Potential water-fall correction for S&P 500

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In our blog posted on July 26/17, we noted that a number of indicators were flashing warning signs that the market was getting overbought, and that a correction was coming soon.

On August 7/17, we posted a blog highlighting how August is typically a month where we see a high, with a correction soon after.

Last week, we had the stand-off between North Korea and the US, which spooked the markets, sending the equities lower, and safe haven plays such as US bonds, gold, and the Japanese Yen higher.

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We will have to wait and see if these tensions escalate into something more serious, which would further bring volatility into the markets. Since the high stakes rhetoric last week, North Korea’s Kim Jong-un has blinked, now saying he will see what the US does before making his next move.

If a war breaks out, then certainly the markets would see a longer-term reaction. But markets tend to view the bigger picture, and usually get over a ‘conflict’ fairly quickly.

In January, we noted that once the S&P 500 closed above 2300, that 2500 was the next target. We identified the 2490-2515 range as a Key Resistance level for the S&P 500. On August 8th, the S&P hit 2491, technically reaching that target Key Resistance level.

As noted in that July 26th blog, once the 2490-2515 range was achieved, then there the door would be open to a correction down to the 2400-2415 level. We could certainly take another run at 2500 in the next week, but be prepared for a correction into the first week of September, before we see the next leg up (blue line on chart below).

Note also, that our model does identify a scenario where the 2400 support level does not hold, and then the door is open for a quick water-fall correction (red line), which would set up for a phenomenal buying opportunity.

S&Pforecast0815

We will keep subscribers up to date in our weekly reports each Sunday, and will fire out Flash Alerts if our models’ trigger new BUY/SELL signals.

If we get the water-fall washout, it will flush out margin players, creating a very sharp, dramatic decline. We are positioned for such an event and will notify subscribers when it is time to back the truck up.

Stay tuned!

Headlines – August 14/17

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  • Stocks poised to move higher as geopolitical issues put on back burner. Read story
  • Top US General readies military plan for N.Korea, but pushes for diplomacy. Read story
  • Merk CEO Fraser steps down from Trump’s Manufacturing council after Charlottesville. Read story
  • China bans key North Korea imports. Read story
  • US ‘ally’ Ukraine is likely source of N. Korean missile engines. Read story
  • Guam governor backs ‘punch in the nose’ for Pyongyang. Read story
  • Bond market looks expensive, until you factor in the threat of war. Read story. Read story
  • Oil prices slip on Chinese demand, rising US activity. Read story
  • Japan’s economy grows at fastest pace in two years. Read story
  • China’s economic growth dials back. Read story
  • Elon Musk: Artificial Intelligence “vastly more risky than North Korea.” Read story
  • Facebook’s secret Chinese app is a dud in China so far. Read story
  • On the lighter side. Check it out!

Stay tuned!

TED: Elon Musk on systems to sustain human life

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Elon Musk spoke at the TED conference discussing his concerns with AI, plus his plans for Tesla, space, and how he wants to change the world.

I’m not trying to be anyone’s savior. I just want to think about the future and not be sad

 

Headlines – August 11/17

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  • Trump warns N.Korea that the US military is ‘locked and loaded’. Read story
  • North Korea warns it could ‘reduce the US mainland to ashes at any moment’. Read story
  • The time is running out to avoid war with North Korea. Read story
  • China warns the US: “We will prevent a North Korea regime change”, Read story
  • Snap shares hit record low as user growth miss unnerves investors. Read story
  • Jim Rogers sees ‘biggest crisis in my lifetime’ coming soon. Read story
  • After long drought, bear market funds attract buyers. Read story
  • Corporate America is posting the biggest profits in 13 years. Read story
  • GOP debates retroactive tax cuts. Read story
  • Modest rise in US consumer prices may delay Fed rate hike. Read story
  • Obama to reemerge in ‘delicate dance’ with Dems. Read story
  • 16-year old running for Governor in Kansas. Read story
  • Humans and robots are on the cusp of a sexual intimacy we may never reverse. Read story
  • On the lighter side. Check it out!

