Good Sunday everyone. I received two great questions this week…perfect for this VRA Update. Plus, I’m including specific index price targets for a sharp reversal lower (and yes, it’s fast approaching).
Question One (Bill in TX): I enjoyed reading your “Professional Short Sellers” update for technical levels to watch for a reversal. Based on the close, haven’t the transports reached both the 50% retrace levels along with being 90% overbought?
My answer: Great points Bill! Not sure how I missed mentioning this yesterday, but you are exactly correct. As of now, the transports have rallied a full 50% off of their high-low, and based on my proprietary VRA System reading, is now 93% overbought. Along with the Dow Jones, which has also retraced 50%, we are close to the point where top technical analysts look for a massive reversal…likely followed by fresh lows.
Key Index to Watch: Watch the transportation index ($DJT) folks. The transports led the way down, to begin this huge sell-off…and everything I’ve learned tells me that one of two things will happen: the transports will reverse lower “soon”, or this may be more than just a dead cat bounce. You know my thoughts…we are going MUCH lower.
Question two (Sue in CA): Should we expect the federal reserve to continue further with QE and possibly even negative rates? From what you have said, they are all in, and I agree. Why should the insanity stop now?
My reply: You must be reading my mind Sue. In order to make money in these markets, we MUST have a high degree of respect for the unlimited power of the FED’s printing press. I am always on alert for signs of the worlds central banks next move…and no, I do not believe the insanity has ended.
But here’s the issue that I see, and that those I most respect, see as well. We are witnessing clear signs that the power of central bank moves has not only lessened, but likely, reversed into being clear negatives. As the world is moving to negative rates, the worlds equity markets have replied with fierce sell-offs. This is a point that cannot be forgotten. It might also mean that the next crash will come directly from central bank mistakes.
As I tweeted, the Bank of Japan now purchases up to 90% of all government bond sales. That’s right…the country issues them, then the country buys them (through the BOJ). Just a decade ago this would be considered unimaginable…now its just “normal”. In addition, and this is truly amazing as well, the BOJ now owns 54% of ALL Japanese equity ETF’s. An no, I didn’t stutter…they own and control 54% of all equities held in Japanese ETF’s.
Does anyone see anyway this ends well? Central bankers…highly educated morons, leading us right into global financial systemic collapse. This is exactly what I expect historians to report.
VRA Market Update:
Here’s the bottom line on this bear market rally. As we approach these most important technical levels, soon we will all know what the next move will be; either a sharp move lower, or a continuation of the rally we have seen since last Thursdays lows.
Consider the following indexes…I spend a fair amount of time referring to these…now we will identify the specific points where short sellers will begin to get heavily aggressive, once again. As you’ll see, we are quickly approaching many of these levels.
Note: to keep this focused, I will not get into the “hows” of the technical analysis involved in selecting these levels…just know that they represent the ‘median” price/trading points from the early December highs to the lows of last week. The levels I am pointing out are where the shorts will become HIGHLY aggressive on the short side…should we even reach these levels.
ONE: Russell 2000 ($RUT): I have targeted RUT because it first led stocks lower, and because of the size of the move lower I expected. For example, from just those early December market highs, the Russell 2k fell a huge 19%, versus the Dow Jones, which dropped by 11%.
Short Sellers are targeting a possible move to 1051 on RUT, versus the 1014 level today…meaning that RUT has potential upside of roughly 3.5%. Should the Russell 2k manage to achieve this kind of move higher, the level of short selling will be ferocious.
TWO: Volatility ETF ($VIX): Short sellers are very close to aggressively targeting volatility again now. For example, their price target on this pullback is 20, and today’s level of 20.50 means we are getting very close. I fully expect to see new cycle highs on the VIX, and we will use this to add to the 1000% + profits we’ve booked from using the VIX, alone, in just the last 3-4 years.
THREE: Energy co’s, through XLE (energy stock ETF). From the most recent December highs, XLE plummeted 26%. Shorts are now targeting a potential move to $59 on XLE, before once again getting highly aggressive on the short side (last trade, $57). The next reversal will take oil to fresh cycle lows (just before the big turn that sends oil surging once again, as defaltion evolves into hyperinflation).
VRA Subscribers should save this update. As we test key levels, we will look to aggressively add new market short positions by keying off of these indicators (plus the other 50 indicators the VRA System employs). Remember, prior to the January sell-off, VRA Subscribers had a combined 1300% net short position (we love using leverge to our advantage…something that select VRA recommended leveraged ETF’s help us to do). We timed the sell-off with near exact precision and we did so with huge, market short positions.
My goal is always simple, always clear; book massive profits for my valued Subscribers.
Timing Mr. Market
We know the next phase lower is near because the market is telling us…
Sounds simpleton I know, but let me repeat; the market talks to us each day…all we have to do is listen.
Here’s what it’s telling me now: the bear market rally to date has been almost purely technical in nature…driven by short covering, low volumes and a continued addiction to the price action of oil.
My work shows that neither oil or stock markets have bottomed…and that within short order, the dead cat bounce will be over. We will be very, very ready.
We may soon be adding to our market short positions…stay frosty!