Is A Blow-Off Top Setting Up

Our research team has become increasingly concerned that the US Fed support for the markets has pushed price levels well above true valuation levels and that a risk of a downside price move is still rather high. Recently, we published a research article highlighting our Adaptive Dynamic Learning (ADL) predictive modeling system results showing the US stock market was 12% to 15% overvalued based on our ADL results. Today, Tuesday, May 26, the markets opened much higher, which extends that true valuation gap.

We understand that everyone expects the markets to go back to where they were before the COVID-19 virus event happened – and that is likely going to happen over time. Our research team believes the disruption of the global economy over the past 70+ days will result in a very difficult Q2: 2020 and some very big downside numbers. Globally, we believe the disruption to the consumer and services sector has been strong enough to really disrupt forward expectations and earnings capabilities. We’ve been warning our friends and followers to be very cautious of this upside price trend as the Fed is driving prices higher while the foundations of the global economy (consumers, services, goods, and retail) continue to crumble away.

Our biggest concern is a sharp downside rotation related to overvalued markets and sudden news or a new economic event that disrupts forward expectations. Q2 data will likely be a big concern for many, yet we believe something else could act as a catalyst for a reversion event. Possibly global political news? Possibly some type of extended collateral damage related to the global economy? Possibly something related to earnings expectations going forward through the rest of 2020 and beyond? We believe Continue reading "Is A Blow-Off Top Setting Up"

Silver Hits Charts As Gold Fails To Perform

In my earlier post this month, I shared hot trading opportunities for silver and gold. It’s time for an update as we’ve already seen how it played out.

Before we start, I would like to show you the metals performance month-to-date in the graph below.

Futures Board
Chart source:

This month silver showed the best performance gaining impressive an +18.15%. The second best wasn’t gold; it’s platinum with a +9.05% gain. Gold is in third place this month, with a +2.39% rise. The most precious of these four metals, palladium, could score only a +1.29% gain.

You were accurate again with your forecast as most of you bet on silver (see chart below) under my last post. Seers in action!

Silver Gold Poll

Let’s get down to the updated charts, and I will start with silver. Continue reading "Silver Hits Charts As Gold Fails To Perform"

Tug-of-War: Disney Streaming vs. COVID-19

Clearly, COVID-19 has been very damaging with an unquantifiable impact across Disney’s (DIS) business segments. Disney has had to shutter all of its worldwide Parks and Resorts. ESPN has been hit with the cancellation of virtually all sports worldwide. Advertising revenue coming through its media properties has been hit as companies scale back ad spending. All of its movie studio productions have been halted, and movie releases postponed. Despite these headwinds, Disney’s streaming initiatives have been major growth catalysts for the company. Disney+ has racked up over 50 million paid subscribers in just five months, Hulu has 30 million paid subscribers, and ESPN+ has 7.9 million paid subscribers. Disney+ has been wildly successful via unleashing all of its content (Marvel, Star Wars, Disney, and Pixar) in what has become a formidable competitor in the ever-expanding streaming wars domestically and internationally. Hence the tug-of-war on Wall Street between the COVID-19 induced negative impact and the success of its streaming initiatives in terms of valuation. The stock is selling at a steep discount of ~30% from its highs of $151 per share. At these reduced COVID-19 levels, Disney is a compelling buy as its legacy business segments get back on track in conjunction with these successful streaming initiatives.

COVID-19 Perspective

As economies around the world reopen and certainty washes over the COVID-19 landscape, Disney’s business segments will regain their health. Parks will reopen as seen with Disney Shanghai, movie productions will resume, movie theaters and resorts will reopen, and sports will inevitably play-on. The resumption of all of these activities will feed into Disney’s legacy businesses. Disney continues to dominate the box office year after year with a long pipeline of blockbusters in the queue. Parks and Resorts continue to be a growth avenue with tremendous pricing power. Disney is going all-in on the streaming front and acquired full ownership of Hulu, and the company is launched its Disney branded streaming service with great success. I feel Continue reading "Tug-of-War: Disney Streaming vs. COVID-19"

US-China Trade Tension Mutes Market

The US-China trade tension has once again peaked its head out and put pressure on an already skittish market. Earlier in the week, the Senate passed a bill that would make it more difficult for Chinese companies to list on US stock exchanges. That in itself wasn't enough to curb the weekly rally for the major indexes that will see the DOW, S&P 500, and NASDAQ post weekly gains of +2.8% or better, bouncing back from last weeks losses.

On a daily level, the market will end the week on weak trading heading into the long holiday weekend. Part of the muted market action today is due to China releasing drafted legislation overnight that shows new national security measures in Hong Kong after last year's burst of anti-government protests in the city. That law is expected to increase Beijing's hold over Hong Kong. China also opted against setting a GDP target for 2020 as the coronavirus batters the second-largest economy in the world. Continue reading "US-China Trade Tension Mutes Market"

Critical Price Level Could Prompt A Big Move

As technical traders and researchers, we’ve been paying very close attention to the GREEN ARC Fibonacci resistance level on the SPY as a key level for the US stock market and any hope of a continued upside price rally. The SPY has traded near this level for the past three weeks and appears to be attempting a bit of an upside breakout right now. Yet, we understand a long holiday weekend is upon us in the US, Memorial Day, and after a big upside GAP on Monday, the US stock market has stalled over the past few days. We've also include charts and analysis for the Russell 2000 and the Transportation index.

Our researchers believe this GREEN ARC is still acting as critical price resistance and believe the SPY may sell off into the end of the week resulting in a failed attempt to breach this key resistance level. If this happens, the failed attempt to break this resistance could prompt a change in price trend and initiate a new downside price trend. If this resistance level is broken by the end of this week, then we have a pretty solid indicator that continued bullish price trending may continue.

Absent of any real news that may drive the market trend this holiday weekend and with most of the US still in shutdown mode, we believe the US stock market has continued to trade within this no man’s land area for many weeks now. From the end of April till now, we’ve seen moderate upside price action in certain sectors, yet other sectors continue to show signs of weakness. Continue reading "Critical Price Level Could Prompt A Big Move"