Emotional Traders React To Recent Market Rotation
Chris Vermeulen | Jul 19, 2021 04:52PM ET
Most traders don’t really have a solid strategy in place to protect assets and assist them in knowing when to pull risk capital away from market trends. If you are trading on meme stock content, variable technical strategies or flying by the seat of your pants when making trading decisions, you are probably very concerned and emotional about the recent downside price rotation in the major markets right now.
What is happening is that the markets are attempting to potentially start a reversion event – a price rotation. This rotation in price may turn into a bigger price correction or downtrend at some point in the near future. But right now, we are only seeing moderate price rotation in the U.S. and global markets. Should you be concerned about this spike in volatility and the timing of this correction? This a good and valid question. Let my team and I try to help you regarding what may happen in the near future.
First, we’re going to point you to some of our research posts that predicted this volatility event near the middle of 2021 and other key data. These are as follows:
- Dec. 24, 2020: WHAT TO EXPECT IN 2021 PART II – GOLD, SILVER, AND SPY
- Dec. 30, 2020: PRICE AMPLITUDE ARCS/GANN SUGGEST A MAJOR PEAK IN EARLY APRIL 2021 – PART II
- May 23, 2021: US DOLLAR BREAKS BELOW 90 – CONTINUE TO CONFIRM DEPRECIATION CYCLE PHASE
- Dec. 15, 2020: LONG TERM GOLD/US DOLLAR CYCLES SHOW BIG TRENDS FOR METALS – PART II
The U.S. and global markets have started to reprice expectations related to the post COVID-19 rally/growth capabilities. =We’ve highlighted this in recent articles that current economic data, price appreciation and inflation growth are well within an excess phase peak level. The normal reaction to this excess phase rally stage is a moderate reversion event – a price reversion that eliminates these excesses in the markets and in price valuations.
Currently, we do not have any signals from our proprietary strategies that this is a confirmed downward price trend. At this point, it is simply a price correction taking place – nothing more.
h2 Major Market Cycles Will Drive Price Trends/h2One of our recent articles highlighted this cycle phase chart and we suggested traders needed to prepare for the current high peak level to roll over into weaker economic growth and data expectations. It is very likely that global traders and investors have suddenly woken up from their high-flying expectations and are now pulling risk capital away from the peaks in the markets.
Our research suggests that during the end of 2021 and possibly well into 2022, the downward price cycle reversion process may attempt to unwind the extreme (excess phase) rally trend we’ve experienced since the COVID-19 bottom in March 2020.
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Our extended cycle research continues to highlight the major depreciation cycle phase that started in December 2019, and we’ve been suggesting a “blow-off” excess phase peak trend was likely setting up over the past 16+ months. It is important to understand the bigger cycle trends that drive investor sentiment as trading tries to navigate the shorter term trends. The flip from an appreciation cycle phase to a depreciation cycle phase suggests global equities will likely weaken and struggle until 2028~29, while precious metals will likely begin to rally. This new cycle phase also suggests a bigger “blow-off” (excess phase) cycle peak would take place after December 2019. This may act as a hyperbolic bubble rally phase lasting 12 to 24 months after the cycles changed into depreciation.
This means a bubble rally phase very likely started in January 2020 and may last until January 2022 – setting up a huge rally event, a major market peak/top, and a big sell-off phase (the bursting of the bubble).
Lastly, even bigger market cycle trends and Elliot Wave theory suggests SPDR® S&P 500 (NYSE:SPY) would reach a peak near $440 and the S&P 500 would reach a peak near $4400 that would end the Wave 5 rally – ultimately setting up an ABC corrective price wave targeting new support below the $2800 level on the S&P 500. Are we at this stage of the market trend where we have confirmation of the Wave 5 peak and should start to expect a bigger downside price trend? No.
We are at the early stage potential top near the $440/$4400 level and we are waiting for confirmation. Yes, our strategies are actively protecting capital and pulling some trades off as the markets enter a weaker price trend. However, we do not have any solid technical confirmation of these bigger cycle phases or of any major global market price collapse taking place (yet).
Our research and trading strategies will alert us to proper confirmation of these trends within a few more days or weeks depending on how the markets react and trend. As of right now, we can clearly tell you that the markets appear to be starting a reversion event and that we believe the overvalued markets have clearly been telegraphing this setup for many months.
The likelihood of a broad market collapse targeting the March 2020 COVID-19 lows is still quite high. The confirmation of the Wave 5 peak is all that is needed to confirm a potentially broad downside ABC price trend/wave that may target $2,800 or lower. Should you protect your assets and learn to better prepare for these types of technical setups? Yes. Learning how to identify and trades these bigger cycle phases while using proven trading strategies is the key to success for anyone wanting to efficiently trade these markets for many years.
If you are simply speculating in the markets and want to “play with your money” while you are chasing the wild trade setups, you’ll quickly learn how dangerous that type of trading can be. Yes, you may see some really big wins at times, but eventually you’ll realize you need a strategy that is more consistent than just guessing at what to buy.
Right now, near what appears to be a market peak, traders want to stay ahead of these trends and opportunities related to what may become the next big disruptive technology gains. As we move further into the 21st Century, it is very likely that space will become the dot-com/Internet disruptive technology over the next 20 to 40+ years (or longer). That means traders need to start considering how this exciting new sector fits into their investment portfolio and where new industry leaders will settle.
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Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
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