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How To Invest And Prosper With Warrants

April 25, 2019
Stockhouse Editorials

Note from Dudley at CommonStockWarrants.com

I just stumbled on this article on the Stockhouse website and thought it worthy of bringing to your attention as it is always good to see others writing about warrants besides myself. While I would take exception to one or two points in the article, basically it is a good article and useful to all investors.

Direct Link Article On Stockhouse

Warrants (“share purchase warrants”) are a financial instrument that can be an important tool for boosting investment returns. For novice investors, this begs the question: what is a warrant?

A warrant is a form of stock option that comes into existence most commonly via the private placement process (for further general details here, please see Private Placements 101). Typically, when a company offers a large block of shares to finance a private placement, participating investors also receive share purchase warrants as an incentive for participation in the financing.

The most common structure in these private placements is for ½ of a share purchase warrant to accompany each common share (each “unit”) purchased in the private placement. Occasionally, companies will offer a full warrant with each common share.

These share purchase warrants entitle the holder to acquire an additional common share at a fixed price (known as the execution price), for a fixed period of time. The way that investors can prosper from the acquisition of these warrants is simple. If the share price for the offering company rises above the execution price of the warrants, then investors can exercise these warrants (i.e. convert them into new common shares) at a price below which they can purchase the same shares on the open market.

The exercise price on warrants is almost always significantly higher than the unit price in the original financing. Thus, for investors to be able to capitalize on their warrants, the issuing company’s share price needs to rise high enough to exceed the exercise price. And this needs to occur prior to the expiration date of the warrants.

For this reason, investors should pay close attention to the “warrant life” (the length of time until expiry) of these share purchase warrants. “Long-life warrants” (those with a multi-year time horizon) obviously offer much greater potential for an investor to prosper because there is much more time for the share price of the issuing company to rise high enough for the warrants to be “in the money”.

However, this is not the only way for investors to acquire (and prosper from) warrants. With some larger financings where an enormous number of warrants come into existence (typically in the millions or tens of millions), the issuing company can choose to have their warrants listed on a stock exchange – and thus become tradeable just like common shares.

Here is where the leverage of warrants enters the picture for more sophisticated investors who are interested in buying warrants on the open market. A numerical example will exhibit how this leverage works.

Suppose Company A does a large financing. A total of 20 million new common shares come into existence, and along with those common shares are 10 million share purchase warrants. To make things simple, at the time of the financing, the unit price for common shares is $1 per share (with ½ share purchase warrant) and Company A is currently also trading on the market at $1 per share.

Company A sets the exercise price for the warrants at $1.50, with the warrants being valid for a period of two years from the date at which the financing closed. Obviously, with shares trading at $1.00, there is no incentive to list the warrants for trading as no one would be interested in acquiring these warrants when the share price is well below the exercise price.

Now suppose the share price for Company A quickly rises to $1.50 per share and Company A decides to list its warrants for public trading. Imagine you are an investor wanting to acquire a position in Company A at this time.

You now have two ways to acquire a position. You can choose the most common route of simply purchasing Company A’s common shares at the market price of $1.50 per share. Or, if you’re wanting to increase your leverage (and take on a higher level of risk), you might want to buy some of Company A’s warrants.

Note thatat $1.50 per share, Company A’s warrants will trade at a price substantially above zero. This reflects the speculative value/leverage potential of these warrants. For hypothetical purposes, assume that warrants can be purchased at $0.25 at this time.

If you buy shares, obviously you’re starting your investment even: your shares are trading at the purchase price. If you bought warrants instead, however, you would effectively start -$0.25 in the hole. This is because the share price would have to rise to $1.75 in order for a warrant investor to be able to break even by buying the warrant and then exercising it ($0.25 + $1.50 = $1.75).

Now let’s suppose that the share price rises to $2.00 per share. The investor who bought shares at $1.50 has made a 33% gain – not bad at all. But have a look at the warrant-holder who bought warrants at $0.25 and was originally down on his/her investment.

At $2.00 per share, the investor’s warrants are now clearly “in the money”. The investor can exercise those warrants (at the exercise price of $1.50) and still be ahead of the game versus simply purchasing more shares on the open market.
However, assuming the warrants still have significant life before expiry, this investor would probably do much better by selling those warrants on the open market. Consider.

