Market analysis on what to expect in 2020
Video duration 50min 41sec.
Al Brooks presents an in-depth market analysis video for six important markets: Emini S&P 500, Bonds, EURUSD Forex, Crude Oil, Gold and Bitcoin.
Video topics timing
| 00:00 | Introduction | |
| 01:46 | Emini S&P 500 | |
| 22:35 | Bonds | |
| 30:48 | EURUSD Forex | |
| 36:00 | Crude Oil | |
| 38:50 | Gold | |
| 40:40 | Bitcoin | |
| 48:05 | Closing review |
Video transcript
Introduction
Hi, everyone. I’m Al Brooks. I want to spend some time today talking about some monthly charts of important markets, the Emini, bonds, euro versus the dollar Forex market, gold, crude oil, and Bitcoin. This is the start of a new decade as well as the start of a new year, and there are some I think pretty interesting things going on, and they I think will affect more than just the next few months. They’ll impact what’s going on over the next year. I think there will be some major changes taking place in the financial markets.
In short, I think that the past decade has been incredibly strong, and it’s like the ’60s, and it’s also like the 1990s. But both of those strong bull trends were followed by Trading Ranges that lasted about 10 years, and the Trading Ranges had very deep pullbacks – 40%, 50%, 60% pullbacks. And I think that is what we’re going to be getting over the next decade. It might not happen right away; it probably will not. But at some point in the next 3 years, I think we’re going to enter a very big Trading Range and it’s going to last a long time.
The market has had an incredible Buy Climax. It had one that ended in 2017. We then entered a Trading Range for a couple of years. Now the bull trend is resuming. However, I think what will happen will be similar to what took place in the ’70s and after 2000, 10 years of Trading Range trading. So I’ll begin the PowerPoint right now.
Emini S&P 500
This is a yearly chart of the Emini, and you rarely ever get to see a yearly chart. And by yearly chart, what I mean is every bar is 1 year. So this is 1 year, this is another year, this is the past 10 years, and this bar is what took place in 2019. And what do you notice? You see a surge and then a pause. Another surge and a pause. Another breakout and another pause, and then another breakout.
But look at this breakout bar compared to the other bars. It’s the strongest breakout bar that we’ve had in a 10 year bull trend, and whenever you get the strongest bull trend bar late in a bull trend, it tends to attract profit-takers. The bulls look at that and say, “Well, I knew it was going to be a bull trend, and at some point I knew I’d have to take profits, but this is a great opportunity to take profits at a very high price. Chances are it’s not going to go up all that far from here. If it goes down, I can buy back at a lower price.”
What typically happens after a breakout is you get something that’s neutral. We had a 2-bar breakout and then a doji bar, a 3-bar breakout and a doji bar, a 2-bar breakout and a bear bar. And now we have a very big bull bar, and it covered about as many points as the 2-bar breakout here and the 3-bar breakout here. Chances are next year is not going to be a big year. It’ll be some kind of a pause bar.
A pause bar can be simply a smaller body, or it can be a doji bar, or it can be a bear bar, and if you get a bear bar, especially one closing near its low, then traders will look at this as possibly a Parabolic Wedge Buy Climax on the yearly chart. If you have three or more pushes up in a very Tight Bull Channel, that is a Parabolic Wedge Buy Climax, and it usually attracts profit-takers.
When the bulls take profits, they’re not going to look to buy again 1 bar later. They typically wait for several bars. If it were a 5-minute chart or a daily chart, you would expect the market to go sideways to down for 10 bars. On a yearly chart like this, I don’t know that it will pull back for 5 or 10 bars. In fact, I don’t think it will pull back for 5 to 10 bars on the first reversal down. It may go sideways for a little bit. But at some point, I do think we’re going to get a pullback, and I do think it will be 5 or 10 bars.
Look at this in 2000. Took place in 2000. We had a very, very strong rally, a Buy Climax. It attracted profit-takers, and profit-takers usually want to give the bears two opportunities to take control before the bulls buy again. The bears tried to turn it down here, the bulls bought, and they started to get small bars. Not enough buying. They took profits again. The bears had a second opportunity to turn the market down. They had a Double Top, it broke below the neckline, but it reversed up.
This is where the bulls will buy again. They’ll give the bears two chances to reverse the trend. If the bears fail twice, then these bulls will buy again, especially if there’s a good-looking bull bar.
I think this is what the next 10 years will be. I think we’re going to go sideways. We may get two pushes down, we may get a Spike and Channel type pattern where it goes down and then a second leg and a third leg down. But this is what the next 10 years will be. I don’t know if it’ll begin in 2020. We may go up for another bar or two before it begins. But I think at some point in the next 3 years, we’re going to do this.
