The warning signs that a market crash is looming are becoming louder and more frequent. Despite this, most market participants are behaving like it can never happen. In fact, bullish trading is pushing the markets to new highs on an almost daily basis. The warnings are seen, heard and then ignored.

Join the few who will take advantage of what’s about to happen. The same few who profited handsomely when billions were lost in the last global economic crisis almost a decade ago rather than those who simply follow the herd.

For most people these warnings are like the graphic images printed on today’s packets of cigarettes, they spell out the dangers and yet all the same people are still smoking.

Warnings about an impending market crash are being made by people who predicted with considerable accuracy in 2006 and 2007 what was ahead when the US sub-prime mortgage market collapsed and triggered the global financial crisis.

The one thing these analysts can’t predict is an exact time and place for when the crash will happen. It’s the same reason people continue to smoke; nobody can say with certainty the number of cigarettes required to kill a person.

So, trading continues regardless until the day the sudden dramatic drop in prices exceeds the 10 per cent threshold that officially marks the point that the crash has arrived.

Just as smokers only decide to stop when the physician says: “Mr Smith, I regret to inform you that you have lung cancer.”

Swiss investor Marc Faber, also known as “Dr Doom”, predicts that stocks are set to plunge by 40 per cent or more. Mr Faber, the editor of ‘The Gloom, Boom & Doom Report’ recently told CNBC: “We have a bubble in everything.”

His caution is echoed by Nobel Prize-winning economist Robert Professor Shiller who has urged investors to tread cautiously because market valuations are at “unusual highs”.

In a recent interview with CNBC, he said: “We are at a high level, and it’s concerning,” highlighting that the only times valuations have been higher were in 1929 and 2000.

Mark Zandi is chief economist at Moody’s Analytics. In August he joined the chorus of analysts preaching caution after determining that the stock market is overvalued.

In an article in Fortune he said: “The stock market is due for a significant correction” adding, “stock returns in the next several years will be very pedestrian if they increase at all.”

Last month HSBC issued a Red alert warning. They’re looking at two key levels: 17,992 in the Dow Jones Industrial Average and 2,116 in the S&P 500.

“As long as those levels remain intact, the bulls still have a slight hope. But should those levels break and the markets close below, which now seems more likely, it would be a clear sign that the bears have taken over and are starting to feast,” said head of technical analysis Murray Gunn. “The possibility of a severe fall in the stock market is now very high,” he added.

However, according to Bill Blain, a strategist at Mint Partners, this time bond markets will trigger the mayhem.

According to Blain, stock markets don’t matter. “The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market,” he said.

“I’m convinced bond markets are the real bubble we should be watching, and it’s going to start in high yield…”

Blain’s opinion on a bonds inspired crash is echoed by Niall Ferguson in his piece in The Sunday Times this month.

Ferguson was warning about the sub-prime mortgage crisis over a year before the crash occurred. He spoke publicly about it on many occasions and in his book The Ascent of Money spelling out the dangers in graphic detail, which was published just as his predictions were coming true.

He sees a bonds sell off as a result of a series of events that will bring about the next economic crisis.

Ferguson firstly points to the effect of interest rate increases by the big four central banks — the Fed, European Central Bank, Bank of Japan and Bank of England — when the rate of economic expansion has already started to slow.

He explains: “History shows that monetary tightening acts with long and variable lags. But it does act, often on stock markets.”

Ferguson also points to global wage and inflation increases as the second contributory factor as we approach a demographic inflection point where the ratio of workers to consumers has peaked.

This has led Ferguson to the conclusion that the end of the 35-year bond bull market is imminent. “Bonds will sell off; long-term rates will rise. The question is whether inflation will increase as much or more. If not, then real (inflation-adjusted) interest rates will rise, with serious implications for highly indebted entities.”

He points to two big economies, China and Canada, which are in particular trouble. You should probably add Australia to that list given its level of connectedness to China.

Despite being described with the same words, no two financial crises are the same. The next one will differ from the last one, that’s why they are so hard to put into an actionable timeframe. But the inevitability that there will be a next one increases as the monetary medication begins to be withdrawn, which makes the need for taking the right measures now all the more important.

FXB Trading’s experts are equally convinced that a significant market correction is imminent. They’ve devised a strategy to profit from the situation as many notable forward-thinking analysts did ahead of the 2008 sub-prime mortgage crash in the US which then caused the subsequent global financial crisis.

In the 2008 scenario their investment returned ratios of between 1:10 to 1:20. FXB’s traders will replicate the trade, but will also hedge their position.

Until the market crashed in 2008 those US traders were in a losing position, but by hedging it is possible to avoid losses until the crash occurs.

Traders and investors everywhere are spooked by volatility whenever it rears its head. We hear about it every time stocks take a tumble, even if that doesn’t happen so much these days. So the Investopedia definition I’ll show you is probably the last thing they’re thinking of.

“Volatility: A statistical measure of the dispersion of returns for a given security or market index. Commonly, [emphasis mine] the higher the volatility, the riskier the security.”

Now, that doesn’t sound so scary, does it?

Volatility is nothing more than a statistical tool that shows how much a stock goes up or down. Yet many see volatility as a bad thing, because they equate it to risk. And risk is bad for us, right?

Well, sometimes risk is bad. But to the smart investor, volatility is a difference maker. Because without it, you might as well just buy a CD. More importantly, you have zero chance of beating the market. And where’s the fun in that?

That’s right: Without volatility, you don’t beat the market.

That’s why one of my 10 Trading Commandments is “Volatility is a trader’s best friend!”