If the warrants were trading at $0.25 when the share price was at $1.50 (a fairly normal premium), what will be the open market price for those warrants with the share price at $2.00? Obviously, the warrant price would likely be at least $0.75, meaning the warrant-holder could sell the warrants having tripled his/her investment, versus the 33% return from buying common shares.

In fact, at $2.00 per share Company A’s warrants would likely trade even higher than $0.75 reflecting a higher premium due to the much lower level of risk, since the warrants are already in the money.

The obvious risk in trading in warrants is if the share price of the offering company does not rise and the warrants never become profitable. This means that (unlike common shares) there is a much more substantial risk of warrants falling to zero than with respect to the shares of any publicly listed company.

For this reason, trading in warrants is an activity for more sophisticated investors. Investors not only need to carefully evaluate the fundamentals of issuing companies, they also need to be highly cognizant of the lifespan of the warrants and be confident in their assessment of future market conditions. It’s only when all factors are favorable that prudent investors will want to speculate in the trading of warrants.

Stocks No Bid – Gold No Offer

STOCKS NO BID – GOLD NO OFFER

July 25, 2019
by Egon von Greyerz


It is not difficult to understand Cassandra’s enormous frustration. She was given the gift of accurately predicting important events and her curse was that no one would believe her. Some of us are certain that we can now see the biggest bubbles in economic history coming to an end with totally devastating effects for the world. But like Cassandra, we are also cursed since more than 99.9% of the world’s population would not believe our predictions.

The problem is that this time it will not only involve the biggest wealth destruction in history but also lead to major problems in society with mass unemployment, no social security, no pensions, breakdown in law and order, social unrest, civil war and geopolitical conflict.

Reading these very dark predictions, I can understand that most people want to stick their head in the sand and ignore these dire forecasts.

Obviously I would also hope that all these predictions are false and won’t come to pass.

But as Winston Churchill said:

“THE TRUTH IS INCONTROVERTIBLE,
MALICE MAY ATTACK IT,
IGNORANCE MAY DERIDE IT,
BUT IN THE END THERE IT IS”

The problem is of course that the truth will often only be known after the event.

I wrote about Cassandra back in June 2017 and have over a very long period tried to warn anyone who is willing to listen about the risks and the events that will affect us all. We are obviously not alone in worrying about the magnitude of the problems in the world. Virtually everyone following KWN has similar views so here we are talking to a converted audience. But even when we speak to family, friends, business friends etc, we are met with the same degree of skepticism.

This is of course understandable since we are facing an event that occurs once a generation or once every hundred years. And the magnitude this time might even be a multi century cycle.

When the secular bull market turns down, the world will experience unprecedented market behaviour as asset bubbles burst. Investors will find that there are no buyers at any price. And for gold, there will be no sellers at any price:

Stocks – No bid
Bonds – No bid
Derivatives – No bid
Gold – No offer

STOCK COLLAPSE

What this means is that at some point during the down turn, stocks will fall precipitously with no buyers to be seen. Computer trading programmes accounting for 70-80% of volumes will issue massive sell orders and the price will just drop into a black hole since there will be no bid. The general investment public will naturally panic and sell at any price. But the problem is that there will be no market because there will be no buyers. This is how stocks quickly can drop 50% or more in a couple of days due to a total lack of liquidity and buyers.

As the Dow chart below shows, there is now a quadruple top, with weaker momentum or negative divergence for each top. This is extremely bearish and likely to lead to a major fall in coming weeks or months. The secular bull market in stocks is now coming to an end, leading to the biggest secular bear market in history.

BOND IMPLOSION

The Same will happen in the bond market. Investors will want to get out of government or corporate bonds which are unlikely to pay the interest and many will default. With no buyers, the bond market will collapse and bond rates will go to infinity. Rates above 50% might sound attractive but meaningless if neither interest nor capital will be paid. This will create total panic in credit markets as global debt of currently $250 trillion implodes. In the meantime central banks around the world will print additional $100s of trillion in a futile attempt to save the world.

