Starting with a bang
America’s strong growth this year surprises economists
But look more closely at the latest GDP figures, and they are not so Rosy
THIS YEAR America’s economy did not get the freshest of starts. A government shutdown, a wobbly stockmarket and concerns that the Federal Reserve would tighten monetary policy too quickly made for a dim outlook for 2019. With the effects of fiscal stimulus fading, and momentum in the global economy ebbing, most expected America’s economic growth to decelerate.
So GDP figures for the first quarter, published on April 26th, were a pleasant surprise. Economists surveyed by the Wall Street Journal had been expecting annualised real growth for the quarter of 2.5%. Instead they were treated to a figure of 3.2%. Needless to say, President Donald Trump was pleased, tweeting that the figure was “far above expectations or projections”, and (of course) adding “MAKE AMERICA GREAT AGAIN”.
The president got an impressive number to hurl at his critics, who had doubted that his economic plans would generate sustained rapid growth. The headline figure also seemed to defy fears of a looming downturn. Markets predict an interest-rate cut this year. But an economy growing at such a healthy clip seems, at face value, unlikely to need such support.
Dig a little deeper, though, and the details are less rosy. Around one percentage point of that 3.2% was because of falling imports and rising exports, a volatile component of GDP. Another 0.7 percentage points came from changes in inventories, which could unwind later in the year.
Some other components of GDP looked soft. Consumer spending, an engine of growth through most of last year, grew by just 1.2% on an annualised basis, or less than half its rate in the fourth quarter of 2018. It was pulled down by an 18% decline in spending on cars and car parts. Investment data also looked a little soggy, with the exception of investment in intellectual property.
Some of this weakness should reverse in the second quarter of 2019. The government shutdown probably did crimp performance, but is now over. And though retail sales went through a soft patch around the turn of the year, they seem to be picking up. And the GDP figures come with a standard caveat: they are preliminary estimates, which will be revised at least twice in the coming months.
Perhaps more consequential than the eye-catching growth figure was unexpectedly weak inflation, which could suggest an underlying weakness in demand. Annualised quarterly growth in prices, as measured by personal-consumption expenditures, was just 0.6%, or 1.3% when excluding (volatile) energy and food. This sting in the tail is probably why government bond yields, which rose on news of the cheering GDP figure, then fell sharply.
Monetary policymakers at the Fed are due to meet next week, and some may conclude from today’s release that they raised interest rates too aggressively in 2018, and are therefore to blame for disappointing domestic demand. The weakness of inflation certainly suggests that monetary policy has not been too loose. A more constructive conclusion might be that the Fed was right to shift to a more doveish stance in the past few months, and that low inflation leaves it well placed to apply more stimulus if necessary. Official projections at its last meeting suggested that interest rates would not rise again this year. With inflation still quiescent, there seems no reason that would change.
Now that the April 21 ~ 24 Gold “momentum base” prediction that we’ve been discussing for the past 4+ months has past and appears to be accurate, we think it is time to start warning of increased market volatility and the potential for a market “shake-out” to happen. Last week was a key component to our future price predictions and market projections. We believed our proprietary price modeling systems were accurate and had latched onto a key component of the markets – the “momentum base” call in Gold for April 21 ~ 24 of this year. Remember, this original research post was made in September 2018 – over 7 months ago. We kept refining our research over the past 4+ months and warned, repeatedly, that this base in Gold would likely prompt a market shake-out over the next 30~60+ days.
The moves in the major markets, over the past few weeks, have been very telling. With the SPY and NASDAQ pushing to new all-time highs, strong earnings (overall) and the global markets setting up for another shoe to drop (at some point in the future), it leaves many questions for skilled traders. What’s going to happen next and what should we expect from price?
Well, we have a few simple answers for you regarding the next few weeks expectations as well as some bigger future predictions.
First, Crude Oil rotated dramatically lower on Friday. This was a big downward price rotation considering the Trump/Iran deal stance early on in the week. A disruption in the supply of Oil is often a driver of bigger market swings. I learned a long time ago to watch Gold and Oil all the time. These are often the leading commodities that reflect fear/greed in the markets and potential global unrest.
With Crude Oil slipping below a key Fibonacci trigger level (at $65.25) and another key Fibonacci trigger level sitting at $61.60, it seems rather obvious that Oil may slip back below $60 on deeper price rotation over the next few weeks which could lead to a bigger “shake-out” in the markets. We recently posted an article about how Oil could rotate lower and retest the sub $55 level (https://www.thetechnicaltraders.com/oil-may-be-setup-for-a-move-back-50/ ).
At this point, a breakdown of oil prices below the $61.60 level would indicate the very strong potential for further downside price.
Precious metals have setup our momentum base/bottom on the dates we predicted over 4+ months ago (April 21 ~24). It is incredible that our ADL price modeling system can be so accurate so far into the future. Our proprietary price modeling systems provide us with an incredible advantage over most other research firms. The ADL and Fibonacci price modeling systems are predicting an upside price advance of at least 12% to 20% over the next few weeks. Read one of our original research posts here: https://www.thetechnicaltraders.com/45-days-until-a-multi-year-breakout-for-precious-metals/
The upside price potential in precious metals should not be overlooked. Additionally, the implication that some other global market malaise could unfold between now and the end of 2019 to drive precious metals prices even higher is fairly strong. We’ve been warning that Europe, China, and even the US markets could come under some pricing pressure or increased volatility as the US markets establish new price highs. It makes sense that traders would be preparing for another deep price rotation as prices near previous peak levels.
The Transportation Index rotated downward near the end of the week quite hard. Thursday, April 25, saw the Transportation Index fall over -250 pts (over -2.25%) after briefly breaching a key resistance level near $11,050. As we’ve been suggesting, the Transportation Index typically leads the markets by a few week/months and we follow it as a means of understanding future trends, risks and price rotations. Right now, the Transportation Index is suggesting increase price rotation and price volatility is likely to “shake-out” the markets for a while.
