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September 26, 2018

Nikkei and Bitcoin two to Watch

Volatility Report September 27, 2018

Nikkei 225

I wanted to focus on the NK for one simple reason; it is making a major pivot high in the current time frame. As such it has spilled over implications for the reaming stock market that are making new all-time highs in the same period.

The weight of the evidence is clear, but I did not hear anyone pointing to the recent spike up by the index before it occurred, and I am not hearing anyone now calling for a major peak. The chart pattern is a classic horizontal triangle, which based on EWT only occur in 4th of B waves. Here it is taking place after nine years of advance in a 4th wave position.  Based on 100 years of observation, the thrust out of the pattern is always a high rate of change affair that equals the widest high to low points in the pattern.

Math would be from “a” top “b” added to “e” for a target of 24.762. Or a more ambitious calculation is from “Three” to “a” added to “e,” which puts the NK near the high side of its long-term resistance zone at 25,328.00

Furthermore, based on the same historical observations, the “post triangle thrust” is the end of the trend not the beginning of a new one.

What supports these Amercian facts is the fact that our volatility model – the Technical Event Matrix – is registering panic buying, which is nearly always (99% likely) at a change of trend. In this case, the best case for the bulls is from up to sideways before the market flips on the trend followers. This FOMO is on a short and intermediate basis.

Given our MarketMap COT dates for the Dow coming in here at the end of September, the first phase of a cyclical bear market is expected.

Bitcoin

Triangles imply thrust, high ROC moves.  From a trading opportunity point of view, Bitcoin sets up for a straight-line trend after it breaks out of the wedge formation seen here.

For swing traders, the use of a band breakout, or a moving average crossover should get you into the trade. Use the largest width of the triangle measured from the last pivot inside the formation for a target.

This chart is the NYSE Bitcoin index, but the coin itself and the futures have the same pattern calling for a $4,500 to a $5,000 swing.

For Long Term investors: given that Bitcoin is a leading example of speculative exuberance and was a foreshadowing of the Dow peak in January, I suspect it will be a leading index of the Dow today.

If I reverse engineers this from the bearish outlook for US Stocks, expect a 4,500 dollar move to be a spill for this market going into the end of the year.

Furthermore, given the patterns are repeating here, if we use the Chinese markets as a similar pattern the expectation would be for a crash in Bitcoin prices.

A move to new lows, a move below 5,883 on the NYSE bitcoin index, should lead to lower prices; and this could lead the US equity markets into their bear markets.

Commodities with Related ETFs

Crude Oil

Tradition cycles have always phased the bull/bear directions of the markets from bonds to stocks to commodities to descending bonds followed by stocks followed by the commodities.

The turning point map for Crude Oil seen here syncs with additional independent modeling forecasting further uptrend by the commodities in general and oil imparticular.

 

The bar chart of the Crude Oil futures has traced out a 10-point wide triangle where prices have broken out. A measured move targets 80.00.

The post triangle thrust fits the Maps change of trend dates with a peak in the next two or three weeks.

S&P Sectors with related ETFs

Transports
  1. The transportation index has failed to hold the break to new highs.
  2. A head-and-shoulders top has formed with a breakdown confirming the top.
  3. Volatility measures allow for the trend to follow through.
  4. I-T target 10,000.

Oil sector (USO)
  1. The shares are following similar patterns to the underlying crude oil futures, which remains bullish and trending.
  2. The monthly sequence of Technical Events is textbook. Moving from a panic low extremely high volatility, a TE#1 (red vertical dashed line) to the end of base building marked by extremely low volatility, a TE#2 (green vertical dashed line) into the current time period with a TE#3 (the cyan blue dashed line) making the low volatility laboring trend.
  3. While the longer-term uptrend is maturing, the shorter-term backdrop is an extremely low reading of volatility. A set up for a short-term run at new recovery
  4. The middle daily chart shows a horizontal triangle breakout. Like the crude oil that targets $80.00, USO targets 50 – 17.00

Offshore Stock Averages with related ETFs

FTSE (PRF)
  1. Like the Dow, the major UK average made new highs at the same time. Unlike the Dow, however, it was not able to hold its breakout. Unless there is a quick recovery, the I-T has turned lower.
  2. The failure to breakout highlights here is an I-T sell signal with targets that are 5% to 6% lower
  3. The new high was emotional on panic buying signaled by our volatility model’s technical event #1. On the I-T model, the uptrend is low energy and laboring.