THE END OF THE DERIVATIVES MARKET

But it will be the $1.5 quadrillion derivatives market that will totally kill financial markets. This is a totally false market that only works in bull markets when there is liquidity and counterparties pay up. In the coming implosion of asset values, there will be no liquidity and no buyers of worthless derivatives as counterparties default. In retrospect, this incredibly profitable activity for all the major investment banks will be judged as fraudulent with severe consequences for management and regulators as well as for the world.

Obviously, central banks will panic, print unlimited amounts of money, lower rates to zero or negative, stop trading in markets for extended periods, and manipulate markets in every possible fashion. But they and their governments will fail since they are totally bankrupt, having issued unlimited amount of debt that they can never repay.

THERE WILL BE NO GOLD OR SILVER AVAILABLE AT ANY PRICE

As panic in markets start and investors quickly turn from the stock market euphoria of the past to total fear, some investors will rush to buy wealth preservation assets. Some part of whatever liquidity they have left will go into precious metals, gold, silver and platinum. The only precious metal of size is gold and initially there will be gold available, albeit at much, much higher prices than today.

Initially there will be some willing sellers and gold will rise to multiples of the current price. But as the paper gold market collapses, there will be panic and at that point gold will go “no offer”.

No offer means that there is no gold offered at any price since there is no physical gold available to be bought. Eventually, there will probably be a price where some sellers are prepared to part with a small part of their gold but that price is likely to be at such a high level that it will be difficult to fathom today. Due to high inflation or hyperinflation, no gold seller is likely to accept paper money as payment but instead other assets, whether it will be property or commercial assets such as businesses.

GOLD CONFISCATION

There are a number of people who believe that governments will confiscate gold or ban gold trading. This is clearly possible and one should avoid holding gold in certain countries like the US or even the EU. This means that it is not advisable to store gold in those regions and nor to deal through precious metal companies that are based in the EU or the US even if the vaults are in other countries.

Also, it is important to only deal with countries with a long tradition of democracy and rule of law. Many off-shore locations, whether the vault or the arranging company is based there, should be avoided. We had very recently a client who wanted to ship a small part of his gold holding from Switzerland to Panama where he lives. When the gold arrived there, the customs agent said there was a new rule and that our client had to pay a fee of $30,000 on the total amount transferred of $150,000. That was a penalty or duty of 20% of the value the gold. Whether this was a bribe or a proper duty was never made clear. Nevertheless, we managed to ship the gold back to Switzerland and avoid the fee.

In my view, a country like Switzerland which has a long tradition in the gold industry and who refines 70% of all the gold bars in the world is very unlikely to ban or confiscate gold. Also, gold is 29% of Swiss exports which means that Switzerland is very unlikely to kill the goose that lays the golden egg.

PENSION FUNDS WILL BE MAJOR BUYERS OF GOLD

Another argument I hear is that governments are not going to allow individuals to earn major profits as gold goes to multiples of the current price. But we must remember that in the next couple of years, institutions, pension funds and investment funds are going to buy all the gold they can get hold of, at whatever price, as an inflation hedge. Governments are very unlikely to confiscate gold assets of pensioners and other private investors.

There is a much easier way for penalizing private investors who benefit from the coming increase in the gold price and that is of course taxation. The assets of the rich are likely to be heavily taxed in coming years and that is why tax planning is as important as investment planning.

If Cassandra is right and investment markets will implode in coming years, investors still have a very, very brief period to protect their wealth.

Global stocks are all in a position from which a major fall or crash can start at any time. Same with precious metals and precious metal stocks which are on the cusp of a massive bull market. It is likely that these major market moves will start in the early autumn of 2019, at the latest, and possibly earlier.

GOLD IS NOT AN INVESTMENT – IT IS INSURANCE AND MONEY

We must remember that gold is primarily not an investment although it will appreciate substantially in real terms. But gold is insurance, gold is money, gold is wealth preservation and gold is the only asset which is no one else’s liability.

Unfortunately, very few are aware of these important facts and will not be prepared for what is coming very soon.

Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45

Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 60 countries.

Next Financial Reset Crisis Scary Close

July 16, 2019
Chris Vermeulen
TheTechnicalTraders.com

Next Financial Reset Crisis Scary Close

Investors don't forget the great opportunities available with stock warrants which will increase your potential gains and greatly decrease your investment cost by at least half.