You can say, “Oh, no big deal.” It’s a High 2 bull flag. Two legs down, one, pullback, two. Well, but you don’t see the prices all that clearly here, but this retraced about 50% of the entire stock market’s price, and this retraced 60%. And this is not a log chart, so it’s hard to see what 50% would be, but we’re right now around 3200. A 50% retracement would be 1600, around these highs, a pullback to the breakout point above this Double Top.
Also, I would expect at least two or more legs sideways to down. So at some point over the next 10 years, I do expect a very big Trading Range. I expect at least a couple legs down, and I expect the Trading Range to last about 10 bars. A yearly chart is 10 years.
When you do get a reversal from a Parabolic Wedge Buy Climax or from any kind of a Buy Climax, the first target is the low of the most recent Buy Climax, and the low of the most recent Buy Climax is the low of this year. So that would be the first target. That’s true even if we go up for another bar or two before we come down. That would be the first target, and then you start to look for other targets – maybe this low, maybe this breakout point.
So what I’m saying is over the next 10 years, I think we will get at least two pullbacks that are much bigger than what traders have seen over the past 10 years, and that means at least 30%. So I’m guessing we’ll get at least two pullbacks that are between 30% and 60%.
You can’t see this back here all that clearly. There was a big rally in the ’60s, and then in the ’70s the market went sideways. You can see there’s a Tight Trading Range here in the 1970s. It lasted about 10 years. Very strong rally in the ’50s and ’60s, and then a 10-year Trading Range, and the Trading Range had two or three legs that fell 30% to 50%. Another example, right? So the market rallied strongly in the 1950s and the 1960s, and then sideways for 10 years with two or more legs, and pullbacks 30% to 50%.
Another example here. We rallied strongly for 10, 15, 20 years, and then 10 bars – about 10 bars – two legs sideways to down, with pullbacks of 50% or so. Here we have another big rally, and chances are we’ll do like what we did in the ’70s. Sideways after a big bull trend. We’ll do like we did at 2000. Sideways after a big bull trend. Now we have a big bull trend, and we’re probably going to go sideways. The market is not going to continue to do this. This is extreme behavior. Extreme behavior is unsustainable. It will attract profit-takers.
This is an example of a 5-minute chart just to illustrate the point I was making about a Parabolic Wedge. A good bull trend bar, a pause bar. A 2-bar rally, a pause bar. Another breakout, a smaller bar, and then another breakout, and this is the biggest bar in the entire trend. It’s breaking above the top of the channel, and this is what followed. I am expecting that. Here, we were sideways for 60-70 bars. I’m not expecting that, but I am expecting sideways to down for about 10 bars, so for about a decade.
I want to say one other thing about these climax bars. When you get a big bull bar late in a bull trend like that, you have to think about what to expect on the following bar. I just showed a chart of the yearly chart, where every bar was 1 year. One thing that’s possible is after a big bull bar, you can get another bull bar. After a big bull bar, you can get a bear bar. After a big bull bar, you can get a small bar. Chances are the current year, 2020, will not be a big bull trend bar on the yearly chart. It probably will be something neutral.
One type of neutral bar is a doji bar, where the close is around the open. If this were the yearly chart that I just showed, this would be 2019, and then now, will the current year be a big bear bar? Will it be a doji bar? Will it go above this year’s high and reverse down? I don’t know, but I suspect that early in the year, we will have a hard time going much above last year’s high. Traders will wonder if we’ll totally reverse last year.
Whenever you get a big bull bar late in a bull trend, there are profit-takers, and sometimes you get an immediate reversal. Sometimes you’ll go up and then get a reversal, a sell signal bar. Other times you’ll go up and down and go sideways. So I’m expecting either an attempt at a big selloff or an attempt at a rally, but the rally will probably not go far early in the year. So if we do go above the 2019 high, it probably will not go very far above before it pulls back.
Less likely this year will be some kind of big sell signal bar. So either a 2 bar reversal like this – up and then reversing down – or we’ll go up and then reverse down. And again, as I say, I’m expecting sometime in the next 3 years the market to evolve into a Trading Range where there is at least a couple legs with 30% to 50% pullbacks.
Well, in fact I do have a yearly chart of the stock market, the 1920s up to the 1980s, and it illustrates the point that I’ve been making. We had a strong rally that lasted a lot of years, and then it transitioned into a Trading Range. Trading Range in a bull trend, bull flag, and ultimately there was bull trend resumption. However, during that Trading Range, I think there are things to be learned here. There were several legs down, and the selloffs were between 30% and 50%. And that went on for more than 10 years, and that’s what I expect will be happening over the next 10 years, probably beginning within the next few years.
I think this is an important point that you have to consider. Let’s say a stock is trading at 100 and it loses 50% and it sells off down to 50, and then the market enters a Trading Range and it goes back up to 100. When it went from 100 to 50, it lost 50%. When it went from 50 back up to 100, it gained 100%, and therefore over the next 10 years, if we do in fact enter a Trading Range, traders will look to buy every time the market gets down 30% to 50%. If the market then goes back up to the high, the rally will be 60% to 100%. So they’ll look to buy 30% to 50% selloffs, and they’ll look to take profits on rallies of 50% to 100%.
