{"id":173323,"date":"2020-07-07T19:39:49","date_gmt":"2020-07-07T23:39:49","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=173323"},"modified":"2020-07-07T19:39:49","modified_gmt":"2020-07-07T23:39:49","slug":"credit-investments-turned-into-end-user-risk-again","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/07\/credit-investments-turned-into-end-user-risk-again\/","title":{"rendered":"Credit\/Investments Turned Into End-User Risk Again"},"content":{"rendered":"
July 7, 2020<\/div>
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By TheTechnicalTraders<\/u><\/a>\u00a0<\/strong><\/p>\n

– Continuing our research from Part I<\/strong><\/a>, into what to expect in Q2 and Q3 of 2020, we\u2019ll start by discussing our Adaptive Dynamic Learning predictive modeling system and our belief that the US stock market is rallied beyond proper expectation levels.\u00a0 The Adaptive Dynamic Learning (ADL) modeling systems attempts to identify price and technical indicator DNA markers and attempts to map our these unique price setups.\u00a0 Then, it attempts to learn from the past DNA markers and apply that learned price behavior to future price DNA markers.\u00a0 In this manner, it learns from the past and applies that knowledge to the future.<\/p>\n

ES ADL PREDICTIVE MODELING<\/strong><\/h3>\n

On June 15, 2020, we published this article referencing the ADL predictive modeling system and how the US stock markets were, at that time, 12% to 15% overvalued based on this analysis.\u00a0 Continuing this research, our researchers still believe the ES (S&P500) is very likely to fall to levels near $2500 before finding support just below that level.\u00a0 These predicted ADL price levels strongly suggest that the true valuation levels for the ES are near $2500 \u2013 not near the overvalued levels closer to $3000.<\/p>\n

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NQ ADL PREDICTIVE MODELING<\/strong><\/h3>\n

Additionally, an update NQ ADL Weekly chart suggests the NQ has rallied to levels that appear to be extremely overvalued.\u00a0 The current ADL prediction levels suggest the NQ ADL valuation levels should be near $6600 \u2013 not near $10,325 as they are now.\u00a0 This suggests a massive -36% price disparity between the current overvalued rally level of the NQ and the expected ADL price level based on our advanced predictive modeling system.<\/p>\n

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Now that we\u2019ve attempted to explain one of the core elements of our research estimates, let\u2019s get further into the data that is likely to present a very real opportunity for skilled technical traders.<\/p>\n

ECONOMIC CYCLES<\/strong><\/h3>\n

As you are likely well aware of by now, a series of catastrophic economic events continue to unfold throughout the globe.\u00a0 Most importantly, the ability to earn revenues for consumers and corporations while dealing with hard fixed costs.\u00a0 In previous articles, we\u2019ve suggested our belief that a unique event in localized economies is not much of a concern because global central banks can support the market well enough to allow economic activity to resume near fairly normal levels.\u00a0 We\u2019ve suggested that the bigger problem is when an extended economic contraction takes place that is a global or more wide-spread economic event.\u00a0 This type of economic crisis is much more dangerous because of two factors:<\/p>

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_ A.\u00a0 The continued lack of revenue generation increases the pressure on the individual or corporation to cut costs, employees, or other assets.\u00a0 Without the ability to earn, these individuals or corporations begin to eat up cash reserves very quickly and will quickly begin to identify their longer-term sustainability objectives. Unless the economy starts to recover quickly, this crisis for the individual or corporation could be a moderately slow and dangerous \u201cbleed-out\u201d event leading to bankruptcy.<\/p>\n

_B.\u00a0 The efforts of localized governments and global banking institutions initially attempt to mitigate the risks of such an event.\u00a0 This is usually done by providing greater capital resources to certain industries, the general banking system, and in other ways\/sources.\u00a0 Currently, within the US, a number of forbearance programs have been initiated to take away certain pressures for homeowners and others.\u00a0 Still, the economy must continue to operate within normal boundaries and bills must be paid.\u00a0 With an extended economic collapse, such as we may be experiencing with the COVID-19 virus event, the problems for consumers and corporations grow bigger and more dangerous the longer the economic contraction event continues.<\/p>\n