Great and Many Thanks,

Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2018
http://www.thinkingmanstrader.com
www.ContraryThinker.com coming soon

Thinking Man’s Trader 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. www.ThinkingMansTrader.com, 800-618-3820

— Thinking Man’s Trader does not assume the risk of its clients trading futures and offers no warranties expressed or implied. The opinions expressed here are my own and grounded in sources I believe to be reliable but not guaranteed.

— Pricing is subject to change without notice. My indicators and strategies can be withdrawn for private use without notice, at any time.

–Thinking Man’s Trader does not refund policy all sales are the finale.

–Trading futures and options involve the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options.

September 25, 2018

New Highs Majority see a Breakout

Stock Index Futures

On 9.12.18 in the TMT community, I posted: “The TEM set up gives way for the bulls to kick off an uptrend here with a Rule #2 background for the short term. If they do not take the opportunity, the bears should have their way. ”

The point of our volatility modeling was the market’s ability to trend. It did and made new highs in the process.  In the chart above the set up preceded “ii” on the chart.

The broader averages and big caps are now entering the late September COT time windows pointed to in Monday’s “Volatility Report.”

The Dow futures chart here provides the same picture of the S&P, an ending Diagonal Triangle.  It remains a valid pattern unless it breakouts above the pattern. From here what is expected as dull trade, a small decline for “b” and a small rally for “c” to finish off the 5th wave.

We often see a very sharp reversal after completion of the Ending Diagonal Pattern especially when EDT is a bigger wave (5) of the main trend, which is the case here – it is an ending fifth wave from the 2009 low. Therefore its effect will not be muted as if the pattern was in an inner wave (v) of bigger (3).

September 24, 2018

Volatility Report September 24, 2018

Interest Rates

  1. Bonds made a major reversal head and shoulders top, with prices breaking below multiple necklines. The very long-term chart of interest rates at the same time has reversed its secular descending channel.
  2. True North on both a short and intermediate basis is short the markets, and prices are now testing long-term support zone at 143 to 134. The head and shoulders top projects 108 ½.
  3. Volatility modeling for both S-T and I-T provides a background that supports a high rate of change trend – refer to the blue higher boxes on the weekly and daily charts. Given 1 and two above the bias is to be a seller.

Precious Metals

Gold is in a clear downtrend with no long-term low likely here. The bull market that began with the 9/11 terror attached ended in 2011.  Volatility Reports expects new Geopolitical events over the next two years,  yet gold is not discounting them at this point and remain an “unknown- unknown.”

  1. The market background supports a high rate of change trend with our model – Technical Event Matrix – in sync for all three time-
  2. Strategies are on sell signals, being supported by the TEM setup.
  3. The daily chart on the right uses the I-T support and Resistance zones to project next likely lower extreme to be 1140 to 1164, which suggest a break of long-term support at 1121.00.
  4. There is no clear panic at this time. Hence the likelihood of a longer-term tradable low is a long shot.

US Dollar and FX

The bears jumped all over the recent weakness in the greenback, the majority being gold bugs. Their Intermarket relationships to support gold as a haven vs. USD does not hold water in the face of the longterm bearish outlook for the Eurodollar, and the carrying cost of gold.

The contradictory relationship worked from 2001 into 2011 but has stopped with the base building of the buck from the 2008 low to date.

  1. It falls into line with “hyper-correlation” that volatility will affect all the markets at the same time. So it is no coincident that our volatility modeling – is in sync across all time frames and supports a dynamic trend from here.
  2. The Intermediate-term trend is up, prices remain above long-term averages and the I-T S&R zones – right-hand chart – are stair-stepping
  3. Prices are in I-t support zone from 92.77 to 93.68, movements above or below this zone normally signal the direction of the next trend. This is especially true given the volatility background mentioned in #1 above.
  4. The wild card going into October is the expected Geo-political events, in a month notorious for market panics, our bias remains bullish on the USD.