This is the monthly chart. Here’s the bull trend. Began 10 years ago. You can argue that the channel began here, before the bull trend actually became clear. A lot of times that happens. The market transitions from a Trading Range and the bull trend begins before the Trading Range or the bear trend ends. So to me, the bull trend began here, but the bull channel began here. You can see we’re breaking above the top of the bull channel. Typically, if you break above the top of the bull channel, there’s a 75% chance that you will get a failed breakout, a reversal down within about 5 bars.
5 bars on the monthly chart is 5 months. The percentage is less than 75% here because of the spacing. Here’s 0.1 and here’s 0.2, a lot of space between those two, and here’s 0.2 and 0.3. Not much space. When the spacing is not very symmetrical, when there’s a very big number of bars between 1 and 2 compared to between 2 and 3, fewer traders or fewer computers pay attention to the channel. They think it’s a less reliable channel, and therefore the probability of a failure and a reversal down within 5 bars is less. However, it’s still I think better than 50%. There’s a 60% chance that at some point in the next 5 months, we’ll try to reverse back down.
When you break above a channel and reverse, the first target is a test back to the middle of the channel. In this case, it would be around the 20-month Moving Average, so that would be the first target if we were to get a reversal. And if it did not find support at the middle of the channel, it would next try to get down to the bottom of the channel. If it did not find support at the bottom of the channel, then the bulls would look for support around the bottom of the most recent leg up, which would be the 2018 low.
Can we go from 4 consecutive bull bars to a reversal? It’s possible, but not likely. Normally, if you have a very strong trend like this and you get a reversal, it’ll be a pullback for a few bars, and the first reversal down will not be successful. So yes, we might get a sharp reversal in the next month or two. I don’t think we will, but if we did, it probably would not be the final high. We probably would need at least some kind of a Double Top or a Micro Double Top before we get back down to the bottom of the channel.
This is a weekly chart, and there’s another channel here as well. This channel began a little bit more than about 4 months ago. Three pushes up – one, pullback, two, pullback, three. We’re breaking above the channel. We tried to reverse down below last week’s low. When a bull trend looks like this, usually you’re not going to get a major reversal down, and when a channel is tight like this, your goal is the bottom of the channel, and that’s not very far down. So I don’t think this is a major top. I would not be surprised if we go above last week’s high and form an outside up bar.
But I do think we’re probably not going very far up in the next few weeks, and there are several reasons for that. One is we’re at the top of a Wedge channel. Two, we had a 9-bar bull Micro Channel here and then a big doji for the High 1 buy signal. A big doji means the market sold off pretty sharply, and therefore the bears are willing to be aggressive. If the trend resumes, traders are aware that the market sold off here pretty strongly. There’s a higher chance of another attempt to reverse down.
When the channel looks like this and we have no bear bars in about 5 or 6 weeks, chances are this reversal is not going to lead to a significant reversal down. The bears will probably need some kind of a Micro Double Top or a second sell.
So let’s say this week – today is New Year’s Day. Let’s say this week on Friday, it goes outside up. The next week might become an inside bar, and then we’ll have an ioi (inside, outside, inside) bar. That would be a second sell signal. Last week is the first sell signal bar, a bull body, not very good, and then if we have an inside bar next week, that would be a second sell signal bar. The bears would have a better chance of a pullback, maybe to the bottom of the channel, maybe to the breakout point above this high.
Unlikely to get a big reversal down when a bull trend looks like this without going sideways for several bars first. So pretty Tight Bull Channel, had to go sideways for 5 weeks or so before the bears could get a big reversal down. Pretty good rally, had to go sideways for several weeks, Micro Double Top – up, down, up, and then down. So not a lot of downside on the weekly chart. At least, it does not look like it right now.
Daily chart, we’re at the top of another channel. Different ways to draw it, but this is a reasonable way to draw it. The channel began in October, and we also have a smaller channel here with three pushes up – one, two, three – so there’s a small Parabolic Wedge. You’d expect a couple legs sideways to down. We have one and we have a pullback. The bulls are hoping for a High 1 bull flag and a resumption of the bull trend.
Very strong bull trend. Look at the pullbacks. 1-bar pullback, resumed up. 1-bar pullback, 1-bar pullback, 1-bar pullback. 2-bar pullback, 1-bar, 1-bar, right? So traders have been buying any time – even here. We fell 3 bars, but they bought aggressively. You have to assume the bulls will be buying this as well. So if we do get down to the bottom of the channel, we may have to go sideways and get some kind of a Double Top. So down, up, and then down. The Double Top, it could be a slightly Lower High, it could be a perfect Double Top, it could be a Higher High. However, we’re at the top of the channel, so you’ve got to be thinking about a reversal. We have a small Parabolic Wedge, so you’ve got to be thinking about a reversal as well.
