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President Trump Signs Additional COVID Relief – What To Expect from the Markets

Stock-Markets / Stock Markets 2020 Aug 13, 2020 - 02:28 PM GMT

By: Chris_Vermeulen

Stock-Markets

Up until the end of the last week, Republicans and Democrats were locked in heated negotiations regarding the size and scope of pending COVID-19 relief efforts. Our researchers had little hope that any negotiations would be successful given the two sides were so far away from one another in terms of wants and wishes.

On Saturday, August 8, 2020, President Trump signed a new Executive Order (and memorandums) to provide additional relief from the coronavirus that continues to spread in the US and around the world. These measures provide for as much as $400 in enhanced unemployment payments, and also offer Americans with temporary payroll tax relief, student loan deferments, and assistance to homeowners and renters.


NEW EXECUTIVE ORDER – WHAT TO EXPECT

The markets, meanwhile, continued to “Melt-Up” over the past few weeks with the SPX500 briefly reaching into new all-time high territory before selling off on Friday.  In all likelihood, given news of the Executive Orders issued by President Trump yesterday, the markets will likely view this a reprieve from the mounting pressures that lie just under the surface of the US economy.

We believe there is a very strong likelihood that the US and global markets will interpret the newly signed relief efforts positively, resulting in a strong potential for a continued “melt-up” over the next few days/weeks.  Investors and traders have been banking on the fact that the US Fed and Congress would do everything possible to support the US economy and the millions of displaced workers who find themselves suddenly unemployed.

We want to point out there is a huge unknown factor that is lurking just below the surface of the sky-high market valuation levels – those individuals who have entered a forbearance or deferment programs designed to alleviate the economic and accounting collapse associated with the COVID-19 virus event.  Quite a bit of this very unusual effort has been detailed in this Wolf Street article where the author itemizes dangers within the household credit markets.

The reality is grim: hundreds of billions in student loans, auto loans, and mortgages have been deferred, while the number of unemployed jumped to 32.1 million at the start of August.  Instead of facilitating these losses through traditional channels, new forbearance and deferment programs, including that from these latest Executive Orders, have shifted these extensive, looming liabilities into the “performing loans” category on banks’ balance sheets so everything seems rosy for investors.

We believe we are witnessing the most incredible economic phenomena unfolding since the roaring 20s. We have gotten to a point where traditional accounting doesn’t seem to matter as long as the ship is still floating.  Put a fresh coat of paint on it and call it good – who cares about fundamentals and whether the ship is structurally sound or not.

Before you continue, be sure to  opt-in to our free-market trend signalsnow so you don’t miss our next special report!

For skilled traders, this is one of the most challenging, yet exciting, times to be in the market.  We are navigating a new open sea where the conditions are changing almost every week.  Gold and Silver have already started screaming that risks and excesses are FULL-TILT.  Daily volume is starting to slow down on many charts and many of the major indexes are nearing the February 2020 highs.  The markets are either going to continue to melt-up for a while or digest this new COVID-19 relief package as a real concern for what the markets will look like near the end of 2020.  Our researchers believe the “melt-up” scenario is the most likely outcome, but we don’t believe it will last more than two to three weeks before reality sets in.

TRANSPORTATION INDEX CONSOLIDATION AND BREAKOUT PATTERNS

The Daily TRAN/SPY chart below highlights the consolidation and breakout rally mode that has continued to set up in both the TRAN and SPY.  We believe the current rally may continue for a few more days before another consolidation pattern sets up.  We’ve discussed “measured moves” as a common technical analysis technique.  The Transportation Index has moved 1825 to 2000 points in each of the three upside measured moves from the March 20 bottom.  Each of these moves has happened after a consolidation breakout pattern.  Currently, the TRAN has already moved in excess of 1900 points from the last consolidation breakout pattern.  Thus, we strongly believe a further melt-up may only offer 100 to 250 upside points before a new consolidation pattern begins.

The Weekly TRAN/SPY chart below highlights similar longer-term consolidation and breakout patterns that seem to present very real opportunities for SPY traders.  When the TRAN enters a longer-term consolidation period, then breaks out to the upside, there is often a larger upside move in the SPY that is likely to follow.  Each of these upside price moves in the SPY seems to total $25 to $35 of upside price activity before a new peak sets up.  If a similar type of price move continues from the current upside price breakout, then the upside SPY target level should be near $340 to $350 where a new peak will form.  This is only $5.50 to $15.50 away from current SPY price levels (+1.75% to +4.5% higher).

We suggest traders expect a continued moderate “melt-up” after President Trump’s Executive Order actions on Saturday with very clear targets in the SPY just 2% to 4% higher.  At that point, we believe the markets will enter another consolidation period and begin to move sideways.  Watch metals and watch for conditions that could present greater risks.  If Gold breaches $2300 or Silver breaches $37.50, then traders should really start to worry that metals are suggesting risk levels are now at critical levels.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is going to be an incredible year for skilled traders.  Don’t miss all the incredible moves and trade setups. 

If you found this informative, then sign up now to get a pre-market video every day before the opening bell that walks you through the charts and my proprietary technical analysis of all of the major assets classes. You will also receive my easy-to-follow ETF swing trades that always include an entry price, a stop, two exit targets, as well as a recommended position sizing. Visit my Active ETF Trading Newsletter to learn more.

While many of you have trading accounts, the most important accounts are long-term investment and retirement accounts. Why? Because these accounts are, in most cases, an individual’s largest store of wealth (other than home equity) and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth in a few days. We can help you preserve and even grow your long term capital when things get ugly (like they are now) and scary (as we expect them to soon be).

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals, which includes a weekly market update and trade alerts.

Stay healthy and rest easy at night by staying informed through our services – sign up today!

Chris Vermeulen
www.TheTechnicalTraders.com

Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several leading financial hubs like MarketOracle.co.uk

Disclaimer: Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned. Technical Traders Ltd., its owners and the author of this report are not registered broker-dealers or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read in an online or printed report, including this report, especially if the investment involves a small, thinly-traded company that isn’t well known. Technical Traders Ltd. and the author of this report has been paid by Cardiff Energy Corp. In addition, the author owns shares of Cardiff Energy Corp. and would also benefit from volume and price appreciation of its stock. The information provided here within should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. Technical Traders Ltd. and the author of this report do not guarantee the accuracy, completeness, or usefulness of any content of this report, nor its fitness for any particular purpose. Lastly, the author does not guarantee that any of the companies mentioned in the reports will perform as expected, and any comparisons made to other companies may not be valid or come into effect.

Chris Vermeulen Archive

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