Bloomberg Throws His Hat Into The Presidential Race - Winners And Losers

Michael Bloomberg
Net Worth: $58 billion
Age: 77 years old

Education: BS from Johns Hopkins, MBA from Harvard
Business: Owner & Founder of Bloomberg LP

Philanthropist: He has given $8.5 billion to charitable causes (so far)

Experience in Politics: 3-term Mayor of New York City

Political Bias: Moderate Democrat

Extraordinary credentials to run for President of the United States!

It's not hard to figure out who the biggest loser will be as a result of Michael Bloomberg's entry into the race for President: DONALD J. TRUMP!

With his unlimited pocketbook, Bloomberg will be firing broadsides at Trump every day and every night from now until election day, assuming Trump is able to survive impeachment and that he doesn't resign prematurely from office (which can't be ruled out). And despite loud cries from other Democrats running for President that Bloomberg is attempting to "buy the Presidency", the media will now follow Bloomberg's every move and every word until the Dems make their final choice at the Convention. This gives the former 3-term NY Mayor a national stage to criticize Trump. And it also gives Bloomberg a national stage to advocate for his favorite causes and also his favored political positions.

Former Vice President Joe Biden is the next biggest loser, of course, because Michael Bloomberg will now aggressively challenge Mr. Biden's centrist lane with Bloomberg's own superior centrist plans for growth, job creation, and the rebuilding of America's infrastructure.

Luckily for Mr. Bloomberg, Senator Elizabeth Warren and Senator Bernie Sanders have split the ultra left leaning arm of the Democratic Party. Both candidates are losers with Michael Bloomberg now in the race. Each of these two candidates will now come under intense scrutiny from Michael Bloomberg as being too liberal for the current electorate and therefore unlikely to win the Presidential election against Trump (or VP Mike Pence should Trump resign before election day).

While no one would argue that Michael Bloomberg would love to win the Democratic nomination for President and then go on to beat the Republican candidate for President in November 2020, I don't think that Michael Bloomberg actually thinks he can win either the nomination or the Presidency. My strong view is that the real reason why Michael Bloomberg has entered the race is NOT to win himself, but just to make sure that Donald Trump doesn't win!!

And who, therefore, is the biggest winner as a result of Michael Bloomberg's entry into Presidential Politics? The answer may surprise you. Senator Amy Klobuchar is the clear winner from Bloomberg's entry into the race for President. While I am confident that Bloomberg could win the general election against any Republican if nominated by his party, I see very little probability that Bloomberg will in fact be nominated by his party. By default, therefore, Klobuchar is "the last man standing" in the center lane. The distinguished Senator from Minnesota has ALL the right credentials to be President of the United States, and she is the ONLY reasonable moderate Democratic in the field who can win the nomination AND beat the Republican candidate on election day November 3, 2020. And if Senator Amy Klobuchar selects Senator Cory Booker as her Vice Presidential running mate, the November 2020 election will then be among the most one-sided victories for the Democratic Party in the modern era!

So how does all this shake out with regard to the U.S. stock market?

When the Dems win everything next November 2020 (President, Senate majority, House majority), the Federal corporate tax rate will be increased to near 30% from the current rate of 21%. That's all you really need to know, beside the fact that a major economic recession is on the near-term horizon. As soon as investors figure out that Donald Trump will NOT be President for a second term, U.S. stock prices will fall sharply as "after tax" profits completely collapse!!

And one last note about the U.S. stock market. Has anyone noticed that Apple stock is currently trading at +22.1% above its 200-day moving average line? The S&P 500 is trading at +6.7% above its 200-day moving average line. The Nasdaq Composite is trading at +7.5% above its 200-day MA and the Russell 2000 Index is trading at +5.2% above its 200-Day MA. Given Apple's $1.21 trillion market capitalization right now, any "reversion to the mean" near its 200-day moving average line would result in a dramatic decline in ALL the closely watched benchmark stock market averages because Apple is a component in all of them. Apple insiders are now selling their Apple shares on balance (smart money) and uninformed Wall Street analysts (less than smart money) are almost ALL universally bullish on Apple's stock price with buy ratings, outperform ratings, and overweight ratings on this massively over-bought, over-owned, and over-valued stock. Everyone talks about Apple's monstrous cash position at approximately $100 billion right now, but almost no one is talking about Apple's massive corporate debt at 1.19 x equity. As of September 30, 2019, Apple had $248 billion in liabilities, of which $91 billion was long term debt!

Postscript (late Sunday, December 8th): Given the unexpected strength of the latest U.S. Unemployment Report this past Friday, it seems to me that the Federal Reserve will now lean "hawkish" at this week's FOMC meeting. Since stock investors seem overly complacent right now regarding domestic monetary policy following three straight cuts in interest rates, a hawkish Fed report this week may very well come as a major shock to many investors who are now clearly over-weighted in equities. The U.S. stock market has the feel to me right now that is similar to where we were in late January 2018 when volatility exploded and share prices quickly dropped 10%.