So will we get a slightly Higher High Double Top? I think that we probably will because the bulls will be determined to carry forward the strong rally that we had in 2019. They want to get above last year’s high. Last year’s high was also last week’s high. It’s this high right here. That’s the all-time high, and it’s the high of 2019.
The bulls are hoping to convince traders that 2020 will be equally strong. It’s not going to be. However, they’ve been buying aggressively for 10 years. They’ve been buying aggressively on the daily chart for several months. They probably will be able to get above last week’s high, which was last year’s high. So it’s the all-time high. So I do think we’ll probably get above last year’s high, but I suspect we’re not going to get much above before we have a pullback for a couple of weeks. This is also at the big round number, 3250. The high right now is 3251, 1 point above the big round number.
So, near term in the Emini. We may pull back for a couple weeks or we may go sideways, maybe a little bit higher, and then pull back. But for the year, I think it’ll be a much more neutral year. As I said, it could be a doji bar where we rally, we sell off, we finish the year just around where we started. And then at some point in the next 3 years, possibly starting this year, the Emini and the stock market will begin a 10-year Trading Range where the selloffs will be big – 30%, 40%, 50%, and we’ll get at least two big selloffs like that. So I don’t think there’s a lot of upside left. Maybe we’ll get up to 3500 sometime this year, sometime in the next couple years, but I really don’t think we’re going to go much higher than that before we enter a 10-year Trading Range.
Now remember, I said that if we do go into a 10-year Trading Range, we’ll get 30% to 50% pullbacks, and that means we could easily retrace this rally, and we could easily retrace all the way down to last Christmas’s low.
I want to say one other point about that. Last Christmas, if you remember, the market crashed and reversed up on December 26th. This year, the market is basically crashing up. This is December 27th. The bears are hoping that we’re going to reverse strongly down.
The market often tries to do the same thing or the opposite of what it did previously. It often does it around the same time. If I’m talking about a weekly chart, it might do it a certain week and then a month later or 2 months later, at the same date, it might try to do the same thing. On a 5-minute chart, if at 11:00 in the morning the market rallies strongly one day, it might try to rally strongly the next day at 11:00. Or if it reverses down at 9:30 one day, it might try to reverse down at 9:30 the next day, or have an upside breakout.
I think it’s unlikely that we’re going to get a huge bull trend this year, but you have to wonder if the bears will try to do the opposite of what the bulls did last year. So last year, December 26th, we started a huge rally. This year, December 27th is the start of a huge bear trend. I don’t think it is. I think we’ll probably go sideways and then decide whether to go up a little bit more and then sell off or begin to test down.
Bonds
Bond futures. I think bond futures are incredibly interesting. We’ve been rallying for decades, and there are different ways to draw a Wedge Top. So about 10 years ago, 11 years ago, we had one, two, three, a big Wedge Top. Within that Wedge Top we had one, two, and three. We broke above that, and we have one, two, and three. We broke above that. And then we have a smaller Wedge – one, two, three. So a nested Wedge Top. You’d expect at least a couple legs sideways to down.
Well, we had it. One, pullback, two. The bulls are hoping this is a resumption of the bull trend. However, this is such a major top with so many Wedges nested within it, I think we’re going to get a much bigger reversal down. Also, the bond market tends to operate over the course of decades. Tends to rally for two or three decades, sell off for one or two decades, and we’ve rallied for two or three decades. So I think the bond market’s going to sell off for one or two decades.
Whenever you have a Wedge rally, you have to be thinking that the market might come all the way back down to the first pullback after the Wedge rally began. Here’s the breakout, here’s the first pullback. So I think at some point in the next 10 years, we’re going to come down here.
Right now, the past year, we rallied very strongly, but a Parabolic Wedge. Three or more pushes in a Tight Channel. We broke out above this high, and you can say, “Well, you broke out above a Wedge Top. Shouldn’t you rally strongly?” Whenever you break above a major top – in this case, a Wedge – in general, 50% chance you will get another strong leg up, maybe a Measured Move based upon the height of this Trading Range. But 50% chance the breakout will fail and you’ll get a reversal down, and that’s what it looks like we’re getting here.
We have 4 consecutive bear bars on the monthly chart. It’s unlikely that we’re going to go straight up. If the bulls are lucky, we might go sideways for a few months, but it would take several months before I think the bulls could get a resumption of the bull trend. They’ll probably need 2 or 3 bull bars. They might get a bull bar in January or February, but right now I think we’ll probably get at least a couple legs sideways to down.
Will we break below this? Well, for the bears we have a Double Top, a neckline. This is the lowest price between these two highs. Break below that, Measured Move down. It would be somewhere down here. If we do break below this 4- or 5-year Trading Range, traders will start to look for a Measured Move down. That’s what I think we’re going to do.