Now, let me prove it to you…

Directional Volatility Takes You “FAR” as a Trader

Think about volatility as merely the distribution of a stock’s returns. The wider the distribution, the higher the volatility.

And the higher the volatility, the more the stock is moving, and that means we’re getting paid if it’s moving in our direction.

To beat the market, especially using options, we want volatility on our side. I call it the “FAR Principle” – fast, aggressive, and right.

I want a fast move to happen before my option expires. I need an aggressivemove that I can leverage with an option. And I need the move to be in the right direction to agree with my call or put.

Having volatility in my corner, along with picking the right direction, is how I (and you) get paid as an investor.

How to Find Volatility Before It Happens

Understanding how volatility leads to profits is one thing. The key, though, is getting on board a stock before the volatility hits.

Watching a big move from the sidelines is no fun at all; you need to learn how to spot volatility before it happens.

One of my favorite indicators to identify potential volatility is the Bollinger Band.

This indicator measures volatility by looking at the distribution of price changes over a certain period.

I won’t get into the details here – you don’t need that stuff to start using it in your trading and investing. It’s enough to say that a break above the top Bollinger Band is often followed by a volatility rally, while a move below the bottom band often initiates a volatility sell-off.

But I go beyond these breaks above or below the bands. I also monitor the distance between the top and bottom bands to tell me when the volatility surge is about to happen. The tighter the bands get, the higher the probability that a volatility breakout is coming. Monitoring the distance between the bands positions me ahead of the wave of a volatility breakout.

But once we have our read on the Bollinger Bands, we still need to answer one more question – a big one, at that: Will it be a volatility rally or sell-off? This is where a few other technical tools come into play.

While keeping it simple is often the best approach, I tilt the scales in my favor by adding two straightforward technical criteria to find bullish FAR moves.

First, I want a stock that is trading above its 50-day moving average. Second, I want to see the 50-day in an uptrend. Combining those criteria with a break above the upper Bollinger Band increases the odds that a bullish volatility rally is in the works.

Here are a few stocks I’ve already analyzed for you, so you can try this yourself…

Adobe Systems (Nasdaq: ADBE) Breaking Out

Let’s look at Adobe Systems Inc., a stock that I feel is currently on the verge of a volatility rally. Here’s a chart of ADBE shares showing the Bollinger Bands andthat 50-day moving average.

• This week, the distance between Bollinger Bands is approaching an annual low. This tells me the stock price is coiling like a spring, getting ready to make a big move.
• The 50-day moving average is in a very strong uptrend.
• On Wednesday, ADBE rallied well above the 50-day and broke above its top Bollinger Band.

Based on these bullish technical developments, I’m looking for a volatility rally that will push the stock above the $185 level over the short term.

If you want to ride along and make some fast money, consider the February $180 call.

There are all sorts of ways a stock can tell you that it wants to make you money. This is just one of them.

Next week, I’ll talk about how I use what they call “short interest” to put the trading odds in my favor… and big profits in my account. Until then, make volatility your friend; you’ll love the gains that are possible.

Before I publish my market outlook for 2018 in the days ahead I thought it might be useful to recap some lessons learned from 2017. While I want to focus on technical considerations some larger market context first is equally important.

The biggest mistake bears always make, myself included, is underestimate the sheer recklessness of bulls. They keep raising the bar higher and higher, get everyone positioned long and when the construct ultimately fails they beg for bailouts and artificial liquidity comes in to save an industry that is 100% reliant on convincing retail to put money into the system. This may seem a harsh assessment, but this has been the script for the last 30 years as we’ve transitioned from one market bubble to the next.

Bubbles are notorious for getting people sucked into believing things that are absolutely unrealistic. Multiples get expanded to high heaven on projections that never pan out. Every. single. time.

In this context it’s actually quite easy to be a bull. Keep raising targets, always be optimistic, and when something breaks shrug your shoulders and say: Hey what are you gonna do? Stuff happens, but the Fed will bail us out. And the cycle begins anew.

It’s a dangerous game for investors as Wall Street will look right for years and complacency breeds more complacency as bearish voices are ignored as they look wrong precisely at the time when they are the most right.

Take 1999. Bears were completely wrong, but also entirely correct. The bubble run-up was pure fantasy, but it kept going and going until the rug got pulled:

Similarly in 2007 nobody gave you warnings, and Wall Street kept pushing price targets higher for 2008:

And people got hurt big time every time.

The then predictable response: We need bailouts, must get rid of mark to market and the Fed obliged with QE 1, 2, 3 and global central banks joined the foray. And this has been the running game for over 8 years now:

…..continue reading more charts and analysis HERE

After holding onto huge, unprofitable long positions for months, gold and silver futures speculators are finally giving up and bailing out, while commercial traders (who take the opposite side of these trades, since every long requires an offsetting short) are closing out their shorts at a near-record pace. 

Here’s the gold data for last week, courtesy ofGoldSeek. Note the massive shift by speculators from long to short. They’re not in balance yet (where longs and shorts are equal) but they’re heading that way fast. 

In silver, they’re just about in balance, which is historically about as far they usually go:

Here’s the same data for gold in graphical form with the silver bars representing speculator longs and the red showing commercial shorts. Note the long plateau followed by a rush to the middle, which is where rallies tend to begin. 

One more week like the last two would put this indicator in screaming buy territory, but even if this is as far as it goes it’s still positive for January – which is a seasonally strong time for precious metals in any event.

For individual speculators, that means the junior miners are – again based on this one indicator – pretty good trades for the next few months.