Even as we write this post, the US Stock
Market continues to push higher as global traders and investors pour capital
into the continued US rally. The strong
US Dollar continued to attract capital from around the globe and with fresh
earning about to hit from Q4 2019, investors are expecting another round of
solid income and earnings growth.
Yet, underlying all of this is the undercurrent of shifting capital into safe-havens like precious metals, Cryptos, and under-valued foreign markets. This shift started to happen late in Q4 2019 and accelerated early in 2019.
HYG – High Yield Corporate Bonds Daily Chart
One of our favorite measures of extreme bullishness is the scope of capital/trend pouring into High Yield Corporate Bonds. This chart below highlights the scale of the rallies that take place before a price reversion event. You’ll notice that each rally in HYG is nearly identical in size – and that each rally is followed by a fairly deep price reversion event.
The likelihood of some surprise earnings
collapse from Q4 2019 is somewhat muted.
Other than the retail sector reporting some missed earnings expectations
related to Christmas 2019, generally most market sectors should report earnings
and growth near an average 2% to 3% growth expectation annually.
Still, with Rhodium, Platinum and Palladium
rallying extensively and Gold and Silver recently setting up an upside breakout
pattern (see our recent Gold and Silver research), we believe undercurrents are
already at play in the markets where skilled traders are preparing for a price
reversion event – attempting to mitigate risk.
Over the past 20 years, the DOW JONES
INDUSTRIAL has been positive in January by a ratio of 1.2:1. In other words, the odds of a positive January
for the DOW is near 60%. The average
upside price advance in January for the DOW is a little over 600 points. As of right now, the DOW has advanced a bit
over 525 points since the end of 2019.
We believe the undercurrent trends may result in a moderate price
reversion event if our analysis is correct.
We’ll wait to see what happens with earnings data and other news, yet our proprietary technical price modeling systems are suggesting a reversion/rotation event should happen fairly early in 2020.
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Chris Vermeulen
www.TheTechnicalTraders.com
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