Presidential Politics and the U.S. Financial Markets

After several weeks of riveting testimony, it is fairly clear now that the House of Representatives will vote to impeach President Trump. The timing of this vote is less clear, but a prediction centering on year-end 2019 seems reasonable.

When the House of Representatives finally votes for impeachment, a Senate trial would then be scheduled to decide whether President Trump should be removed from office. While anything could happen between now and then, the odds strongly favor a prediction which indicates that less than 67 Senators will vote to convict the President of "treason, bribery, or high crimes and misdemeanors". This means that President Trump could then serve out his first term and could be potentially reelected for a second term following the November 2020 National elections.

The above two paragraphs state the obvious to me. What may be less obvious is the strong possibility that Trump's impeachment has deeply hurt him politically and that Trump now faces LONG ODDS and an uphill battle for his reelection. If National polls continue to show Trump's approval rating in the high 30's to low 40's, Trump may decide NOT to risk losing in the next election, but may instead resign from office with PRESIDENT PENCE'S pardon for himself and his family. I strongly believe that if Trump stays in the race and loses the Presidential election next November, he may very well be arrested on the day after he leaves office (in January 2021) to face multiple felony charges already in the queue (i.e. "Individual One" in the Cohen case). In my view, Trump desperately needs a pardon from ALL potential Federal criminal charges or potentially face the rest of his life in prison.

How does all this political speculation impact financial asset prices?

Unfortunately for stock investors, no matter how the next 12 months plays out, the results will be the same in the U.S. financial markets. As a direct result of Trump's early resignation from office or his eventual certain loss in the actual November 2020 election, the U.S. stock market will decline sharply which will then trigger the beginning of a significant economic recession which will then trigger a sharp rise in Treasury securities prices (the best safe haven). As a direct result of Trump's massive corporate income tax cut (from 35% to just 21%) ahead of the 2018 tax year, revenue to the U.S. Treasury from U.S. corporations was down 31% in 2018 as compared to the previous year. One of the first actions from the newly elected Democratic President early in 2021 will be to roll back Trump's tax cut and raise the corporate income tax rate to AT LEAST 30% (or higher). 

Timing of course is everything for traders and investors in the securities markets. Most major U.S. stock indexes appear impervious to any negative news right now. Not even the lack of progress on U.S./China trade negotiations hurts stock prices for very long. Third quarter corporate profits results looked unspectacular, which means that there must be other forces are at work keeping share prices near record levels. Ongoing corporate share buybacks are certainly a major factor supporting stocks right now, and discreet purchases of U.S. stocks by foreign central banks is probably also a key variable contributing to higher share prices (the Swiss National (central) Bank bought $10 billion worth of U.S. stocks in Q-3 and now owns $100 billion worth of U.S. stocks on its bloated balance sheet).

What will be the catalyst that triggers a downside reversal in U.S. share prices and then sustained selling in the inevitable bear market that follows?

As bad as the news is for Trump almost every day now with respect to impeachment hearings in the House of Representatives, I think there is even worse news to come. John Bolton hasn't testified yet, and I believe that HE WANTS TO TESTIFY and that his testimony will be devastating for Trump. U.S. stock market investors will finally cave into the reality that the Democrats will win back the office of the President and they will also win back a key majority in the Senate. Please keep in mind that if the Democrats win the Presidential election next November, all they need to do is win back three (3) Republican seats in the Senate to gain an effective majority (at 50 Democrats vs 50 Republicans; a Democratic Vice President would then break all ties on potential legislation). Of course, Democrats in the House of Representatives will certainly maintain their current majority following the November 2020 elections.

Bottom line: There is almost no scenario where the bull market in U.S. stock prices continues in 2020. The odds are probably near 100% that at least a 20% correction will unfold in 2020, and traders and investors should not be surprised to witness a 33% correction (or more)! In the early stage of this expected correction, there will be almost nowhere to hide. Only Treasury securities look safe to me right now. Gold, silver, and precious metals stock prices may actually decline during the early stages of this next bear market before finally representing excellent value ahead of the final washout of the overall stock market late next year.

Daily Chart Sell Signal Triggered Today in the Dow Jones Industrial Average

A daily chart sell signal was triggered today by my computer trading system in the Dow Jones Industrial Average.

Please see chart below:

Dow Jones Industrial Average (DIA) Daily Chart with Computer-generated Buy & Sell Signals

U.S. Stock Market Top! Finally!!

Just a quick note tonight about the U.S. stock market:

While most major benchmark indices closed up on the day today, the intra-day action looked to me like a genuine exhaustion pattern where prices gapped higher (again), posted all-time record highs in the morning (again), and then faltered notably in afternoon dealings.

After three straight interest rate cuts from the Federal Reserve this year, and lots of monetary stimulus over the last 8 weeks in the form of massive repurchase agreements and another round of quantitative easing, stock market investors should not expect any additional bullish support from this key contributor. A potential 4th interest rate hike from the Fed in December has almost been completely ruled out in the Fed Funds futures market, and even a potential January 2020 interest rate cut now faces low odds.