Stock Index Futures

I will not rehash here MarketMap’s change of trend dates and their accuracy so far this year, please refer back to issue #1 dates January 18, 2018.

What I wanted to see after we called the mid-January peak and the type of decline that followed was a test of the January highs with a resurgence of the emotionally based optimism, that occurred in January.

On Feb 12, 2018, I pointed out: “Here is the background traders should expect now that a low is in place for the s-t to i-t.  ,…there is indifference reflected by the public and the media.  Buy dips is programmed into the mob’s behavior. However, smart money…uses the volume of new entrants to sell into.” Furthermore, “Typically, the news is still good, as prices retest the prior highs. Bullish sentiment quickly builds, and “the crowd” reminds anyone who will listen that the bull market is still deeply ensconced.”

I wanted to call it a déjà vu rally, which is only a test of the highs, a failed test. The market had its way and made new highs. An event, however, that negates nothing from a long-term risk management point of view.

The scenario was for the failed new high in late August early September, but as the January COT date was early by ten days. Now it looks like the peak will come at the end of the calendar month leading to a sell-off into mid-November.  Along the way Volatility Reports expects an AOD decline,

Dates for the expected AOD decline are 12-Oct, 17-Oct, and 22-Oct based on the January peak cycle in this century. The annual one-day (AOD) rise or fall is taken as the biggest percentage one-day DJIA movement in the year. For this measurement, the academic research started the year on March 1, and since 1885 some ten major DJIA AOD falls (≥ -3.60%) occurred between September 10 and October 31.

The small tech sector has put a top in, the NASDAQ and the Russell both climbed to new highs from chart patterns that are considered terminal moves.

This picture of the mini Russell futures provides confidence because it did as expected.  Refer to our publication on the Nikkei as it is the same pattern and measuring method.

The big cap stock has a little more to go on the upside along with the Nikkei. With that in mind, the background going into this rally was supportive. The Technical Event model signaled a TE #2 preceding the trend move higher by the Dow and S&P.

The chart of the S&P below illustrates how the extremes by %C and our measure of historical volatility – highlighted in blue – lead to a break into resistance and a trending move, which remains in force.

What is appearing to be a top like the January peak is the emotional buying, which is something smart money will not ignore.

Along with the unfinished wave count that will push this market higher, our measures on volatility area nearing readings of panic buying.

If and when reached, alerts will go out to subscribers.

The problem with the bulls waiting for a clear reason to sell is this is the vast majority point of view. Add to the fact that the majority of systems and strategies all have sell signals within the same price range when the signals hit it will be a rush to the exits.

Top capital managers are patient, they endure and wait. When they see a weakness when they are provided the liquidity to exit – given the current risk/reward measured, they will act, leaving trend following for the average.  Single day risk measured by the Dow is 2000 points and risk going into November is at least 4,000 Dow points.

S&P Sectors with related ETF

Twelves of the seventeen sectors we follow have long-term sell signals.

The leading FAANG stocks are following with topping formations. There are long-term sequential sell signals on Netflix and Google plus Apple, Amazone and Facebook are all tracing out head and shoulders tops.

The banks and brokers sector just hit panic buying, and prices are now in long-term resistance, which sets up its success or failure to sustain. Prices need to stay above 74 if the market planes to attempt a break to new highs.

The I-T volatility context supports a low V sustained and persistent uptrend, and the s-t v modeling sees buying into an emotional frenzy. Not what is considered good long-term rational buying.

Offshore Stock Averages with related ETFs

Excluding the Nikkei and the FTSE, the remainder of the foreign markets are in bear markets are finishing their topping process.  Value type investors are talking about buying China, but on a technical basis they are early, there is no sign of a panic low yet.

Our long-term strategy – True North – is on a sell signal for all the markets except the Brazillian, where it has caught a counter-trend rally.  The other Bric nations have completed ahead and shoulder top with the opening today breaking the neckline.  This breakdown was a news related event that is sending contagion worries throughout the news media.

The chart above it the oldest ETF on this market and has a risk to 17 – 18 or 25%.


–Trading futures and options involve the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options.

 

 

 

 

 

 

 

 

 

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