North Korea tensions push global markets down

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Another day of rising tensions between the US and North Korea. According to NBC News, the Pentagon has prepared a specific plan for a pre-emptive strike on North Korea’s missile sites should President Trump order such an attack.

Two senior military officials — and two senior retired officers — told NBC News that key to the plan would be a B-1B heavy bomber attack originating from Andersen Air Force Base in Guam. See article here.

Global markets realizing the severity of this situation extended yesterday’s losses, The Hang Seng in Hong Kong saw the biggest decline in Asia, down 1.13% for the day.

Hang Seng

All European markets were down, most in the range of 1.25%, with the London FTSE leading the way down at 1.44%.

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North American markets were also hit, with the Dow down 204 points (.93%), the S&P 500 down 35.81 (1.45%), and again the NASDAQ lead the way down 2.13%.

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In Canada, the TSX closed down 143 points or .94%.

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On the currency side, the Japanese Yen was again the safe haven play, up another .73% on top of the .33% gain yesterday.

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With the precious metals, silver was again the leader, up another 1.20% on top of the 2.89% gain yesterday.

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As expected, the VIX Volatility Index spiked again, up 44.73% for the day.

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With rising volatility, global capital is also moving to US bonds as a safe haven play.

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Finally, a statement from the US Pentagon…

“While our State Department is making every effort to resolve this global threat through diplomatic means, it must be noted that the combined allied militaries now possess the most precise, rehearsed and robust defensive and offensive capabilities on Earth.”

Let’s hope we don’t need to verify that statement.

Stay tuned!

Trump & Kim Jong-un spook the markets

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Over the past few weeks we have been highlighting a number of indicators suggesting that the stretched bull market in equities is due for a correction. We weren’t sure what might spook the market, but today’s geopolitical events certainly qualify.

After weeks of increased rhetoric between North Korea and the US, the UN applied heavy sanctions against North Korea in response to its recent tests of intercontinental ballistic missiles.

In a statement carried by the official KCNA news agency, the North Korean government said the sanctions were a “violent violation of our sovereignty” and part of a “heinous plot to isolate and stifle” the country. Pyongyang threatened to take “righteous action”, describing the sanctions as a crime for which the US would pay “thousands of times”.

US president Trump then upped the ante, saying “North Korea best not make any more threats to the United States,” Trump told journalists. “They will be met with fire and the fury like the world has never seen.”

Not to be outdone, the North Korean regime quickly responded, matching Trump’s pugnacity by saying it was “carefully examining” a plan for a missile strike on the US Pacific territory of Guam. In a separate statement, a military official was quoted as saying Pyongyang could carry out a pre-emptive operation if the US showed signs of “provocation”.

The Asian markets were the first open and sold-off at the bell. Things calmed toward the close, with most markets down slightly, and Japan’s Nikkei seeing the biggest hit, down 1.29%.

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European markets opened next and followed the same pattern with all markets down. Similar to Asia, most markets recovered some of those losses by the close. The French CAC market saw the biggest decline, down 1.40%.

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North American markets were last to open and followed the same pattern, opening down, and then slowly regaining much of those losses. Despite the disturbing headlines, investors chose to re-focus on the economy and the buyers returned. By the close, the S&P 500 was only down .04%.

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While the technical stocks in the NASDAQ took a bigger hit, down .28%.

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On the currency side, the Japanese Yen was the safe haven play, up .33%.

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And as is the case with most geopolitical  tensions, the precious metals were big gainers, with gold up 1.32%, and silver the biggest gainer at 2.89%.

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Hopefully, cooler heads will prevail, but with Kim Jon-un and Donald Trump as the key players, that may be a stretch.

Stay tuned!

