The Big Picture Outlook represents an important foundation for your investment and trading decisions. Van regularly points out that a very long-term analysis is critical for success trading the markets. The Big Picture Outlook impacts your trading strongly in terms of what asset classes to trade, which trading systems to employ, which trading instrument to use and which holding periods best apply. What follows is my new, personal Big Picture Outlook and what it means for trading the markets for the remainder of the 2020s.
After having remained largely unchanged for more than ten years, my Big Picture changed dramatically just recently. The turning point came last year in July when the USD Index Future triggered a long-term Short Entry Signal. That signal told me that the USD should drop in value by more than 50% within the next 10 years. July 2020 represents an important decision point as this trading signal turned me into a strong USD bear driving my new Big Picture Outlook.
Note: the US Dollar Index is an important Index to measure the value of the Dollar against a basket of the world’s most liquid currencies such as Euro, Swiss Franc, Japanese Yen and the Canadian dollar.
The quarterly bar chart below flashed the important short signal after the bars had formed a pronounced, bearish multi-bar Price Consolidation Pattern (see Quarterly USD Index Future chart below).
Quarterly USD Index (DX) Future
You can clearly see how the USD Index, here the DX Future, formed a multi-year price consolidation for about 16 years into the year 2020. You might have fresh memories of how the Corona Virus Pandemic started to show its global impact with shock waves around the world in the first and second quarters of 2020. The USD Short Entry signal followed right after the “Corona Virus Panic Bar” (March 2020) that pinpointed the moment of greatest fear. It is a big volatile bar showing a long upper and lower wick printed at a critical chart level – just above the red 16-year consolidation line. That was an “excitable price action event” the exact type of events I look out for when trading the Futures markets. This one-bar event determined the turning point which then led to a re-break of the red line a couple of months later in July 2020.
The horizontal red line – the Base – is an important level of resistance the price consolidation formed in the USD Index between the years 2004 and 2020. Once price had broken to the upside and immediately re-broke this level to the downside, the long-term sell signal got triggered. This short signal tells me that the Dollar should lose more than half of its’ value into the indicated target area – an astounding value drop of more than 50% against todays’ prices!
A clear entry signal from this Index impacts not only the relative value of the Dollar against other currencies, but it impacts all other asset classes, too. As the USD is about to lose more than 50% of its value over this coming decade, we should be ready to witness (and trade) the Markets which will be writing history soon. This major pattern-based signal is likely to be the starting gunshot for some big markets events to come.
Why would I think the USD to drop that hard? This quarterly USD price bar pattern is a textbook example of System 1 of the Futures systems – the Gecko pattern. And the pattern has a documented a clear price target for the move. This pattern is famous for running for stops at the indicated price levels – the stop-run levels (chart above) – while developing a slingshot move towards the target. Whenever one stop-run level is broken, price accelerates and is drawn towards the next stop-run level. The quarterly chart above identifies three coming stop-run levels for this particular pattern.
A weakening Dollar will have quite considerable effects as the world’s economy and capital markets are based largely on the USD. The Dollar already started to weaken in the aftermath of the initial Corona Crisis where we saw Precious Metals climb considerably. As an example, Gold made a new all-time high and Silver nearly tripled going from $12 to over $30 (per ounce) in only a couple of months. When the USD (or any other fiat currency) loses value, hard assets gain in value to compensate for their relative value.
Actually, my new Big Picture Outlook tells me that all Hard Assets will increase in prices a lot over these coming years, though each will move at its own pace and timing. We have already witnessed how the US Equities, the stock indexes, increased in prices over the last years. See a video on the ES Futures, the S&P500, I did at the time pointing out a similar price action event:
In that video as well, you can see a big bar on the chart – an excitable price action event, or the so called “Test Bar” – that marked an important entry signal Long. That was the same S1 Gecko pattern we saw in the USD chart recently, although here the ES triggered a Long entry signal on the Weekly chart.
So, why should Hard Assets increase in value with a weakening USD? This is not as much for Inflation picking up as much as investor confidence dropping in governments and their fiat currencies. As, at some point in time soon, interest rates for government bonds go up, paying the interests on the debt will get more and more difficult. With so much debt-based liquidity created over the years (as Van writes about in his Market Update articles every month), government debt can be seen as a big bubble – perhaps the mother of all bubbles. If and when that debt bubble bursts – probably slowly but steadily – we should see lots of money moving into Hard Assets.
Hard Assets are very divers and consist of several different Asset Classes such as Equities (stocks), Metals, Energies as well as Digital Assets (e.g. Bitcoin or Ethereum). Note that all of these Asset Classes can be traded very efficiently with Futures as a trading vehicle in a wide range of different timeframes.
Now, as the USD loses more & more value, very strong and persistent uptrends will form in different Asset Classes over different Timeframes and over time developing into bubbles. Money will move around from one Asset Class to the other at different times chasing the trends to make money.
Palladium, as represented by the Palladium Future (PA), can be seen as the blueprint. It was the first Hard Asset to move into “bubble mode”. The Palladium Future increased more than six-fold in price from 2016 into 2020. PA was a great trading instrument to trade Long over the years in several lower timeframes. Such a consistent and strong trend over several years allows for many good trading opportunities in lower timeframes.
Such a big and broad USD down move will strongly impact many asset classes. Being prepared and having a clear Plan to trade this Big Picture is very important now so to be able to capture the upcoming opportunities. See how the Palladium chart remained volatile and corrected by 50% in price in 2020? We can expect powerful up moves followed by volatile and deep corrections like that in the years ahead in other metals and in other asset classes. Do you have an entry and exit strategy that can capitalize on these trends and deal with such volatility?
Why is all of this happening now? In hindsight, we can see that the Corona Virus Crisis added volatility to the market as huge amounts of liquidity have been created by central banks and governments. This liquidity is entering the financial system searching for returns and a “Safe Harbor”. Government bonds, however, are appearing more risky over time so liquidity will pour into hard assets creating strong moves that lead to bubbles.
In short, Excess Liquidity coupled with Increased Uncertainty equals more Market Volatility!
For traders, this is great news as an increase in volatility offers a lots of trading opportunities! We will see those opportunities arise in different Asset Classes at different points and in different Timeframes. For each of those opportunities, however, Futures contracts offer great trading vehicles for traders to benefit on a short-, medium- and long-term time horizon. Why don’t you get ready and prepare to capitalize on those bubble moves (instead of remaining dumbfounded and confused by the markets)?
We have already seen big & spectacular moves in the Stock Indexes, Metals, Energies, Interest Rates (usually a quiet market), and just recently again in Bitcoin. All these asset classes can be traded very efficiently with Futures.
When the “Flight to Quality” takes off – Be sure to buckle Up !!!
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