

Before you continue, be sure to\u00a0opt-in to our free market trend signals<\/strong><\/a> <\/em>before closing this page, so you don\u2019t miss our next special report!<\/em><\/p>\n

In the second part of this research article, we\u2019ll continue to explore the potential price bubble that is setting up in the US and global stock markets as a result of the US Fed and global central banks pushing speculative investments into the global equities markets (primarily the US stock market).\u00a0 It is essential that all skilled traders and investors learn to understand what is happening and to understand the severe risks that are currently in play in the markets right now.\u00a0 Stay cautious, stay protected, and stay safe.<\/p>\n

Get our\u00a0Active ETF Swing Trade Signals<\/strong><\/a>\u00a0or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my\u00a0Passive Long-Term ETF Investing Signals<\/a><\/strong>\u00a0which we are about to issue a new signal for subscribers.<\/p>\n

Chris Vermeulen
\nChief Market Strategies
\nFounder of Technical Traders Ltd.<\/p>\n

TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By TheTechnicalTraders\u00a0 – After the recent COVID-19 virus event and the global market concerns that will warrant caution for skilled traders and investors, the US stock markets have entered an upside parabolic trend that will likely end with a massive price collapse \u2013 extremely volatile and aggressive in nature.\u00a0 Our research team continues to warn […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-172641","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172641","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=172641"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172641\/revisions"}],"predecessor-version":[{"id":172644,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172641\/revisions\/172644"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=172641"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=172641"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=172641"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}