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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.

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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.

 

 

 

 

 

 

 

 

 

September 19, 2018

Dollar Doldrums to End Soon

The historical volatility context in general behind the greenback provides the essential foundation for a forceful trend.

Back in 2014 on these pages, we isolated the significant move potential of crude oil. We knew it was going to be an explosive run and all the trader had to do was trade the breakout – in either direction – and hold on.

When you look at the monthly, weekly and daily bar of crude leading into the crash in prices the Technical Event Model registered a rule #2 for all three time-horizons. On the daily chart, it went from Rule #2 to a Rule #4, which is also supportive of a trend via range expansion.

Today the TEM background for the Dollar is very similar, as you can see in the charts provided here.

Our strategies for the three different trading styles – long, intermediate and short-term – are not in gear, which is fine as the short term system will adjust of the long terms will. But it is clear from the charts our bias holing for weeks and months from here is bullish.

I am bullish and think 120 is a good target. However, let your systems take you into your position with the expectation of a forceful trend running 20 points or better.

September 18, 2018

Nikkei in a Terminal Move

Thinking Man’s Trader Report

in your mailbox September 14, 2018

After the February spill, it was unclear if the Japanese stock averages had put I a clear peak and kicked off a cyclical correction like the Dow and S&P. TMT had deemed the advance from the 2009 low the beginning of a new secular bull market that would rival the big bull run from 1950 into 1989.

That very long-term underpinning explains why the early 2018 spill did not take an EWT five wave structure, which leads our advisory to an I-T 4,200-hundred-point opportunity.

The first pop-up chart on this page is the NK last week. The chart on the right shows a large – multi-month horizontal triangle. A pattern that is resolved by a high rate of change (HROC) trend when prices break out of it. The left- hade chart depicts the TEM model on the weekly bar that supports an HROC trend with its TE rule #2.

I have labeled the daily chart with a bullish wave count however the move can go either way. This bias is where forecasters take too much pride in opinion, and a strategist mentality is more important. A breakout in either direction from here should get follow through.

Tuesday, September 18, the Nikkei made it clear. In right-hand chart from today, the NK is up over 600 points with new highs a few hundred points to go.

The middle chart makes it clear what to expect after an intermediate-term event #2 from the Technical Event Model. The daily chart in the right-hand window shows TEM now into panic buying with %C at an extremely low and directionality at an extreme high.

What is of critical importance is the breakout here, just like the small-cap break out back in July, it is the end of a trend not the beginning of a new one.  Every chartist I read is bullish on all the sectors that lead that small-cap breakout, and this is where being a contrary thinker earns its business.

Once new highs are made by the NK, a decline will begin following the same pattern as the mini Russell and the Nasdaq 100.

September 18, 2018

Rate frustration coming to an end

The 10-year and 30-year are breaking down

Bonds are coming off another S-T pivot high – triple tops plus one. This peak, however, was set up like the two peaks preceded by low perceived risk. The decline thus far has not increased perceived risk based on the CBOE data, as bond volatility has remained oversold.

Three more reasons to be bearish on T-bonds.

1. A big top was established with the monthly head and shoulder’s top.

2. True North strategy on a short and intermediate basis is short the markets.

3. The volatility background sets up like previous I-T peaks is followed by nice declines.

Our volatility model – the Technical Event Model – on both S-T and I-T  provides a background that supports a high rate of change trend, given the above our bias is to use short selling strategies.

September 15, 2018

The Bubble Indicator

 

1. Prices are high relative to traditional measures

2. Prices are discounting future rapid price appreciation from these high levels

3. There is the broad bullish sentiment

4. Purchases are being financed with high leverage

5. Buyers have made exceptionally extended forward purchases, such as of inventories, to speculate or to protect against price appreciation

6. New buyers have entered the market

7. Simulative monetary policy threatens to inflate the bubble even more.

We have pointed out number six above based on our modeling.

Our measures of volatility show that from October 2017 into the January peak the buying was based on fear of missing out FOMO. The Technical Event Model was in a sustained period of panic buying. Something that is normally an event not an ongoing condition. These late cycle buyers will flip out at the first sign of pressure on their account balance.

In fact, the February decline stopped right at their break-even level of these FOMO players; and from a long-term point of view our targets for the bear takes prices back the surprises Trump win in late 2016.

The chart here has they period of panic highlighted.

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Great and Many Thanks,

Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2018
www.ContraryThinker.com

— ContraryThinker 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.

–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.

NO WARRANTY / NO REFUND.ContraryThinker MAKES NO WARRANTIES, EXPRESS OR IMPLIED, On ITS PRODUCTS AND At this moment EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL CBI BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THE PERFORMANCE OR USE OF ANY PORTION OF ITS PRODUCTS.

September 13, 2018

Dump Stocks after the Election

“American’s should be very concerned and pay attention,” Bob Woodward, author of Fear-Trump in the Whitehouse.

Besides being a dyed-in-the-wool capitalist, I am an ardent independent voter as in R. Reagan/B. Clinton, so I feel fine publishing this brief. I have some nagging voices from the 1950s rule not to mix politics and business, but the observation here has no political bent.

My analysis has more factual foundations than popular conspiracy theories like the Lizard People, aka “Reptilians,” are Running the World, or the Attacks on 9/11 was an inside job, etc.

Along with the mollycoddling of the younger generations not to be afraid of risk to the arrogance in the pundit’s bullish pronouncements, I feel vindicated speculating about the powers that rule on Wall Street.

In 2007 it was clear to almost everyone that it was time for a white house change. Traditional thinking was the Republicans could not win in 2008 because a two-term administration seldom wins a third term for the same party.