But here, we’re talking about a monthly chart, and a top that took place over the course of 10 years. It’s unlikely that it’s going to suddenly reverse. It’ll take several years to get it to reverse. We’ve been going sideways for several years now. If it’s going to reverse, which I think it will, it probably will start to reverse pretty soon. It’s possible it will go sideways a little bit more. It’s possible that we’ll go a little bit higher and then reverse. But I think we’re at or very close to the high of the next 10 years, and I think at some point in the next 10 years we’ll be back down here.
What’s the implication of that? Well, if the bond market goes down, which I believe it will, interest rates will go up. So all this talk about zero interest rates, it’s not going to happen. Also, I’ve written several times how I think it would not happen in the United States simply because America would not tolerate it. If the government sells bonds to raise money, somebody has to buy bonds.
For example, you might buy bonds. How would you feel if someone sold you bonds, you bought bonds, you gave them your money, and they told you that “When I pay you back, I’m going to pay you back less than what you gave me. So you give me $100, I’ll give you this bond, and in 10 years or 20 years or 30 years, I’ll buy the bond back from you, but I’ll only give you $95.” No American would ever do that deal, and therefore, negative interest rates, they’re not going to happen. That’s what negative interest rates are. You sell a bond for $100 and when you buy it back, you only give the guy back $95.
So it’s not really negative interest rates. It’s not like every year, the guy has to give you money. What it means is when you sell the bond back to the government, they give you less money than what you paid for it. So the effect is that you had a negative rate of return. You hold the bond for 10 years and you get back less money than what you had at the start of the 10 years. So your rate of return was less. But it’s not like every month or every 3 months or every year, you have to pay the government interest for the right to hold the bond. So it’s not really negative interest rates, but it’s a negative return.
The United States is the leader of capitalism in the world. The United States has a lot of pride about that. There’s just no way the American public is going to tolerate zero interest rates, so it’s not going to happen. Therefore, it makes it hard for the bond market to go much higher. The interest rates are already fairly low, fairly close to zero, and I doubt they can get much closer.
Bond market, big picture: sideways, maybe up a little bit more, but over the next 10 years, quite a bit lower. So interest rates will go up.
Weekly chart of the bond market. We had one, two, three pushes up, and then an even bigger Buy Climax, and we sold off – one, two, and three. The bulls are hoping this is a Wedge bull flag. Right now it’s a truncated Wedge. This low is still above that low, so three legs down – one, two, three – and the third leg has not fallen below the second. What is likely is we’re either going to rally from around this low, a Double Bottom, or we’ll go a little bit lower and form an actual Wedge – one, lower, lower – and then bounce. An obvious target would be this area.
The bulls hope it’s a Wedge bull flag and the bull trend resumes. I think we’ll have a hard time going much above this high. It’s possible that we go a little bit above it, but if we do, this will probably be the final bull flag and that will probably be the start of a bigger reversal down – for example, the 10 year reversal that I’m expecting in the bond market. But right now, short term, I suspect we’re going to bounce.
Everyone sees this as a possible Wedge. When everyone sees it as a possible Wedge, bulls start to buy before it falls below that low, and the result is sometimes this low does not fall below that low, and you start to rally. I call that a truncated Wedge. It’s truncated. The third leg did not fall below the second. But the forces are the same as a Wedge. Bulls are buying because they’re expecting a reversal up, whether or not it goes below that low.
Again, upside target here, maybe here. If we go up here, I think this will be the final bull flag. I don’t think there’s a lot of upside. However, we’re at the bottom of a Trading Range that’s tilted slightly down. It’s a possible Wedge, it’s a possible Double Bottom. So over the next few weeks, I expect that we’ll bounce.
Can we suddenly break to the downside and quickly fall for a Measured Move? This would be a Wedge bull flag, a bear breakout, possible Measured Move down. It’s possible – I think maybe a 30% chance of that, so 70% chance either we just kind of drift down a little bit more and then bounce, maybe channel down – down for a few weeks, up for a few weeks, down for a few weeks, up for a few weeks. We could do that several more times. But the chance of a collapse and a Measured Move down right now, 30%. I think more likely either we drift a little bit lower and then bounce, or we bounce from around here. Down for a few weeks, up. Down for a few weeks, up. Down for a few weeks, probably we’ll bounce.
EURUSD Forex
The euro versus the dollar Forex market I think is especially interesting. This is a monthly chart going back 20 years. We had a very strong bull trend, and we’ve been channeling down. The bulls tried to bottom here. They failed. We got a break to the downside. Then they’re trying to bottom a second time, and we got a pretty good reversal up. Strong enough up, might get a second leg up. I think we will. It’s possible this is one, pullback, two, and we’ve already had the second leg up. But I think this is more of a channel that’s subdivided, and I think it’s a first leg up. This is a pullback, and I think we’ll get a second leg up.