While almost no one expects a repeat of last year's 4th quarter collapse in the U.S. stock market (which clipped 20% from most major indices), I now see a fairly swift 10% correction over the very near term.

Here are two very interesting charts which show how extended most major U.S. stock market indexes are right now:

Nasdaq-100 Index (QQQ) Weekly Chart with 200-Week Moving Average and 3D Bollinger Band

S&P 100 Index (OEX) Weekly Chart with 200-Week Moving Average and 3D Bollinger Band

Gold & Silver Update

In my June 1st, 2019 update, when Gold was $1300/oz and Silver was $14.50/oz, in this column I wrote the following:

From my June 1st update: "Bottom line: Gold and Silver prices have entered the early stages of a major bull market. Before year-end 2019, Gold is projected to advance to $1,500/oz (+15% from current levels) while Silver is projected to advance to near $18.00/oz (+25% from current levels). Of course, if these two forecasts are accurate, then gold and silver mining shares can be expected to double and even triple over the next several quarters! In early 2016, this same kind of percentage rally in Gold and Silver prices triggered gains of more than 500% in many precious metals mining stocks in just seven months (see weekly chart of First Majestic)!!"

Now: with Gold trading at $1550/oz and Silver trading at 18.50/oz, projected upside targets for both gold and silver from June 1st have been met and it's time to exit all precious metals positions, including mining shares (many of which have doubled), in favor of the safety of sideline cash.

U.S. Stock & Bond Markets: Mid-Year Update

The Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite Index all posted record highs last week as investors celebrated Federal Reserve Chairman Jerome Powell's dovish comments on monetary policy immediately ahead. Despite recently strong employment data and a surprising upward blip in domestic inflation data, Chairman Powell confirmed the consensus Wall Street view that an "insurance" cut in short term interest rates was likely at the next Federal Open Market Committee now scheduled for the end of July. Action in the Fed Funds futures market suggests a 100% probability of at least 1/4 point cut in the Fed Funds interest rate following the July FOMC meeting. This same futures activity also seems to indicate that traders are expecting at least one more 1/4 point cut after July this year and maybe even two 1/4 point cuts before year-end 2019.

Surprisingly, mid-term and longer-term Treasury securities prices actually fell last week despite this dovish news from Fed Chairman Powell (see chart below). After falling below 2.00%, the yield on the benchmark 10-year T-note jumped to 2.11% by the end of last week, and the yield on the 30-year T-bond jumped to 2.63% after falling below 2.50%.

Obviously, higher mid-term and longer-term interest rates did not stifle investors' love affair with U.S. equity prices, but perhaps investor enthusiasm is misplaced?

Here are some factors which are likely to dampen further enthusiasm for U.S. equity prices immediately ahead:

1. Corporate earnings are likely to be negative year-over-year in the 2nd quarter just ended. And Wall Street analysts will soon ratchet down earnings expectations for the rest of this year AND next year as well.

2. While the Federal Reserve talks dovish, so-called "quantitative tightening" is ongoing with regular sales of Treasury and Mortgage-backed securities from the Fed's balance sheet at a pace that still exceeds $30 billion per month. More than $475 billion in Treasury and Mortgage-back securities have been sold from the Fed's bloated balance sheet over the past 12 months (-11.2% of total portfolio).

3. The Federal budget deficit this fiscal year is likely to exceed $1 trillion. Treasury issuance to fund this deficit may serve to "crowd out" corporate and municipal funding needs and provide upward pressure on interest rates. Despite a dovish Federal Reserve, an unexpected liquidity crisis could easily develop.

4. Next year's Federal budget negotiations are already underway and they are contentious (at best). No budget deal is anticipated by the end of the current fiscal year September 30, 2019, which will add to rising uncertainty on this key issue in the financial markets.

5. China is NOT likely to negotiate a friendly trade deal with the United States while Donald Trump remains in office. China's leadership knows that the Trump tariffs are unpopular in the U.S., even among Trump supporters in Congress.

6. The Democrats are almost certain to win the Presidential election in November 2020 and it is my strong view that the Dems will also win a majority in the Senate (as 22 Republican senators are up for re-election). If a Democrat is elected President, then the Dems only need to win 3 Senate seats, on balance, to secure an effective majority (as the Democratic Vice President would then own any tie-breaking votes).

7. The Democrat Presidential candidates will soon be asking Americans the same question that Ronald Reagan asked in 1980 when he successfully upset the incumbent President Jimmy Carter. That question is "Are you better off now than you were four years ago?" For most Americans that answer is a resounding "NO", as Trump has failed to deliver on his promise of better health care, badly needed infra-structure spending, a balanced Federal budget deficit, and above-trend growth in the domestic economy. Trump's "drain the swamp" mantra will be the subject of serious questions by the Democrats given the plethora of investigations and resignations among Trump's Cabinet and from his inner circle.