When you really start to understand the cycle of these events and then begin to understand the domino-effect process that may already be playing out in some form, skilled technical investors should already be preparing for extended price volatility and unknowns over the next 6+ months or longer.\u00a0 Allow us to explain, in simple terms, how this cycle plays out\u2026<\/p>\n

_ Local consumers\/workers are laid-off or fired from jobs.\u00a0 This puts immediate earnings pressure on local families and individuals and it pushes them into a protective mode where they suddenly must decide between essential items (food, medicine, personal care, transportation, and other essentials) vs. non-essential items (movies, dining out, travel, discretionary purchases, and others).\u00a0 Currently, there are more than 35 million unemployed people in the US (roughly 10% of the total population.<\/p>\n

_ The COVID-19 shutdown within the US has disrupted the earning capabilities of many businesses over the past 3+ months.\u00a0 As consumers slow down their purchases and businesses close because of government shutdown orders, the problems amplify for many business owners and employees.\u00a0 If you have ever owned your own business, you understand the risks involved and the ongoing hard costs associated with owning a business.\u00a0 Just because the governor orders a \u201cshutdown\u201d doesn\u2019t mean that your hard monthly costs are going away too.\u00a0 This ongoing problem sets up another crisis event in the making \u2013 the Business Owner risk factor.\u00a0 How long before these individual business owners simply can\u2019t sustain their operations any longer and are forced into bankruptcy?<\/p>\n

_ Local governments derive their operating budgets from taxes and revenues generated within their communities.\u00a0 With the COVID-19 shutdown crippling these revenues, we estimate that Q3 and Q4 2020 will become a point of \u201cbleed-out\u201d for many local governments.\u00a0 They may be able to manage their budgets for a few months within the economic contraction period, but we believe the longer this economic contraction event continues, more and more pressure will be put on local and regional (city\/state) governments where revenues have likely collapsed 25% to 45%+ recently.<\/p>\n

_ The bigger cycle start to take place.\u00a0 (A) With consumers laid-off and\/or fired from their jobs, their income levels drop dramatically and their spending decreases dramatically.\u00a0 (B) With business owners struggling to survive with hard costs and payroll in a depressed economic environment, these businesses will either find a way to survive or fail \u2013 laying off more people and creating further disruption in earnings\/revenues for workers and local governments.\u00a0 (C) With local governments slow to react to the economic contraction (and mostly hiring under contract), the decreases in revenue over time may present a very real issue for government agencies and become a real problem 4 to 6+ months into the economic contraction.<\/p>\n

_ When businesses and governments suddenly realize the scale and scope of the economic contraction, they will attempt to balance their books by adapting (developing new sources of revenue: products, services, taxes, fees) and\/or begin to contract themselves.\u00a0 Either of these two options is fraught with risk and could potentially increase the risks of a more extended economic contraction event. Raising taxes or fees on consumers\/businesses within a massive economic contraction event will likely push more individuals\/businesses into bankruptcy \u2013 further decreasing the government revenues.\u00a0 Developing new products\/services and marketing them to consumers requires capital and resources.\u00a0 If the product is not a success, the business takes a huge risk making these aggressive transitional moves \u2013 which may lead to increased economic concerns.\u00a0 As long as the consumer is struggling and not earning sufficiently, the foundation of the economic structure is at risk of collapsing even further.<\/p>\n

This cycle is sometimes called the \u201cdeath cycle\u201d in economic terms.\u00a0 It is a cycle where economic contraction leads to further economic contraction.\u00a0 The process of breaking this cycle is simple, the entire economic engine must \u201cunwind\u201d sufficiently to remove\/reduce the overextended valuation and \u201cfluff\u201d within the system.\u00a0 Once this has happened, then a new economic foundation will begin to establish where growth and opportunity will resume within local and regional economies.<\/p>\n