E.B. Tucker with Casey Research, recently referred to Dudley as 'the top expert in the field with over 40 years of experience' with stock warrants.

"I also encourage you to check out the work from our friend Dudley Baker. Dudley is the founder and editor of Common Stock Warrants. He’s been trading warrants for 40 years and has developed an exclusive database of all stock warrants trading in the U.S. and Canada. We’re paid-up subscribers as well."

 

Stock Warrants - Power Point Presentation

 

Jeff Baker
Senior Analyst - Admin/Web Developer
B.Sc. Geological Sciences (UTEP)
Common Stock Warrants & Junior Mining News

Financial Sector Paints A Clear Picture For Trading Profits

 

June 21, 2019
Chris Vermeulen
TheTechnicalTraders.com

Financial Sector Paints A Clear Picture For Trading Profits

Investors don't forget the great opportunities available with stock warrants:

 

Stock Warrants - Power Point Presentation

 

 

OUR APRIL 21~24 GOLD CALL IS HERE

 

April 23, 2019
Chris Vermeulen
TheTechnicalTraders.com

OUR APRIL 21~24 GOLD CALL IS HERE

Don't forget the great opportunities available with stock warrants which will greatly outperform the shares
as this rally in gold and silver soon begins. JOIN US NOW!

Stock Warrants - Power Point Presentation

 

 

The Master Tournament & Some Great Articles Requiring Your Attention

With The Masters rapping up in Atlanta, we have Tiger, still in the hunt with a few holes remaining as I write this piece.

Hello Subscribers and others interested in possibly becoming subscribers.

Gold has substantially fulfilled our views as well as the views of TheTechnicalTraders.com to the down side target of no more than $1278. We could easily trade in a tight range now for a few weeks, before we resume the upside move and then take out the longtime overhead resistance around $1400 and then head to $1500 perhaps by years end.

You need to be in position very soon to capture what I believe will be the potential for many 10 baggers in resource shares and much more in the stock warrants on those shares.

Get Started Now

Recent Articles On Our Websites:

Enjoy your weekend but don’t go to sleep and miss this opportunity,

Dudley Pierce Baker
http://CommonStockWarrants.com

GET STARTED NOW

 

20 Days Left To Find Buying Opportunities in Gold

Our researchers have been glued to Gold, Silver and the Precious Metals sector for many months. We believe the current setup in Gold is a once-in-a-lifetime opportunity for skilled traders to stake positions below $1300 before a potentially incredible upside price move.  We’ve been alerting our members and follower to this opportunity since well before the October/December 2018 downside price rotation in the US markets.

October 5, 2018: Prepare for a gold and silver rally

December 9, 2018: Waiting for gold to erupt

Jan 25, 2018: Why everyone is talking about gold and silver

Additionally, our researchers called the bottom in the US equities markets and warned of an incredible upside price rotation setting up just before the actual price bottom occurred on December 24, 2018.

December 26, 2018: Has the equities selloff reached a bottom yet

Our research continues to suggest that Gold and Silver will rotate within a fairly narrow range over the next 3~5 weeks before setting up a likely price bottom near April 21, 2019.  We’ve been predicting this bottom formation for many months and have been warning our followers to prepare for this move and grab opportunities below $1300 when they set up.

This first chart, a Monthly chart showing our TT Charger price modeling system, clearly illustrates the strength of this bullish price trend and the initiation of this trend back in early 2016.  One of the strengths of the TT Charger modeling system is that it establishes a number of key price data points and trend factors.  The background color highlighted ranges show price range breadth and range expansion or contraction.  The dual channel facets show where price is likely to find support and resistance.  The DOT LEVELS show where critical support or resistance is in terms of the overall trend channels.

Right now, we are still in a bullish trend with key support near $1165.  The Dual Channel system is showing the $1260 to $1285 level is currently the most likely active support levels just below current price.  Thus, we could see a move to near these levels over the next 3+ weeks and I would suggest skilled traders jump on this opportunity.  The Range system is showing a current $250~350 price range, thus, any upside price breakout could easily rally within this range and push prices at least $250+ higher than current levels – likely well above $1550.  If range expansion sets up, we could see prices well above $1750.

