Posts by The Trend Letter

North Korea tensions push global markets down

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%.

FTSE0810

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%.

NASDAQ0810

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

TSX0810

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

Yen0810

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

Silver0810

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

VIX0810

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

US100810

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

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%.

Nikk0809

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%.

Cac0809

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%.

spx0809

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

NADAQ0809

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

Yen0809

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%.

silver0809

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

  • 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

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

  • 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?

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.

SPX0807

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!

Headlines – August 4/17

  • Dow opens at record after strong July jobs report. Read story
  • The jobs numbers: Who’s hiring in America – and who’s not. Read story
  • Former Facebook executive says society will collapse as robots will put half of humans out of work. Read story
  • Gold falls, tracking weekly loss, as hiring strength in July boosts stocks and dollar. Read story
  • Toyota and Mazda team up to invest $1.6 bln in new US auto plant. Read story
  • Five big housing bubbles in five years. Read story
  • Venezuela currency crashes, down 94% in a year. Read story
  • US Congress sinks to 10% approval rating. Read story
  • EU to impose more sanctions against Russia. Read story
  • Chinese chatbots apparently re-educated after political faux pas. Read story
  • A futuristic ride in Mercedes’ new self-driving car. Read story
  • Why the beat up dollar is poised for a ‘rip-your-face-off rally’. Read story
  • The secret ingredient that makes the Mediterranean Diet work is money. Read story
  • On the lighter side. Check it out!

Stay tuned!

Headlines – August 3/17

  • Trump: US-Russia relations at ‘dangerous low’. Read story
  • Trump’s heated conversations with Mexico, Australia’s leaders revealed in transcript. Read story
  • Venezuela election results ‘manipulated’ by at least 1 million votes, polling company says. Read story
  • Small business hiring rises in July. Read story
  • WikiLeaks releases documents on ‘Dumbo’ CIA tool allowing control of webcams. Read story
  • ISM service index slows to 11-month low in July. Read story
  • Half of Detroit’s 8 mayoral candidates are felons. Read story
  • GOP clash looms over rising debt ceiling. Read story
  • Tesla’s revenue doubles, but losses also grow. Read story
  • The hackers behind WannaCry ransomware attack have finally cashed out. Read story
  • South African Airways ‘is on the verge of bankruptcy.’ Read story
  • Here’s who will pay for America’s crumbling infrastructure. Read story
  • This music production tool is the reason why all new music sounds the same. Read story
  • On the lighter side. Check it out!

Stay tuned!

Total US debt: $1.05 million per taxpayer

If you are an American citizen who pays taxes, your liability of the total US debt now totals $1.05 million.

When discussing the national debt, most people assume that the total national debt is the ‘official’ debt, which is sitting at $19.98 trillion, which in itself is an outrageous number.

The current population in the US stands at 325 million, so that $19.98 trillion debt works out to $61,476 per man woman and child. But of that 325 million people  only 120 million ,or 37%, actually pay income tax. So if we were to divide the national debt by the number of people who pay income tax, it works out to $166,500 per taxpayer.

But this figure only covers the ‘official’ national debt, it does not include the federal government’s long-term unfunded liabilities – money the government is obligated to pay over and above the revenues it is estimated to receive. These liabilities include  Social Security, Medicare, Federal Employee and Veterans benefits. When you add it all up, the total of US government unfunded liabilities is $106.98 trillion.

When we divide the unfunded liabilities by the number of taxpayers it equates to $891,500 per taxpayer. Add the $166,500 per taxpayer for the ‘official’ national debt, and each taxpayer currently has a liability of $1.05 million. And this does not include all the municipal, and state debt that is also out of control.

Every level of government in the US is running large deficits, resulting in massive debts. The only sources of revenue for these governments are taxes and fees. So if you own property and are a taxpayer, expect to see all forms of taxes and fees continue to rise.

Click here to see a live, rather frightening, but very real picture of the US debt situation.

Stay tuned!

Debtclock

S&P 500 update: Watch for resistance at 2490-2515

Mariam Webster’s definition of Complacency:  marked by self-satisfaction especially when accompanied by unawareness of actual dangers or deficiencies :  marked by complacencyself-satisfied a complacent smile

The VIX volatility Index measures the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk, often referred to as the “investor fear gauge.”

A VIX reading above 30 indicates that investors are nervous, fearful, and risk-averse, concerned that the markets will decline. While readings under 20 indicate that investors are complacent, risk-tolerant, and optimistic that the markets will run higher. As we can see on the VIX charts below, investors are more complacent/optimistic today than at almost any other time in history.

VIX0726

Another indicator that we need to pay attention to is that the S&P 500 seldom deviates more than 7% from its 200-day Moving Average. As we can see on the following chart, once the S&P 500 deviates up or down more than 7%, we tend to see a correction the other way. Today the S&P 500 is trading at 6.91% higher than its 200-day MA, suggesting a correction is coming.

S&P0726

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. With the S&P 500 currently trading just south of 2480, we are getting close to a strong resistance area for the markets. We would expect to see a Near-term high for the S&P 500 in the next few weeks.

We have continued to ride the market’s methodical rise higher, but recently sent subscribers a new pending trade (our entry price has not yet been hit) to profit should the markets decline here.

Numbers to watch:

  • 2490-2515 Near-term high
  • Potential for a quick decline to 2400-2415
  • A breach of 2400, although not expected, opens the door for a further decline to 2300
  • After declining to 2400, look for a new rally through 2500, then 2650
  • Another decline from 2650 to 2500
  • Then a year-end rally to close the year between 2700-2900

Subscribers to The Trend Letter will receive Flash Alerts when our model signals new buying opportunities.

Note: If you are not a current subscriber and want to get on the list to receive all of our weekly reports + our Flash Alerts, we our offering you a very Special Offer to receive The Trend Letter for only $369.95, a $230 discount off our regular rate. Click here to take advantage of this Special Offer.

Stay tuned!