Right now, we’re starting to break above the top of this small Wedge channel. So for the bulls, it’s a Higher Low Major Trend Reversal. So a bear trend, pretty good rally, Higher Low, and they’re hoping that we get up here. They’d like us to get all the way up here, but in the next year or so, I think we may only get here. The reason I say that is because it’s a very Tight Bear Channel, and the first reversal up from a Tight Bear Channel is usually fairly minor, and usually the market has to go sideways.
I do think it’s more likely than not that we’re going up over the next year, that we’ll get up here. It’s possible that we get up there.
Another way to look at this is as a Double Bottom pullback. This is a Double Bottom or Triple Bottom, a breakout, and a pullback. In either case, if you want to call it a Higher Low Major Trend Reversal, Head and Shoulders Bottom – left shoulder, head, right shoulder. If you want to call it a pullback from this breakout after this Double Bottom, all of those descriptions mean the same thing. It means you think we’re going higher. So I think the euro versus the dollar will be up over the next year. Also, this is a lot of bars in a Tight Channel. It’s unlikely to go a lot lower without first bouncing.
This is a weekly chart. We have a very strong selloff, so a spike down, and then from there we channeled down. Every time it went to a new low, it rallied. So we’d go down for a few weeks, up for a few weeks. Down for a few weeks, up for a few weeks. It just kept doing that for a year and a half now.
What’s different now is when you look at this, it doesn’t look like much, but it’s important. We have 3 consecutive bull bars. The bodies are getting bigger. When’s the last time you’ve seen that? You have not seen it in a year and a half, so on one level, this is the strongest rally that we’ve had in the entire bear channel, and we’re getting a second leg up here. Traders are deciding whether the bear channel will continue. Yes, we broke above this bear trend line, but we have not broken above this high. So we’re getting above minor highs here and here. This is a much more major high, a much more sustained selloff to a new low.
Can the bulls start to break above more major highs like this one, or that one or that one? If the bulls do break above a major high, then traders will conclude that the bear trend has ended. Right here, for example, we have a minor high, but if this starts to break out strongly, if we start to get a couple big bull bars closing far above this high and that high, traders will conclude that the bear trend has ended.
When a bear trend ends, one of two things happens. Either the market evolves into a Trading Range – which it currently is in – or it goes into a bull trend. This channel is fairly tight. It’s lasted a long, long time. It’s more likely that if this is the start of a rally, it probably will be a bull leg in a Trading Range. It’s unlikely that we’re going to go up strongly like this. It’s more likely it’ll be something of a mirror image of this that will go up and down, up and down, up and down, and that will basically be sideways for a year.
And in hindsight, traders will look at this as a bear leg in a Trading Range and this as a bull leg in a Trading Range. I think this is where we’re headed sometime this year, the 1.18 level. The bottom might remain here, around 1.08. It might go a little bit lower. We have a gap over here on the weekly chart, and we did not get particularly close to it, so we may have to get closer or we may have to close it.
However, I do not think we’ll go a lot lower. We have a Double Top here, neckline, Measured Move down somewhere down here. We might get down to this Measured Move. We have a Double Top here, neckline, Measured Move is here. So Double Top here, Measured Move, Measured Move, and also around that gap. All of that is around the 1.08 area. So we may come down there before we begin the bull leg in the Trading Range, or the bull leg in the Trading Range may already have started. We don’t yet know. But I do think there’s not much downside, maybe to 1.08, and I also think that we’re going up to 1.18 at some point this year.
Crude oil
Crude oil. A huge selloff back here 10 years ago. Then we had a strong selloff here, then more of a channel. One, two, three, so Spike and Channel. You’d expect a reversal up to the start of the channel, which is what we did right here, and then a Trading Range. So we’ve been sideways now 5 or 6 years, and here we have a couple Lower Highs, couple Higher Lows, Triangle, and we’re just starting to break out of the Triangle.
The bulls hope that this is a Double Bottom Higher Low, so a Double Bottom Higher Low Major Trend Reversal, and they’re hoping that we get a bull trend out of this, and the bears are hoping that the Trading Range continues, maybe we’ll get up and test this or that, and that ultimately we’ll go down lower – which is what I think will happen.
However, we’re fairly low in the 5-year range. We have an obvious magnet here, on top of the Triangle. We have an obvious magnet here, top of the Sell Climax, and up here, the top of the Trading Range. Then we have a breakout point below that low, and we tried to get there here. Could not. Tried here. Bulls trying here. So I think we’re going higher. Again, this is the monthly chart. I think we’re going higher, maybe up to here, but I think we’re going to have a hard time breaking above this red line at any point in the next 5 or 10 years.
I think that crude oil has a fundamental problem. The market is moving away from petroleum products and toward more climate-friendly products, so there’s a fundamental issue going on with the crude oil market that will limit its upside. So this might be the all-time high for the remainder of your life. It’s possible that we get back up here, but right now I don’t think we’re going to be doing that any time soon.