8. Rightly or wrongly, the Jeffrey Epstein sex scandal will negatively impact Donald Trump as Americans begin to view Mr. Trump's less-than-mainstream behavior as unattractive, and Trump will no longer be viewed as the "outsider" who will shake up Washington politics in favor of the "forgotten man".

9. I renew my prediction that Donald Trump will resign from office before the November 2020 election with a full pardon for himself and his family by then President Mike Pence. Among the factors that will unseat President Trump are rising trade tensions globally (especially with China and Europe), ongoing clashes with Congress over Executive war powers (Iran, Saudi Arabia, Yemen, Syria), immigration problems on America's southern border, escalating investigations of the Trump Administration from oversight committees in the House of Representatives, steadily increasing pressure on Speaker Nancy Pelosi to begin impeachment hearings, and a collapsing U.S. stock market.

10. When the Democrats look like they will win the Presidency in November 2020, the U.S. stock market will begin to discount sharply higher corporate taxes ahead and also a significant increase in tax rates for the top 1% of wage earners (who are clearly the largest shareholders in U.S. equities). While the Federal Reserve will attempt to cushion any slide in stock prices greater than 20%, the so-called "Powell Put" will be unsuccessful in the face of a Democratic President and Democratic majorities that will almost certainly be won in both the Senate and House of Representatives in the November 2020 election.

DJIA Weekly Chart with Computer-generated Buy & Sell Signals

S&P 500 Weekly Chart with Computer-generated Buy & Sell Signals

Russell 2000 Weekly Chart (Non-confirmation of Record Highs in DJIA & SPX)

Treasury Bond ETF (symbol TLT) Monthly Chart

30-year T-bond Rate Monthly Chart

10-year T-Note Rate Monthly Chart

Best Performing Stock Sector Last Week - Gold & Silver Mining Shares!

While U.S. and global stock markets cratered last week, the one lone winning port in the storm for investors was the precious metals mining sector. The benchmark Philadelphia Gold/Silver Stock Index (symbol XAU) actually posted a weekly gain of +5.20%! Most of the positive price action in this under-owned and generally hated group of stocks came on Friday (May 31st) following the Trump Administration's surprise announcement of potential tariffs on goods imported from Mexico.

A relatively rare monthly chart buy signal was triggered in my computer trading system yesterday (May 31st) in the closely-watched primary Gold ETF (symbol GLD). And a monthly chart buy signal was also triggered in the largest silver and gold streaming company Wheaton Precious Metals Corp (symbol WPM).

Gold ETF (GLD) Monthly Chart with Computer-generated Buy & Sell Signals

Wheaton Precious Metals Co (WPM) Monthly Chart with Computer-generated Buy & Sell Signals

Weekly chart buy signals were triggered in my computer trading system last week in the following major gold and silver mining shares and ETFs:

AG, AUY, GDXJ, GOLD, IAG, OCANF, PAAS, SIL, SILJ, and SLV

Junior Gold Miners Stock ETF Weekly Chart with Computer-generated Buy & Sell Signals

First Majestic Corp (AG) Weekly Chart with Computer-generated Buy & Sell Signals

Primary Silver ETF (SLV) Weekly Chart with Computer-generated Buy & Sell Signals

Bottom line: Gold and Silver prices have entered the early stages of a major bull market. Before year-end 2019, Gold is projected to advance to $1,500/oz (+15% from current levels) while Silver is projected to advance to near $18.00/oz (+25% from current levels). Of course, if these two forecasts are accurate, then gold and silver mining shares can be expected to double and even triple over the next several quarters! In early 2016, this same kind of percentage rally in Gold and Silver prices triggered gains of more than 500% in many precious metals mining stocks in just seven months (see weekly chart of First Majestic)!!

May 2019 Marks The Official End To The Great Bull Market in U.S. Stocks!

Extremely rare monthly chart sell signals have been triggered by my computer trading system in the following benchmark U.S. stock market indexes:

S&P 500 Index

Russell 2000 Index

NY Composite Index

Monthly chart signals in my computer trading system are incredibly accurate and should almost never be faded.

The 10-year bull market in the U.S. stock market is over! While it's clear now that May 2019 will now go into the record books as negative for stock market investors, what's not clear at this time is how deep the bear market correction will go or how long this bear market will last. My feeling is that the damage to most U.S. equity prices will be significant and that most major indexes will lose more than 20% this year. And I also believe that the eventual bear market low may represent a loss of more than 40% from top to bottom.

However, while the average U.S. stock is expected to lose more than 40% over the next 18 months, precious metals mining shares were standout winners today and they are likely to be standout winners in a sea of red for at least the next several quarters. The price of gold is forecast to rally to near $1,500/oz by year-end 2019 and the price of silver is forecast to soar to near $18/oz during this same period. These gains amount to +15% and +25%, respectively from current levels over the next seven months.

