Vermeulen's View: Is This the End of a Euphoric Bubble?

07/14/2020 5:00 am EST

Focus: MARKETS

Chris Vermeulen

Founder, TheTechnicalTraders.com

How can one rationalize the upward parabolic price trend continuing while the consumer sector has collapsed to levels that are even worse than the 2008-09 credit crisis? asks Chris Vermeulen, editor of The Technical Traders.

The only answer in our minds is that a euphoric “bubble” has set up in the minds of speculative and foreign traders.  This “bubble psychology” takes place when certain factors have been put into place. Typically, these factors include:

Displacement — when new technology, process, innovation or product/production capabilities disrupt and displace existing technologies. This creates an opportunity for traders and investors to “shift focus” and creates a new, untested, valuation process for the company or asset.

Credit creation — when central banks act in a manner to support the credit market, capital investment, and corporate enterprise.  This creates the opportunity for new enterprises, businesses, and corporations to “startup” and creates a facility for capital investment from speculators, traders, VCs, and investors.

Euphoria — the feeling that nothing can go wrong. You can invest in almost anything and make money. You could stand on the corner and sell empty cardboard boxes for $400 all day long because something thought they could “flip them” for $800 to the next person that walked by.  This euphoria phase is a “self-feeding frenzy” that improperly validates very destructive behavior. 

Our research team believes we are very near to the “financial distress” phase of bubble psychology as a result of disruptions to the financial markets since 2018-2019 such as trade issues, foreign credit events, and BREXIT.

Traders and investors poured billions into the US technology markets and other sectors because “nothing could go wrong”. The Fed has again come to the rescue following the Covid-19 virus with more credit and the markets ate it up like cotton-candy covered in gum-drops. 

The parabolic price trends we’re seeing right now are likely the end stage of a hyper-inflated, credit-fueled price trend. Yes, they could continue to rally much higher from current levels. Or, it could all suddenly come to a stop now that the second quarter has ended.

We’ve been warning our followers for almost 10+ months that our super-cycle research suggested the end of 2019 and all of 2020 and 2021 were going to be incredibly volatile periods in the markets. We warned that traders needed to start investing in gold and silver back in 2017 and 2018 – to hedge against risks.

We issued a Black Swan warning on February 21, 2020 — just days before the markets collapsed as a result of the COVID-19 virus. Now, we’re warning that this current parabolic upside price trend near the end of the second quarter of 2020 could be a massive setup for one of the biggest “revaluation” events we’ve seen since 1999~2000 (the last big bubble).

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Our researchers believe a shift away from the global financial speculation that has driven a total global asset bubble over the past 8+ years will suddenly shift away from wild speculative euphoria and quickly transition into the realization phase of “uh oh, what have we done”. 

It is this point that we suddenly enter a financial distress phase where investors flee over-inflated assets to move into risk hedging strategies. Why do you think gold has rallied to levels near $1800 over the past 4+ years?  A certain segment of global investors has already had their “uh oh” moment.

The US stock market has gone parabolic because a very unique set of circumstances have come together at this particular time in history. Now, we have to deal with the current and future phases of this cycle and prepare for what’s next. Protect your open long trades and/or take some profits out now. 

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