Whenever you get a Major Trend Reversal with a decent buy setup like this – Double Bottom Higher Low Major Trend Reversal – you have a 40% chance of actually reversing from a bear trend into a bull trend. I think it’s probably less than that, maybe 30% chance that we actually get a bull trend, but I do think better than a 50% chance we’re going higher. So I think this is probably going to end up as a bull leg in this Trading Range and not the start of a bull trend.
Sideways for 5 or 6 years. I don’t see any sign that it’s going to change. So I think we sold off, sideways, I think we’ll go up a little bit, maybe up here, but I do not think we’re going a lot higher. So it’s going to be a trading type market. Up for a few bars, down for a few bars, probably all year.
Gold
Gold. If you’ve listened to me before, you know I’m not a big fan of the entire concept of gold. I think it’s lost its meaning. There was almost a religious attitude toward gold. People kind of treated it almost like a god, and there’s still a lot of these gold idiots around. By gold idiots – they always think you should buy gold. If gold is going up, they say you’ve got to buy gold because it’s going up. If gold is going down, they’ll say “Oh, you’ve got to buy gold. It’s on sale.” They never have a reason to sell gold.
We had a Spike and Channel down, and you’d expect the transition into a Trading Range, and we’ve been in a Trading Range for 6 or 7 years now. Similar to crude oil, we have a Double Bottom and it’s a Higher Low, so Double Bottom Higher Low Major Trend Reversal. Double Bottom Higher Low Major Trend Reversal. We have a pretty good rally here breaking above these highs. We have two legs down – one, pullback, two. It looks like we’re going higher. We might get up to this breakout point here.
This is, I think, a reasonably strong bull trend. This close is above that high. We have a second close. This close is above this high and that high. It looks pretty good for the bulls. I don’t know that we’ll go a lot higher. We may test this breakout point. We may get up to this Sell Climax high. But to me it looks bullish, so it looks like we’ll go higher. It’s possible that this will be a final bull flag, that we go up a little bit and then reverse, and come back down to the middle of the range.
But right now, to me it looks bullish, so it looks like it’ll either be a little bit higher or possibly up to here. Less likely all the way up to here over the next year. Next few months, it looks like we’ll probably go higher.
Bitcoin
Bitcoin. I think Bitcoin is fascinating. The reason why I think it’s fascinating is because no one knows what to make of it. They keep putting Bitcoin pundits on television talking about how instead of the market going to 20,000, it’ll go to a million or 2 million or 5 million. That’s crazy, okay? When I look at this chart – when you look at this chart, what do you see? You see big up and big down, big up and big down, and you say, “Oh my gosh, I don’t know what it’s going to do.”
That’s right. All those big reversals create big confusion, and big confusion means Trading Range. Trading Range means traders are not confident that it’s going to go a lot higher. They’re not confident it’s going to go a lot lower. So if you short and it goes down, you tend to take profits instead of sell more as it goes down. You tend to take profits. If you’re a bull and you buy and it goes up, you don’t believe it’s going to keep going up, so you take profits. The result is the bulls buy low, they sell high to take profits; the bears, when it gets high, they look at it as a good place to sell and they sell, and they don’t think it’s going to go down all that far. If it goes down, they buy back their shorts. So both the bulls and the bears are buying low, selling high.
I think couple things that are interesting. We have a bear channel here and pretty strong breakout, and we’re pulling back. So is this a pullback from this breakout, in which case you’ll expect the bull trend to resume? You can call this a left shoulder of a Head and Shoulders Bottom. I know it doesn’t look like a left shoulder, but it’s a sideways, it’s a pause, and then a bear breakout, and this is a possible head. Strong rally and a possible right shoulder if we reverse up from here. So that’s the bullish case.
Bearish case is, well, a Buy Climax. We have a Lower High, a Lower High, we have a Double Top bear flag. Up, down, up, and maybe we’ll break below this support. This is support for a long time. We broke strongly below it. We broke strongly back above it. We’re testing it now. Will we break strongly below it again and get back down here? I don’t know. To me, I think that we’re not going to get back down here without first rallying up to here or up to here.
But as far as those bulls talking about the market going up to a million, I think so many traders got burned here that they’re hesitant to buy Bitcoin. I think this is the tulip mania phase, and I think people perceive Bitcoin differently from how they perceived it a couple years ago. A couple years ago, CNBC kept putting on Bitcoin people, talking about how Bitcoin was going to go up to a million.
I really was annoyed by CNBC doing that. I understand they’re trying to sell advertising and they want as many eyes watching their station as possible, but I think they did a disservice. People who are talking about emotion rather than logic, they led the viewers to believe that Bitcoin was much more solid and much more important than it really is. I do not think it’s important.