Junior Gold Mining Shares ETF (GDXJ) Daily Chart

New York Composite Index Monthly Chart with Computer-generated Buy & Sell Signals

Russell 2000 Index Monthly Chart with Computer-generated Buy & Sell Signals

S&P 500 Index Monthly Chart with Computer-generated Buy & Sell Signals

Precious Metals Mining Stocks - Daily Chart Buy Signals Triggered

Just a quick note tonight relating to gold, silver, and precious metals mining stocks.

Unlike the average U.S. stock, which has mostly posted a stellar gain this year so far, precious metals in general and related mining stocks in particular have been miserable holdings for investors, especially since their 2019 intra-day highs as posted on February 20th. Since that key date, the benchmark gold ETF (symbol GLD) is down 5.8%. The benchmark silver ETF (symbol SLV) is down 11.4%. While these red numbers clearly stand out in the sea of green posted by the average U.S. stock this year, the investment returns for gold and silver mining shares are even worse. The Junior Gold Stock ETF (symbol GDXJ) is actually down 19.5% since its intra-day high on February 20th to this morning's intra-day low. And the Silver Mining Stock ETF (symbol SIL) posted a staggering 20.9% loss for this same period.

Is there any hope for this crippled sector right now? The answer may very well be a strong YES!

Daily chart buy signals were triggered by my computer trading system at today's close in the follow precious metals mining shares and related precious metals mining indexes and ETFs:

Philadelphia Gold/Silver Stock Index (symbol XAU)
Junior Gold Mining Shares ETF (symbol GDXJ)
Silver Mining Shares ETF (symbol SIL)
First Majestic (Gold & Silver mining stock - symbol AG)
Coeur D'Alene (Gold & Silver mining stock - symbol CDE)
Hecla Mining (Silver mining stock - symbol HL)
Pan American Mining Co (Silver mining stock - symbol PAAS)
SSR Mining Co (Gold & Silver mining stock - symbol SSRM)

Philadelphia Gold/Silver Mining Stock Index (XAU) with Buy & Sell Signals

Silver Mining Stocks ETF (SIL) Daily Chart with Computer-generated Buy & Sell Signals

Junior Gold Mining Stocks ETF (GDXJ) Daily Chart with Computer-generated Buy & Sell Signals

556 Days to the November 2020 U.S. Presidential Election

With respect to U.S. financial asset prices, is it too early to think about the 2020 Presidential Election? There are 556 days to go; or about 18.5 months. Seems far away, but the potential consequences and ramifications are enormous!

If we take a quick look at the CBOE Volatility Index (chart below), which measures the implied volatility discounted in current S&P Index put & call option prices, traders and investors seem to expect historically low volatility in the overall U.S. stock market immediately ahead. Since January 2018, the range of the VIX has been a low near 9 and a high near 50. The VIX closed at 12.73 this past Friday, April 26. Even though the VIX Index wasn't officially created by the CBOE until the early 1990's, if we went back to the early 1980's and constructed an artificial VIX Index based upon real options prices, we would see a record low near 8 in the summer of 1984 and a record high near 250 in the Crash of October 1987. Given the current potential for chaos in the world right now, option premium levels, as measured by the VIX, seem low to me.

CBOE Volatility Index (VIX) Daily Chart with Computer-generated Buy and Sell Signals

This begs the question: what is the #1 potential catalyst for a meaningful uptick in volatility in U.S. financial asset prices?

In my view, the answer to this question is in the results of the November 2020 U.S. Elections. Will Donald J. Trump be re-elected as President in 2020? While I am not sure that his re-election will be a positive for U.S. stock prices, most Wall Street pundits appear to be thinking this way right now. And even though Mr. Trump's job approval rating right now is historically low at 39%, there are many on Wall Street who actually think he will be re-elected for a second 4-year term.

Here is some "outside the box" thinking that may deserve consideration by traders and investors over the next 18 months:

1. As we get closer to the November 2020 U.S. National Election, President Trump will have some major decisions to make if his polling numbers don't improve from current levels. As "Individual One" in the Michael Cohen felony conviction case involving potentially illegal payments made to Stormy Daniels just days before the November 2016 Election, Mr. Trump risks the possibility of immediate arrest as an "un-indicted co-conspirator" in that case if he loses the election in November 2020. Other criminal charges stemming from the Mueller probe could also be in play here if Mr. Trump is not re-elected in 2020.

2. President Trump's staunch defiance of recent subpoenas issued by several major committees of Congress could result in a move by Democrats in the House of Representatives to impeach the President (impeachment now seems likely to me). Resulting investigations in the impeachment process could weigh heavily on the Trump Administration's ability to conduct the Nation's business and further weigh on Mr. Trump's reputation politically.

3. Most Wall Street pundits currently attach a "zero probability" that any successful impeachment vote in the House will result in a conviction at trial in the Republican-controlled Senate. However, if we look back at the impeachment of President Nixon in 1973 and 1974, this "no conviction" sentiment was similar to now, but Nixon was eventually forced to resign as evidence of criminal wrong-doing began to unfold from damaging televised Congressional hearings from multiple witnesses in a National spectacle. Could Senate Republicans now actually force Trump to resign just like they did to Nixon in 1974?