IMPORTANT ECONOMIC DATA<\/strong><\/h3>\n

Now, let\u2019s look at some of the data that supports our research.<\/p>\n

The World Uncertainty Index has recently skyrocketed above 50, the highest level over the past 60+ years. Since the low point, in 1985, the World Uncertainty Index has continued to rise with higher peaks and higher troughs over the past 30+ years.\u00a0 Currently, this index suggests there is a massive amount of uncertainty throughout the globe related to economic function, central banks, geopolitical issues, and humanitarian issues.<\/p>\n

Bay very close attention to the peaks in this index and the dates of these peaks (2004, 2013, 2020).\u00a0 The 2004 and 2013 peaks occurred roughly 3 to 4 years after a major stock market bottom setup.\u00a0 The current index high would suggest a market bottom may have set up in 2016 and a peak in this Uncertainty index may still be 12 to 24 months away.\u00a0 This suggests we may still experience a moderately high degree of uncertainty and a number of unknown global and economic crisis events over the next 12 to 24 months.<\/p>\n

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The US Federal Reserve has recently begun another massive quantitative easing phase and actively begun to purchase various forms of debt, bonds, and equity within the financial markets.\u00a0 Paying attention to the rallies in the Fed buying activity and the World Uncertainty Index, you\u2019ll see the peaks in the Uncertainty index align with the midpoints of the Fed activities.\u00a0 Generally, the uncertainty levels rise as the US Fed intervenes and executes QE policies to support the global markets.<\/p>\n

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This Global Commodity Price Index chart highlights the recent collapse in raw commodity prices and illustrates the incredibly depressed level of commodities related to global economic activities. Over the past 20 years, the only time when commodity prices were lower was in early 2000~2005 \u2013 just after the 9\/11 economic contraction. The current Commodity Price Index level suggests we have entered a new deflationary price cycle with the peak setup near August\/September 2018 \u2013 just before the big downside price contraction started in October 2018. Our researchers have continued to highlight that point on multiple charts as the true peak in the US and global markets<\/p>\n

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At this point in time, developing a safe and protected strategy to ride out these uncertain times is essential.\u00a0 We\u2019ve been advising our clients to stay safely away from the global stock market trends and we issued a Black Swan warning on February 21, 2020, telling all of our clients to \u201cget into cash immediately\u201d.\u00a0 Since then, we\u2019ve advised our clients to move their capital into selected sectors to take advantage of hedging opportunities and targeted trading opportunities over the past 3+ months.<\/p>\n

We continue to believe the best way to profit from these market trends is to develop a super conservative investment model where Cash is King and proper hedging is essential.\u00a0 There are plenty of great trades to select from \u2013 assuming we want to take on the additional risks associated with these trades.<\/p>\n

We believe the next 3+ months will result in a massive volatility spike, likely seeing the VIX move above 50~60 again, as Q2and Q3 earnings and expectations continue to shock the investment community.\u00a0 We do not believe this potential \u201cV-Shaped\u201d recovery is sustainable and continues to advise our clients to be prepared downside price reversion.<\/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

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.\u00a0 It is provided for educational purposes only.\u00a0 Our research team produces these research articles to share information with our followers\/readers in an effort to try to keep you well informed.<\/p>\n

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

By TheTechnicalTraders\u00a0 – Continuing our research from Part I, into what to expect in Q2 and Q3 of 2020, we\u2019ll start by discussing our Adaptive Dynamic Learning predictive modeling system and our belief that the US stock market is rallied beyond proper expectation levels.\u00a0 The Adaptive Dynamic Learning (ADL) modeling systems attempts to identify price […]<\/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-173323","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/173323","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=173323"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/173323\/revisions"}],"predecessor-version":[{"id":173329,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/173323\/revisions\/173329"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=173323"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=173323"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=173323"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}