Well, the Dems sense that as well, and on February 10, 2007, Barack Obama, then junior United States Senator from Illinois, announced his candidacy for the presidency of the United States. Along with Hillary Clinton, the polls did not look good for the Party of Bush.

Some say the powers that the Treasury’s connections to Wall Street in 07 pumped the market up in 2007 in the face of the growing sub-prime debt bubble to dump the news events going into the 2008 election. Their goal was dumping a bear market, one that turned into the WFC,  in the lap of the Democrats, believing if not hoping the Dems would not be able to deal with it. They almost got their wish.

However, in 2008-09, in the face of the calls for austerity by the Tea Party, the Dems used centralized sequestration, engaged socialism for big biz, and bailed them out. Yes, centralized ownership of banks and companies “too-big-to-fail” that brought an end to the WFC along with the Fed’s QE.

Well, the same Wall Street power faction may be in the play again today. With one clear goal. They know they cannot win in November, and the Trump Republican Party will be under attack from at least the lower house of the Congress with signs from current polling and Senator McConnell that the Senate can be taken back by the Democrats.

So the question is, can the “powers that be” (PTB), feeling their power coming under threat,  keep what remains of the bull market pegged at these higher levels? Because to help Republicans stay in power, the economy is the only positive factor they have to sell in the mid-term election.

Given Trump’s dismal approval ratings of 32-35% and declining, the market should be declining now in expectation of the regime change, and it is not.

Given the evidence’s weight, a secondary peak after the January 26 high should be happening in the current time frame, yet they (PTB) have the averages on a trade war yo-yo.

Now they are trying to push through more tax cuts to encourage more share buybacks to keep the market inflated.

At this late stage in the recovery, another tax cut would be like putting gasoline on the barbeque, again.

They plan to deflate the market – pull the pegs – after the November election when the Democrats win, giving the Republicans an excuse for the market hitting the skids. They can blame the Dems and use the market as their issue in 2020.

Since January 2018, there has been a very clear sign of a market top; we published the sell signal on the 26th of January.

My bearish view was joined by Morgan Stanley in early August 2018 when the headline was “Morgan Stanley: The biggest sell-off since February is coming, and it’s going to hit the average investor hard.”  Today, Ray Dalio’s Seven Bubble Indicators Are ‘Flickering But Not Flashing.’”  I am in a position to say they are flashing. I will post them on the blog shortly.

Contrary Thinking

The majority of analysts point to the A/D line in gear at the new highs and a perfect leading indicator of a top. Hence without the divergence, there cannot be a top.

What they miss, along with coincidental A/D peaks like January 26, 2018, among other issues, is now out of gear the S&P sectors are; and how it is only a handful of sectors at best that is holding up and forcing new highs.

What the majority is overlooking is the emotional state of who invested in 2017. This is one of the key factors in Ray Dalio’s Seven Bubble Indicators, has new a new group of buyers entering the market?  Without a doubt. 

Our volatility measures show that from April 2017 into the January peak, the buying was based on FOMC. The Technical Event Model was in a sustained period of panic buying. Something that is normally an event, not an ongoing condition. These late-cycle buyers will flip out at the first sign of pressure on their account balance.

In fact, the February decline stopped right at their break-even level of these FOMC players; and from a long-term point of view, our targets for the bear take prices back the surprises Trump win in late 2016.

What else is clear in a casual and random viewing of the financial news is two overwhelming ideas everyone with airtime agrees.

There is no reason to sell now because there is no clear reason to do so, and two, the clear reasons to sell are well outlined by them – whatever their rationale happens to be- but these events will not occur until 2019!  Literally 90% of everyone you hear on the major financial news networks.

The problem with playing along with the “one for all and all for one” consensus view of 2019 is when the trend does reverse, it will be every man for himself. When their systems give a sell – you need to understand all of the systems are subject to hyper-correlation – the majority will be hitting the door simultaneously, leaving the historical decline of 1987 far behind as new records are created.

Hard-Landing

The annual issue of MarketMap 2018 – dated January 18, 2018 – bottom lined it this way after the record-breaking low volatility year of 2017:

“The idea of record-breaking will continue in the headlines in 2018. It is only common sense to know this.  In each bull/bear cycle since 1974, there have been record-breaking price events. Each bull market has been bigger, better, and greater than the previous. Each new period contained record-breaking events from the number of consecutive higher close days to the most significant one-day advance in history.

The same has held for the bear market cycles.

Since 1974 I have never joined the doom and gloom mob calling for 1929 and worse.

However, both fiscal and monetary policy has painted America’s economy into a corner, a corner that has no alternatives that are positive to bail out the market and the economy when the next down cycle occurs.”

Since my pronouncement, the debt situation has become worse. The Treasury Department says the government is on track to have a total budget deficit of about $850 billion in the current fiscal year that ends Sept. 30, and the Congressional Budget Office predicts a budget deficit of just under $1 trillion in 2020. The market is in a debt bubble that is widely recognized and just as widely ignored, and as I stated above, the majority of pundits and media forecasters are postponing the day of reckoning into 2019, 2020.

I will simply repeat what I said 9 months ago; there will be no way to support the next downturn with tax cuts and spending programs due to a pre-existing Trillion-dollar funding need.

 

September 4, 2018

Majority of Sectors Topping Out

Except for a very few, the vast majority of sectors and the leading FAANG sector is topping out

 

Volatility Report Sector’s Table

Read More

September 4, 2018

Dow 30 Facing Increased Perception of Risk

The Dow 30’s inability to make new highs leaves it as a major non-confirming index.

Read More

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