4. Of course, Trump wouldn't go "quietly" like Nixon did, but facing possible conviction in the Senate and almost no chance at re-election in November 2020, Trump could make a deal with "President Pence" for a full pardon for himself and his family after resigning in the summer of 2020. While a pardon wouldn't stop State governments from moving ahead with possible State criminal investigations, it would eliminate all potential Federal criminal indictments.

5. Without Trump as an opponent, the Democrat candidate for President would surely win the November 2020 election. Even with Trump still in office and still seeking re-election, I think the Democrats will prevail in the 2020 election. 

6. If the Democrats win the Presidency in 2020, they are also likely maintain their current majority in the House of Representatives and even win back the majority in the Senate (given the fact that the Republicans now have to defend 22 seats in 2020; Given the current count of 53 Republicans and 47 Democrats (assuming Senator Sanders and Senator King vote with the Dems) the Democrats have to win just 3 seats in November 2020 to regain the "majority", with a Democratic VP as the tiebreaker in a 50-50 Senate tie scenario).

7. If the Democrats win the Presidency in 2020 and also win a majority in the Senate, most of Trump's pro-business "Executive Orders" will be quickly reversed AND, more importantly for equity shareholders, the corporate income tax will be immediately raised from the current 21% rate to at least 30%.

8. After-tax corporate profit margins will evaporate as bottom-line Federal tax rates are increased (by the Democrats) and unit labor costs rise sharply as the National minimum hourly wage rate is doubled to near $15/hour.

9. "Medicare-for-All", or something very close to a single-payer healthcare system would soon become the law of the land when Democrats control the Presidency, the Senate, and the House of Representatives.

10. As the Summer of 2020 approaches, and Trump's re-election becomes seriously in doubt, U.S. stock prices will be decimated, with most major benchmark indices losing 50% or more as fears begin to dominate the investment landscape. Only precious metals investments and related gold/silver mining shares will be immune from the crushing bear market that will unfold in this scenario. While the Federal Reserve will surely attempt a rescue with lower interest rates, quantitative easing, and generally easy monetary policies, their efforts will be frustratingly slow to take hold and to ultimately stem the tide of selling by equity holders.

For now, we only know that all-time record highs were posted in the S&P 500 Index and the Nasdaq Composite Index this past Friday, April 26. Stock market investors seem unconcerned about the potential for carnage ahead. Is there more upside from here, or will stocks roll-over into a meaningful correction anytime soon?

A. Despite record highs in several key benchmark indexes, a weekly chart sell signal was triggered by my computer trading system in the Dow Jones Transportation Index at Friday's close.

Dow Jones Transportation Average Weekly Chart with Computer-generated Buy & Sell Signals

B. Negative technical "non-confirmations" of the record highs posted in the S&P 500 and Nasdaq Comp are currently in place in the Russell 2000 Index and in the key New York Composite Index.

NY Composite Index Weekly Chart with Computer-generated Buy and Sell Signals

C. Negative possible "head and shoulders" top formations are currently forming in the Dow Jones Industrial Average and the Russell 2000 Index.

Dow Jones Industrial Average Weekly Chart

D. Even though a record closing high was posted in the S&P 500 Index this past Friday, the all-time intra-day high in this benchmark Index has yet to be breached which sets up the possibility that we could be witnessing a massive negative "double-top formation" ahead of serious bear market correction.

E. Despite a much stronger than expected U.S. GDP economic report released this past Friday morning (+3.2% annualized growth in Q-1), the U.S. Dollar actually declined in foreign exchange dealings, Treasury bond yields fell, and precious metals prices soared. This price action is completely contrary to what would have been expected given advance knowledge of this exceptionally strong GDP news. Weekly chart buy signals have been triggered in the major Gold and Silver ETFs (symbol GLD & SLV) and also in many gold and silver mining stocks and related precious metals mining ETFs (GDXJ and SIL).

Gold ETF Weekly Chart (symbol GLD) with Computer-generated Buy & Sell Signals

Silver ETF (symbol SLV) Weekly Chart with Computer-generated Buy & Sell Signals

F. Closely watched stocks like Intel (symbol INTC) and 3-M (symbol MMM) suffered historic losses this past week in response to negative earnings reports. While every earnings season we can find stocks that fall precipitously following earnings disappointments, these two companies are key benchmarks in their respective industries and clearly represent a reason for caution by investors immediately ahead in the broader market.

Intel Corp Monthly Chart with Computer-generated Buy & Sell Signals

Minnesota Mining & Manufacturing Corp (3-M, MMM) Monthly Chart with Sell Signal

S&P 500 Index - Daily Chart Sell Signal Triggered Today !

In the benchmark S&P 500 Index, a daily chart sell signal was triggered by my computer trading system at today's close.

And despite extraordinary recent strength in most semiconductor stocks, a daily chart sell signal was also triggered in Texas Instruments today.

And among weekly charts, a sell signal was triggered today in the DJ REIT Index (symbol IYR).

