Our friends and followers love it when we publish and Adaptive Dynamic Learning (ADL) predictive modeling chart. These are very special charts because they show us what our proprietary predictive modeling system is suggesting is a likely outcome many weeks or months into the future. We wanted to highlight the YM ADL chart, below, because we published it near the end of 2019 in a research article suggesting a deep price correction was setting up for 2020. Additionally, you should be able to follow the YELLOW ARROWS on the chart to see how and where the ADL predictive modeling system suggested the YM price would target.
This new ADL research, in combination with our other recent research posts, suggests the US stock market may be stalling ahead of the US Presidential elections in a moderate “melt-up” trend. Essentially, this means the upside trend bias will likely stay intact for another 35+ days with moderate volatility (meaning 4% to 8%+ rotational ranges) before peaking sometime in October or very early November 2020.
As we can see from the chart, the likelihood of a deep price decline in the markets before the US election (November 3, 2020) could possibly be related to earnings, news, a “reality-check”, or some other event. The stakes are fairly high for the 2020 US Presidential elections in terms of the future of the US and the world. New policies and leadership could dramatically alter trader/investor expectations.
DOW JONES ADL PREDICTIONS
Our ADL predictive modeling system is currently suggesting the YM price activity may seek higher prices over the next 30 to 60 days, yet the huge downside prediction for a price collapse in November/December 2020 is likely related to the US Presidential Election event. This suggests that the US stock market, and major indexes, could enter a period of volatility and sideways congestion over the next 60+ days which ultimately results in another massive breakdown in price near October/November/December 2020.
The ADL predictive modeling system is suggesting an -18% to -24% downside price move should be expected from a peak level in the YM near 28,925. We’ve learned from past experience with the ADL system that price levels may react earlier or later than ADL predictions suggest – but generally the ADL predictions are very accurate. Take a look at the big downside move related to the COVID-19 breakdown in February/March 2020. Even though the ADL predictive modeling system suggested a lower target level near 22,645, the markets actually sold-off to a deeper level near 18,086. The same type of extreme selling could take place in November/December 2020 with this next predicted breakdown.
We believe there is a very real potential for an early topping pattern to setup over the next 30 to 60 days in the US stock market – a rounded or “R-shaped” topping pattern. The ADL predictive modeling system attempts to identify projected future price target levels, but as you can see from the deep price decline in February/March 2020, price can move well beyond the projected ADL target levels – sometimes entering what we call an “anomaly phase”. This is where price moves against the predicted ADL levels in a way that seems counter to expected price reaction.
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Please note that sometimes these moves happen when extended momentum carries a rally or selloff beyond an ADL predicted peak or bottom level. Sometimes the markets break higher or lower before the ADL predicted system triggers. The bottom line is that our ADL system is suggesting volatility and a deeper downside price correction will happen within the next 30 to 60 days – prior to the November 2020 elections.
THE BIGGER PICTURE FOR METALS & MARKETS
Attempting to put all of this into a bigger picture conclusion for our friends and followers, we believe the upside price trend in the markets is the dominant trend right now. Given that basis, our ADL predictive modeling system is suggesting the upside price trend will likely end within the next 20 to 30+ days, peaking near 28,925 then immediately entering a big downward price correction. We believe the continue upside price move will be more of a sideways price advance – possibly setting up into a Pennant/Flag type of setup where moderate downside price rotation will create more uncertainty for traders/investors. This will probably not be a fun time for long-side traders as the risk for 4% to 8% rotations in price will be very real.
Still, from a trader’s perspective, this upside price trend, and the bigger downside price move setting up in November/December 2020, presents very real opportunity for huge gains if you know how to time these moves and prepare for the risks. Right now, this market and the profits therein are fantastic opportunities for skilled technical traders. As we suggesting way back in 2018 and 2019, 2020 and 2021 are going to be incredible opportunities for skilled technical traders.
Be sure to read the other research reports we issued recently, especially this week’s research on Gold & Silver price expectations for 2020/2021 and our July 29, 2020 report on other Technical Patterns we see forming in the markets.
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Stay safe and healthy, and have a great weekend!
Chief Market Strategist
Founder of Technical Traders Ltd.
NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.