Headlines – August 9/17

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  • US stocks retreat as N. Korea spurs geopolitical unease. Read story
  • N. Korea threatens attack on Guam. Read story
  • China urges calm over N. Korea. Read story
  • N. Korea says it has released Canadian pastor. Read story
  • The case for $5000 Bitcoin. Read story
  • Can this US city go 72 hours without a murder? Read story
  • These seven billionaires are worried about a stock market correction. Read story
  • Jamie Dimon: Our country’s taxes, infrastructure failures are ’embarrassing.’ Read story
  • Car rams into soldiers in Paris suburb, man arrested. Read story
  • Alibaba’s “cashless week” to boost mobile payments is angering China’s Central Bank. Read story
  • FBI raided former Trump campaign manager Manafort’s home. Read story
  • The key to office happiness isn’t working less – it’s caring less. Read story
  • As opioid crisis spreads, this city allows addicts to inject. Read story
  • Philippine’s Duterte offers ‘dead or alive’ bounties on police. Read story
  • On the lighter side. Check it out!

Stay tuned!

China leading the charge for electric cars

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Last year China sold over 28 million vehicles, more than any country in the world. China sold over 10 million more vehicles than the 17.6 million sold in the US.

Of the 28 million vehicles sold in China in 2016, 507,000 were Zero Emission Vehicles (ZEV), which was a 53% increase from 2015. By contrast, in 2016 Europe sold 222,200 ZEVs, 14% higher than 2015, while the US sold 157,000 ZEVs, 36% more than 2015.

Although China already sells more ZEVs than the US and Europe combined, they want to drastically increase these numbers. ZEVs represent about 1.8% of all vehicles sold in China last year. The government has now proposed aggressive targets of 8% ZEVs in 2018, and then 12% in 2020.

These are very aggressive targets, ones that have the auto-industry very concerned that these targets a far too ambitious. Whether or not they enforce these targets, it is clear China is serious to move its people to ZEVs versus the internal combustion engine (ICEs).

To understand why China is so motivated to lead the world toward electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs), the simple answer is that they really have no choice.  Expanding ICE vehicles would mean that China would continue to be heavily energy dependent on from foreign sources. A second and more obvious reason is the terrible air pollution problems in China. Below is a picture of the smog outside Tiananmen Square in Beijing.

Today, China is the world’s largest auto market and represents most of the new worldwide demand for autos. There are 1.3 billion people in China, and it is a population the is rapidly seeing a rise in per capita incomes, which is creating  demand for personal transportation that cannot be met in an environmentally sustainable way using traditional technologies.

Already the world’s largest auto market, China’s 28 million vehicles sold in 2016 is expected to grow to 40 million by 2025. In the US, there are 260 million vehicles and 325 million people. That means that there is a vehicle for 80% of the entire population. In China there is a vehicle for only 16% of the population. While China may never catch up the the percentage of vehicles to people in the US, they are certainly going to close the gap, and lead the world in ZEV purchases going forward.

Stay tuned!

Headlines – August 8/17

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  • Wall St opens lower as investors pause after record rally. Read story
  • Prosecutors seek 12-year sentence for Samsung boss. Read story
  • Americans now have the highest credit card debt in US history. Read story
  • Specter of coup, serge in violence haunt Venezuela. Read story
  • The two industries that are getting the worst customer complaints. Read story
  • Bitcoin soars to new record high. Read story
  • Study finds the aging US workforce is bad for productivity. Read story
  • Pilotless plane tests face resistance. Read story
  • Canada tax changes could push small business rate to 93%. Read story
  • Multi-level marketing companies like LulaRoe are forcing people into debt and psychological crisis. Read story
  • Macron backpedals on creating First Lady status. Read story
  • Why Germans pay cash for almost everything. Read story
  • Google fires “anti-diversity” memo author. Read story
  • Spike Lee to rally for Colin Kapernick at NFL HQ. Read story
  • On the lighter side. Check it out!

Stay tuned!

Is the stock market about to hit a seasonal decline?

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Generally, the well-known trading adage “Sell in May and go away” works, as long as you re-enter the market at the right time. This year however, the markets have been strong and are higher today than they were in May, driven primarily by the strong rally in July.

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As we can see on the Seasonality Chart below, a July rally is the norm, not the exception. Based on data from the past 20 years, it is the month of August that typically sees a strong correction. September tends to follow with a rally to start the month, then sell-off into October. It is mid October where we generally see the market pick up again, with a year-end rally.

S&PSeasonality

We are still long, but just entered an “insurance” trade in case we do get that seasonal correction heading into September.

Stay tuned!