Given these bearish technical signals, it's not a stretch to suggest that a significant stock market correction may have actually begun today.

DJ REIT Index Weekly Chart with Computer-generated Buy & Sell Signals

Texas Instruments (TX) Daily Chart with Computer-generated Buy and Sell Signals

S&P 500 Index Daily Chart with Computer-generated Buy & Sell Signals

Silver - Now Ready For An Upside Breakout !

Just a quick note this evening.

In the precious metals space today, it is noteworthy that gold prices fell sharply while silver prices actually finished higher on the day.

I think silver may be the commodity of choice right now for an upside breakout from here through the rest of this year. If I am right, of course, silver mining shares represent the greatest potential for monster-like capital gains.

Silver ETF (SLV) Daily Chart with Computer-generated Buy & Sell Signals

Silver Mining Shares ETF Daily Chart (SIL) with Computer-generated Buy & Sell Signals

Silver ETF (SLV) Weekly Chart with Computer-generated Buy & Sell Signals

Weekly Chart Sell Signals Triggered for U.S. Stocks

Just a quick note today relating to the U.S. stock market...

Official weekly chart sell signals were triggered by my computer trading system in most major U.S. stock market indexes and several key individual equities at Friday's close, March 8th, 2019.

Weekly chart sell signals were triggered in the following stocks and indexes:

S&P 500 (symbol SPX), S&P 100 (symbol OEX), Nasdaq Composite, Nasdaq 100 (symbol QQQ), Russell 2000 Growth (symbol IWO), Nasdaq Bank Stock Index (symbol BKX), Biotech ETF (symbol BBH), ADBE, ALL, AZPN, BAX, CGW, CMCSA, CREE, CTAS, FAANG Composite, GM, GWRE, HON, INTC, LMT, MET, MMC, MRK, MRVL, SBUX, SYK, and UPS, among others.

Attached are weekly charts of key benchmark indexes and ETFs with computer-generated buy and sell signals reflected in each:

Bank Stock Index Weekly Chart (BKX)

FAANG Stocks Composite Index Weekly Chart

Russell 2000 Growth ETF Weekly Chart (IWO)

S&P 100 Index Weekly Chart (OEX)

 

S&P 500 Index Weekly Chart (SPX)

Storm Clouds Ahead for U.S. Stocks; Major Correction Imminent!

The rally in U.S. stocks over the last 10 weeks has been among the strongest in history. A major reversal in Federal Reserve monetary policy ("patience" now instead of "more rate hikes" ahead and an end in sight for "quantitative tightening"), record corporate share buy backs, and a massive new monetary stimulus program from the PBOC all contributed to the near record advance in U.S. stock prices since the reaction lows were posted on December 26th, 2018. And Bloomberg is now reporting this afternoon (Sunday, March 3rd) that the U.S. and China are very close to announcing a meaningful breakthrough in ongoing trade negotiations. What's not to like!

Given this bullish price action, how could anyone attempt to call a top here?

Trend followers are now 100% invested and loving every trading day!! Short sellers have been killed and most active investment managers are under-performing their benchmarks. How can anyone stay in cash with share prices running like they've run so far this year? Clear sailing ahead, right? Bullish pundits are already predicting new all-time record highs at 30,000 (+15%) for the Dow Jones Industrial Average, 3,000 (+7%) for the S&P 500, and 10,000 (+13%) for the Nasdaq Composite Index for this year. Why not?

For investors who are comfortable that Donald Trump will be re-elected President in 2020, and who are also comfortable that the U.S. Federal Reserve won't hike interest rates and will soon end its balance sheet liquidations, and if you are also an investor who is comfortable that corporations will continue to buy back record amounts of their own shares, then you should be comfortable owning U.S. stocks! (Maybe a bit too much "comfort" and complacency here?)

However, here are just a few obstacles which could upset the apple cart immediately ahead:

1. Year-over-year corporate earnings growth will be nominal in 2019 and may, in fact, actually be negative.

2. Corporate profit margins will be squeezed as upward pressure on wages and downward pressure on prices combine to present the worst possible climate for equities valuations that are already historically stretched.

3. It's not hard to see that the average American voter is now willing to accept a significant move to the political "LEFT" in an attempt to narrow the record wealth gap. Democrats actually won the last mid-term election (Nov 2018) by more than 9 million votes! And with 22 Republican senators up for re-election in 2020, it's not hard to imagine that the Democratic Party could win a majority in the Senate, maintain its current majority in the House of Representatives, and also win the White House with an overwhelming across-the-board mandate for change!

4. If the Democrats manage to win the White House, the Senate, and the House of Representatives in 2020 (which now appears likely to me), all of President Trump's favorable corporate legislation and also his pro-corporate executive actions over the last two years will be quickly reversed!

While the longer term picture for stocks looks increasingly negative, it is my strong view that despite extraordinary investment gains so far this new year, bulls are about to get a major shock.

1. All closely watched U.S. stock market benchmark indices are currently carving out dangerous "head and shoulder" tops (see charts below).