 

We’ve authored hundreds of research posts over the past 12+ months and the one thing that we continue to mention is that Fibonacci price theory continues to operate on the premise that “price must always attempt to find and establish new price highs or lows – at all times”.  Please keep this in mind as we continue.

Take a look at the TT Charger chart, above, and the raw Monthly price chart, below.  Price must always attempt to find and establish new price highs or lows – so where is price going based on the most recent price rotations?  Let’s review…

After rallying in early 2016 to establish a price high of $1377.50, gold immediately rotated downward to establish a higher low near $1124.50.  The $1377.50 high price was a “new price high” in terms of previous rotational highs while the $1124.50 low was a higher low price rotation point.  Thus, a failed “new price low”.

Since these two price points, Gold has settled into a sideways price channel where new price highs and lows have been attempted, but have failed to breakout out of the existing previous high and low price levels.  As a technician of price, we can immediately identify this as a possible “Pennant or Flag” formation.  With the last “new price level” being a “new price high” we still believe that Gold will attempt to break above the recent high price levels and attempt a much bigger upside price swing.

Our analysis suggests the April 21 date as a critical date for the potential price bottom in Gold and Silver.  Our belief is that this date will like result in a near-term momentum bottom in price.  Where price may fall, briefly, below $1290 and rotate into a “washout low” price rotation.  The opportunity for this move could come 3~5 days before or after the April 21 date.

 

This last chart, a Monthly price chart, illustrating the Pennant/Flag formation in Gold should be the clearest example we can provide that Gold will soon break out to the upside and rally extensively higher if our research and analysis are correct.  The momentum that has built up over the past 2+ years, as well as the global demand for Gold by central banks and by investors as a hedging instrument, could prompt Gold and Silver to rally at least 50~60% in this first upside breakout wave – resulting in $1900 gold prices.  Silver could rally to well above $18~19 in a similar move and the number our researchers believe may become the upside target in Silver is $21.

This big picture chart and technical pattern could still take months to unfold if the price is to test the lower end of the trading range at $1225.  If our analysis is correct, Gold and Silver could begin an upside price breakout shortly after April 21 (very likely to become evident in early May 2019).  The upside potential for this move is at least $1550 in Gold and at least $18 in Silver.

Please understand that any upside breakout in Gold and Silver will likely be associated with general global market weakness including the potential for some type of global crisis event.  This could be related to the EU, BREXIT, China, France or any other nation burdened by debt, dealing with election turmoil or related to social or economic angst.  We could almost throw a dart at a map of the globe and hit some area that is poised for some type of economic crisis.

Gold – Gold chart by TradingView

Our last buy signal for gold and gold miners was in Sept 2018 and subscribers and our team profited from that $100 gold rally. This next opportunity here is to understand that we only have about 20~25 days to search out and isolate the best entry prices we can find in Gold and Silver before our April 21 momentum bottom date hits.  This means we need to prepare for this upside breakout move in Precious Metals and prepare our other open positions for the possibility of extended downside pricing concerns.  If you read our continued research posts, you’ll understand that we believe the US stock market will rotate a bit lower prior to this April 21 date and rally as well.

We believe the US equities markets will become a safe-haven, like Gold, where foreign investors can balance the strength of the US Dollar with the strong US economy and continued equity price appreciation while more fragile nations deal with economic crisis events and debt concerns.  Thus, we believe capital will flood the US markets after April 21 as evidence of these economic concerns drives foreign investors into US equities.

Take a minute to find out why Technical Traders Ltd. is quickly becoming one of the best research and trading services you can find anywhere on the planet.  We are about to launch a new technology product to assist our members and we continue to deliver incredible research posts, like this one, where we can highlight our proprietary price modeling systems and adaptive learning solutions.  If you want to stay ahead of these markets moves and find greater success in 2019 and beyond Join Our Wealth Trading Newsletter Today.

Chris Vermeulen

What the Mining Industry can Learn from the Boston Red Sox

 | MARCH 11, 2019 | NO COMMENTS

The mining industry can learn a lot from the Boston Red Sox. I just learned that lesson at PDAC 2019, the greatest mining show on Earth. More than 25,000 people attended in Toronto to meet, mingle, learn, look at core, party, buy, sell and schmooze.