Lastly, the YM (Dow Futures), is setting up in a very narrow price channel below the recent all-time high established in early October 2018 (at $26,966).
This decreased price volatility suggests that the US major indexes are setting up for a price breakout move. Congesting price channels suggest that price is stuck within a defined price range/channel and the ultimate breakout move will likely be a big breakout move to one side or the other.
We have our suspicion as to which direction the move will likely be and we’ll share it with you now. Our longer-term analysis suggests that price will continue to push higher while attempting new all-time price highs. Our expectations that price volatility will increase throughout the rest of 2019 suggest we could see some very big price swings over the next 7+ months.
But for right now, we believe this YM price channel will result in a brief upside price breakout that will push the YM price to new all-time highs (briefly) before retracing to form another extended sideways price channel near $27,000. Stocks, in general, are doing well as all our positions rallied last week with one stock jumping over 11% in one session.
Below, we have included a Daily YM chart that highlights this current price channel in MAGENTA. Pay very close attention to this channel as we near the eventual price breakout that will end this congestion. Weakness may prompt a “false breakout” to the downside, suckering in shorts, before a continued upside rally pushes prices over the $27,000 market, then stalling to set up the next Pennant/Flag formation. We’ve seen this type of price action many times in the past. Any downside “false breakdown” would prompt a big increase in volatility.
This aligns with our broader market analysis. The push to the upside to establishing new all-time highs also aligns with our broader market analysis. Thus, we expect a pretty big series of price events to unfold over the next 2~5+ weeks.
The moves in the major markets, over the past few weeks, have been very telling. With the SPY and NASDAQ pushing to new all-time highs, strong earnings (overall) and the global markets setting up for another shoe to drop (at some point in the future), it leaves many questions for skilled traders. What’s going to happen next and what should we expect from price?
Well, we have a few simple answers for you regarding the next few weeks expectations as well as some bigger future predictions.
First, Crude Oil rotated dramatically lower on Friday. This was a big downward price rotation considering the Trump/Iran deal stance early on in the week. A disruption in the supply of Oil is often a driver of bigger market swings. I learned a long time ago to watch Gold and Oil all the time. These are often the leading commodities that reflect fear/greed in the markets and potential global unrest.
With Crude Oil slipping below a key Fibonacci trigger level (at $65.25) and another key Fibonacci trigger level sitting at $61.60, it seems rather obvious that Oil may slip back below $60 on deeper price rotation over the next few weeks which could lead to a bigger “shake-out” in the markets. We recently posted an article about how Oil could rotate lower and retest the sub $55 level (https://www.thetechnicaltraders.com/oil-may-be-setup-for-a-move-back-50/ ).
At this point, a breakdown of oil prices below the $61.60 level would indicate the very strong potential for further downside price.
Precious metals have setup our momentum base/bottom on the dates we predicted over 4+ months ago (April 21 ~24). It is incredible that our ADL price modeling system can be so accurate so far into the future. Our proprietary price modeling systems provide us with an incredible advantage over most other research firms. The ADL and Fibonacci price modeling systems are predicting an upside price advance of at least 12% to 20% over the next few weeks. Read one of our original research posts here: https://www.thetechnicaltraders.com/45-days-until-a-multi-year-breakout-for-precious-metals/
The upside price potential in precious metals should not be overlooked. Additionally, the implication that some other global market malaise could unfold between now and the end of 2019 to drive precious metals prices even higher is fairly strong. We’ve been warning that Europe, China, and even the US markets could come under some pricing pressure or increased volatility as the US markets establish new price highs. It makes sense that traders would be preparing for another deep price rotation as prices near previous peak levels.
The Transportation Index rotated downward near the end of the week quite hard. Thursday, April 25, saw the Transportation Index fall over -250 pts (over -2.25%) after briefly breaching a key resistance level near $11,050. As we’ve been suggesting, the Transportation Index typically leads the markets by a few week/months and we follow it as a means of understanding future trends, risks and price rotations. Right now, the Transportation Index is suggesting increase price rotation and price volatility is likely to “shake-out” the markets for a while.
Lastly, the YM (Dow Futures), is setting up in a very narrow price channel below the recent all-time high established in early October 2018 (at $26,966).
This decreased price volatility suggests that the US major indexes are setting up for a price breakout move. Congesting price channels suggest that price is stuck within a defined price range/channel and the ultimate breakout move will likely be a big breakout move to one side or the other.
We have our suspicion as to which direction the move will likely be and we’ll share it with you now. Our longer-term analysis suggests that price will continue to push higher while attempting new all-time price highs. Our expectations that price volatility will increase throughout the rest of 2019 suggest we could see some very big price swings over the next 7+ months.
But for right now, we believe this YM price channel will result in a brief upside price breakout that will push the YM price to new all-time highs (briefly) before retracing to form another extended sideways price channel near $27,000. Stocks, in general, are doing well as all our positions rallied last week with one stock jumping over 11% in one session.
Below, we have included a Daily YM chart that highlights this current price channel in MAGENTA. Pay very close attention to this channel as we near the eventual price breakout that will end this congestion. Weakness may prompt a “false breakout” to the downside, suckering in shorts, before a continued upside rally pushes prices over the $27,000 market, then stalling to set up the next Pennant/Flag formation. We’ve seen this type of price action many times in the past. Any downside “false breakdown” would prompt a big increase in volatility.
This aligns with our broader market analysis. The push to the upside to establishing new all-time highs also aligns with our broader market analysis. Thus, we expect a pretty big series of price events to unfold over the next 2~5+ weeks.