I do think the concept is important, the concept of a one world currency, not a fiat currency. Fiat currency simply means the government prints a piece of paper and puts a “one dollar” on it and says by fiat, by rule or by law, “this is now money.” Bitcoin is not owned by any government, and I do think at some point we’ll have some kind of an international currency not controlled by any one government. The Bitcoin and cryptocurrency people are hoping that Bitcoin will be that currency.
But as far as transactions go, there’s a fundamental flaw with Bitcoin, and I don’t see any way around it, unless they totally overhaul the algorithm for Bitcoin. The problem is, at least as of a couple years ago – I haven’t looked at it since – the problem is you can only do about 7 Bitcoin transactions a second. There are only enough miners out there to do about 7 transactions a second, and you cannot have 7 billion people using this as the world currency if only 7 transactions can take place a second. MasterCard and Visa, they can do thousands of transactions a second because they’re not dependent upon an algorithm basically solving problems. That’s how Bitcoin transactions take place.
And because of that, I just don’t see Bitcoin as being a currency. So it may get some limited use as a currency, but I think it has a fundamental flaw by its design. It’s not usable. You cannot be using it, because if everybody starts to use it – you want transactions to take place instantaneously or within a few seconds, like with your Visa card and MasterCard. It’s impossible to have that happen with Bitcoin. So the logic that everyone will buy Bitcoin and use it as an international currency is just not there.
The alternative logic is people will trade it like gold, as a store of value. I just don’t see that either. It’s too much imagination and not tangible. Gold, at least you can touch gold, you can hold gold. You feel like you own something. Here, Bitcoin, I think most people will not relate to it, and I think that it has limited upside as a store of value as well.
So from a fundamental perspective, I think Bitcoin has a problem. I think at some point there will be an international currency. It might be a cryptocurrency. But I do not think it’ll be Bitcoin. Or at least, not as Bitcoin currently is configured. If they can change the algorithm substantially so that it no longer is Bitcoin, it’s some other algorithm, but they still call it Bitcoin, then yes, Bitcoin could go up to a million dollars. But as it’s structured right now, I don’t see it doing anything.
And you can see we’ve been sideways for a couple of years. You can call it a Triangle. We have a Higher Low, we have a Lower High. So if we rally again and pull down, then we’ll have a Triangle. Three highs – one, two, three – and a Higher Low. BreakOut Mode. I don’t see the market doing much of anything over the next several months, maybe over the next year. The bulls, they might get up to this trend line, but I think they’ll have a hard time breaking above this high. If we get up there, the bears will try to get a Double Top.
So it looks like it’s going to be sideways over the next year, and I do not think it can go up the way the pundits on television are saying, because it can only do that based on it being a store of value, an equivalent of gold. And to me, if I’m looking to store value, gold versus Bitcoin, I just like the idea of gold. It’s attractive. There’s other uses to it. Bitcoin is just too – too much of a theoretical concept. It’s not tangible, so it’s hard to relate to it. So I just don’t see Bitcoin going up to a million.
Closing review
So I talked about the Emini. I think that the market is going to enter a Trading Range for the next 10 years, and I don’t know if the Trading Range will begin in 2020 or if it’ll begin in the next 2 or 3 years, but I do think it’s going to be sideways for the next 10 years, and I think there’ll be selloffs between 30% and 50%, maybe 60%. I think there will be at least two of them, and therefore people will be trading. If the market falls 30% to 50%, they’ll buy. If it rallies 50% from there, or even 100% from there back up to the old high, they’ll sell. So it’ll be a trader’s market for the next 10 years.
Bond futures, I think they’re putting in a major top and that interest rates will work higher for the next decade, maybe longer.
The euro versus the dollar, I think we’re at the end of a 2-year bear trend and that will work higher. But because the bear channel has been so tight for the past couple of years, I think the rally over the next year will not be strong. It’ll look like a bull leg in a Trading Range. But I do think the euro will go up to 1.18, and that means I think the dollar will go lower.
Crude oil, it’s losing its use. So it has a fundamental problem. It’s being replaced by more climate-friendly energy sources. There will always be some market for crude oil, there’ll always be a need for crude oil products, but the uses that it currently has will slowly melt away. So I think there’s a cap in crude oil. It’s been sideways for several years. It looks like it’s going to rally over the next several months, but I think it’s going to have a hard time ever going back into a strong bull trend.
Gold, we had a Spike and Channel down over the past many years, and we’re getting up near the top of the Trading Range. It looks like it’ll go a little bit higher.
And Bitcoin I think has fundamental problems that will prevent it from becoming widely used, and so I think there’s a cap on how far up it can go. I think it’s probably going to try to rally over the next several months, but I think it’s probably going to be mostly sideways for the next year.
I want to thank everyone for giving me the opportunity to talk today. I hope that you found what I had to say interesting. I hope that you’ll find it helpful with your trading, and I wish you the best in the coming year and in the coming decade. Thank you, and again, I’m Al Brooks.