I’ve been attending the mining show annually since 1992. I’ve missed two years. Before I go I have a list of goals that I want to achieve. Overall, it was a very good year at the show as I ticked off all the items on my to-do list and as always found a few more.

Wandering the booths and hallways and seminars, one of the things I learned was that there is a dearth of good projects under development. Simply put, we are consuming metals and not replacing them, causing analysts to believe the world will be in a deficit position over the next few years. This 2015 infographic from the Visual Capitalist makes the case for the coming copper crunch or you can read it in The Mining Journal.

Similar alarms are being sounded for silver and gold. The shortages in the battery metals (nickel, manganese, lithium, graphite and of course perennial bridesmaid cobalt) are obvious as the world decentralizes grid electricity.

Refined zinc metal output is expected be 13.81 million tonnes in 2019. The problem is, the output estimate for 2019 is lagging behind the expected metal usage of 13.88 million tonnes for the year.

We are consuming the metals faster than the mining companies can replace them.

How does this relate to Boston Red Sox, winners of last year’s World Series?

The Bosox over many years invested heavily in scouts to find a larger pool of young possible players, signed players at a young age, developed them patiently through the system, and brought them to the major leagues at the appropriate time. Not downplaying Steve Pearce’s World Series, the most important players on Boston’s championship run throughout the season and the playoffs were homegrown, like Mookie Betts, J.D Martinez, and Jackie Bradley Jr., Xander Bogarts was signed when he was 16 years old and made major contributions to the team’s success.

The cost of finding and developing young talent is far less than the cost of trying to acquire that talent once developed. Look at Bryce Harper’s USD$330 million contract with the Phillies after spending the first 7 years of his professional career in Washington. In Year 1 of that Washington contract, Harper was paid a total of $3 million and had a tremendous year, earning a spot in the All-Star game and winning NL Rookie of the Year. His 7 years in Washington were very cost-effective for the team and the returns he provided. Once developed, he priced himself out of the Washington budget.

There’s also Mannie Machado who in 2012 was paid $112,786 by the Baltimore Orioles. Drafted and developed by Baltimore, Machado provided Baltimore with gaudy numbers and strong defence. For you data geeks, his Wins Above Replacement (WAR) is 5.7. He was a bargain for what he contributed to the team. He just signed a 10-year, USD$300 million contract with the San Diego Padres, priced out of Baltimore’s budget.

Finding, drafting and developing your own players allows a team to control costs, keep these players under contract for a (relatively) low cost for an extended period of time, provides some degree of economic stability for the team, and de-risks the overall organization.

And that is one of the things that’s missing in the mining industry. There are few large projects in development to replace the copper, gold, copper, nickel, tin, silver, and battery metals that are needed. The majors have failed to invest in their minor league systems, leading them to have to effect risky M&A transactions to replace lost ounces.

This failure to invest in development started in about 2013, after the mining industry blew up following an acquisition spree. You remember Kinross’ 2010 free agent acquisition of Red Back Mining to acquire ownership of Tausita Gold Mine in Maruitania? Kinross paid $7.1 billion for an asset that was written down by $3.2 billion in 2013, crushing Kinross’ share price with it. There are other examples as well, but this write-down was massive and caught the market’s eye. Fear crept into the market and brought an end to M&A activity.

Following the fear came severe cost-cutting. The majors dramatically scaled back in all areas of operations, including not investing in the intermediates and juniors. If the juniors aren’t being funded they can’t explore (scout), the number of development opportunities shrinks, which reduces the number of opportunities for the intermediates to shepherd good projects along. And that decreases the odds that a major deposit would be found. And that of course means that fewer deposits are making it to the Major Leagues.

The cost of acquiring already-developed properties is extremely expensive. Grabbing proven ounces is what is driving the current $17.8 billion attempted takeover of Newmount Mining by Barrick Gold. It’s like the Phillies acquiring Bryce Harper for $330M after he was cheaply developed by Washington.

The Bosox are 6/1 favourites to win the World Series again, due mainly to the core of highly talented home-grown inexpensive players. It would be cheaper for the majors in the mining industry to invest more broadly in the juniors, knowing there will be winners and losers along the way, than to continue relying upon free-agent signings.