2. Weekly chart sell signals have been triggered by my computer trading program in market leading housing stocks and airline stocks. Technical non-confirmations of this year's bullish trend are already being posted as can be witnessed in the weak recent action within the transportation sector.

3. FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google), once clear leaders of the equity markets over the last 10 years, are now under-performing the broader benchmark indices. A weekly chart sell signal was actually triggered last week by my computer program in Netflix (NFLX).

Bottom line: U.S. stocks are now poised on the precipice of another major correction that will match the size and duration of last year's 4th quarter 20% collapse!

Netflix Weekly Chart with Computer-generated Sell Signal

FAANG Composite Index Weekly Chart

Housing Index Weekly Chart with Computer-generated Sell Signal

Nasdaq 100 Index Daily Chart with possible Head & Shoulders Top Formation

S&P 500 Index Daily Chart with possible Head & Shoulders Top Formation

2019 U.S. Stock Market Outlook

In my last post dated November 3rd, 2018, I forecast a 20% correction from the all-time highs set for most major U.S. stock market indices in early October 2018. 

• The Nasdaq 100 corrected 23.4% from its intra-day high on October 1st at 7,700 to its intra-day low on December 24th at 5,895.
• The Dow Jones Industrial Average corrected 19.4% from its intra-day high at 26,952 on October 3rd to its intra-day low at 21,712 on December 26th.
• The S&P 100 Index (formerly known as the OEX) corrected 20.5% from its intra-day high at 1,310 on October 3rd to its intra-day low at 1,041 on December 26th. 

(Please see charts below)

The rebound in U.S. stock prices from December 26th through December 31st was monumental, but still left December 2018's investment return as the worst  December since 1931.

Despite the fact that U.S. corporations bought more than $1 trillion of their own stock back in 2018, every major U.S. stock market index closed down on the year. Record corporate profits in 2018, not withstanding, failed to inspire investors as historically high valuations and steadily rising short term interest rates weighed heavily on overall share prices.

As promised last year, the Federal Reserve steadily tightened U.S. monetary policy in 2018 by raising its Fed Funds rate three times and by selling $344 billion in Treasury securities and Mortgage-backed securities from its bloated portfolio which now stands at $3.88 Trillion. The Fed is currently projecting three additional 1/4-point hikes in 2019, although the financial markets are only predicting two hikes (as indicated in the Fed Funds futures markets).

My own view is that the Federal Reserve will only raise interest rates one more time (at most) in 2019, as the economy rolls over into recession early in the New Year. Here are some additional thoughts about the New Year:

1. The current rebound in stock prices which began on December 26th will soon peter out, and new reaction lows will then be established early in the 1st quarter of 2019.

2. I strongly believe that U.S. stock investors have underestimated the negative financial impact of the "Blue Wave" which is currently washing over the country in the political arena. It is my prediction that Democratic hopeful Beto O'Rourke will be elected President in the 2020 election. Massive corporate tax cuts that were signed into law last year will be then be scaled back as Democrats win the White House and a majority in the Senate to match their current majority in the House of Representatives.

3. Investigations of the Trump Administration, already meaningful from Robert Mueller's Special Counsel's Office, will pick up speed and momentum as Democrats take control of the House of Representatives on January 2nd, 2019 after picking up 40 seats in the November 2018 election.

3. When Robert Mueller's final report is made public (probably in Q-1, 2019), pressure on President Trump to resign could be overwhelming. From my vantage point, it looks almost inevitable that President Trump will need to "negotiate" a deal involving pardons from Vice President Pence for himself and his family in return for his pledge to resign from office. This assumes, of course, that Vice President Pence is NOT also implicated in "high crimes and misdemeanors" within the Special Counsel's final report. It also assumes that "President" Pence would grant Mr. Trump the pardons he may need to avoid prosecution. While pardons from Mr. Pence are likely, this action may doom any Presidential hopes Mr. Pence may have in the 2020 election (just as Ford's pardon of Nixon in 1974 doomed Mr. Ford's effort in the 1976 Presidential Election).

4. In 2019, I believe that corporate buybacks will be greatly reduced as compared to the record pace of 2018. I believe that corporate profits will significantly under-perform current expectations as profit margins are squeezed coincident with a dramatic slowdown in the U.S. economy.

5. If the economy falls into recession, the Federal Reserve will react too slowly to bail out stock investors. 

Bottom line: When the current bear market rally fades, which I think will happen in early January 2019, I am forecasting another 20% decline in the major stock market averages from the January 2019 peak. Cash will be king for the first half of 2019, at least!

Nasdaq-100 Index Monthly Chart with Computer-generated Buy & Sell Signals

Dow Jones Industrial Average Monthly Chart with Computer-generated Buy & Sell Signals

DJIA Weekly Chart with Computer-generated Buy & Sell Signals plus 200-week MA

S&P 100 Index Monthly Chart with Computer-generated Buy & Sell Signals

S&P 100 Index Weekly Chart with Computer-generated Buy & Sell Signals plus 200-week MA