Peter Clausi

EDITOR: 

Mr. Clausi is an experienced investment banker, executive and director. A graduate of Osgoode Hall Law School called to Ontario's bar in 1990, Mr. Clausi ... <READ MORE ABOUT PETER CLAUSI>

Part II – What Commodities and Transportation Are Telling Us

 

 

 

In Part I of this report we talked about and showed you what commodities and transports where doing in relation to each other. Here in Part II, we show you in detail what we expect to take place.

This final chart highlights our Custom Smart Cash Index (in BLUE) as well as the CBOE Commodity Index pricing levels (in RED).  This data goes all the way back to 2012 and highlights a number of key pricing rotations.  First, we can see that Commodities have been decreasing in total value from 2012 till mid-2017.  We can also identify a key support level that was established in the Commodities Index near the beginning of 2016 – coinciding just a month or so before the bottom in the Smart Cash Index.

We believe this Key Bottom in both the Commodities Index and the Smart Cash Index reflect a dramatic pricing shift that took place at that point in time.  Although Commodities have yet to rally beyond upper high ranges, we can see the Smart Cash Index rallied to incredible new all-time highs.  The rally that started near the end of 2016 in the Smart Cash Index was likely the result of a “Capital Shift” that we have discussed extensively in the past.  With commodity prices staying historically low and an increase in economic optimism, capital shifted away from “commodity-based sectors” and into “technology and biotech sectors”.  Now, it appears this rally has run its course and a new capital shift is taking place.

Until Commodities begin to break out of the downward price channels we’ve highlighted on this last chart, global capital will be searching for two primary objectives; safety and hedged returns.  By this, we mean to say that global capital and investment will be seeking out strong Blue Chip and Mid-Cap performers that can produce safety in growth, dividends and hedge against currency swings or further eroding commodity price levels.  Think of this as a move to “key elements supporting the global economies”.

Heavy equipment, support services, and retailers, tool suppliers, and mid-level equipment suppliers, transportation services for these items and the repair parts and services to keep these tools running efficiently.  Human services, labor, labor services, medical services, and entertainment services are likely to do well over the next 12~24 months.  In an economy where commodity prices are relatively low and Transportation and Capital is flowing quite well, one could easily identify that Capital will seek out and identify the strongest opportunity for safety and growth as sectors continue to shift.  After a massive rally in Technology and Bio-Tech, we believe a continued shift towards Blue Chips and Mid-Caps is taking place right now.  Technology and Bio-Tech will likely find some support in the near future and become “opportunistic investments” eventually.  But right now, we believe global investors are focusing on different targets to hedge the risks that are associated with certain technology stocks.

In closing, our research highlights that Commodities are not increasing as one would expect in an expanding global market/economy.  We believe this is one core factor that will continue to drive a “capital shift” toward opportunity and performance in the Blue Chips and Mid-Caps.  Global investors will re-enter the Technology and Biotech sectors when pricing levels become more opportunistic – at some point in the future.  This means we have a very strong likelihood of the US and global Blue Chips, Banks, Industrial Supply, Basic Materials and Human Services (Entertainment, basic human essentials, regional human services, and utilities) will continue to perform well.

The US and the global economy is growing, just not as one would expect in a “total growth” environment.  We believe the global economy has shifted to support “fundamental growth elements” that are related more closely to the types of industry and market sectors that support the fundamental growth components.  We’ve discussed our theory that the global economies operate in a “growth or protection mode” many times before.  We believe the current global economic stance is more in tune with  “moderate growth while still being overly protective”.  Watch Commodities and the Transportation Index for signs of when the global economy enters a larger growth phase and when more opportunity for a broader capital shift will take place.

This concludes this two-part series and how we identify market opportunities for us to trade. Analysis like this has allowed us to generate substantial profits in the past 30 days with UGAZ 30%, NIO 21.6%, ROKU 18%, GDXJ 10.5%.

If you want to learn how we can help you find success throughout this shifting market and throughout 2019 and beyond, then visit www.TheTechnicalTraders.com

Chris Vermeulen
Technical Traders Ltd.