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October 31, 2018

Volatility Report October 31, 2018

S&P ENERGY SECTOR

Looking at XLE and $IXE are presenting trading opportunities seen as low risk, let me explain.
This S&P Sector provides exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries.

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October 29, 2018

Contrary Thinker Market Review

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October 23, 2018

Market Timing is Dead

If irony evades you, you are in the majority, heads up.

Contrary Thinkers know,” the market programs the investor to do just the opposite of what he should be doing.” Contrary Thinkers also know that investors are not hard-wired to fail at achieving alpha, like so many others, would like you to believe. Its all a matter of being a Contrarian. Read More

October 19, 2018

MarketMap™ 2018 Change of Trend Dates

Bull market peaks that occur in December or January produce a seasonal pattern that repeats itself…Based on this seasonal pattern, if we see a top here in the middle of January, it will be followed by a series of Annual size One Day declines culminating on August 8 and October 19 with panic days caused by national security threats. pg3, issue #1

Today, the breakout by implied volatility on the Russell will continue, after this pause, the market – along with the others, has at least a deep test of the most recent low instore. In this L-T chart, you can see how the market followed through lower after the initial surge by %BB-VIX.

The other factor here was the feel of the panic low when it happened on October 11. It did not have the same unabashed smell of fear at the bottom. That comes from experience, but from an empirical point of view, the media was not screaming blood in the streets as they did in February and like all another critical low. Instead, it had that unassuming no one is paying attention first leg down of a bear market.

The TEM – as “Volatility Reports” pointed out – did reach a panic low reding. Our investors and traders can take such an event to the bank on a short-term basis it will lead to a choppy market until the next TE, same way as saying the background permits a change of trend.

Great and Many Thanks,

Jack F. Cahn, CMT
A Contrary Thinker Trader Since 1989,
Copyright 1989-2018

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. 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.

NO WARRANTY / NO REFUND.TMT 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.

 

 

 

 

October 17, 2018

One day wonders dominated in 2008 & 1932

Based on the evidence this is what I know

In the wake of the extended bull market since November 6, 2016, and more recently the advance from the April lows it will be hard to resist bullish actions the day after a 500 point rally by the Dow.

Read More

October 15, 2018

MarketMap™ 2018 Annual One Day falls (AODf)

The 8.85-year Cycle

Just like any relationship, anniversaries are important to the market, and many traders know it may cost them if they do not recognize these occasions. As a nation, there are days we will not forget, like 9/11. Just like a rock thrown into a still pond, the effects repeat over time.

The same big splash effects happen in the market, and it does not forget. Since 1885, some ten major DJIA AOD falls (≥ -3.60%) occurred between September 10 and October 31.  These are sizable price events.

There are many more than ten referred to above when you consider declines in the one-day class that are less than the 3.6% but happen with a negative geopolitical news or media event.

MarketMap draws many parallels to the 1972- 1974 period based on the events from 1973 (9-year cycle x 5) this week is the anniversary of the “Arab oil embargo” among others in the 9-year repetition.

While MarketMap came into the year headlining “Geopolitical Security threats will precipitate financial distress” it is noteworthy that the real-life headlines read “Saudis threaten retaliation after Trump warns of ‘severe punishment’” for the suspected killing of a self-exiled Journo, Jamal Khashoggi, one of Saudi Arabia’s most prominent journalists.

However, what has become the new normal in the last 18 months is nothing ever happens, the problems simple pill one on top of the other.

However, cathartic market action in the current timeframe may lead to a clearer vision of what the future has in store.

One of the “among others” referred to above is the weekly long bar low in the 3rd week of October, highlighted in this chart. That big splash in the 2nd and 3rd week of October 2000 was a 12.% decline to the intra-week low. The week of October 20, 2000, declined 6.2% before putting in a mini panic low to recover.

The dates that come up for an AOD fall are today, the16th or the 17th. They set up as panic days from open to close. The longest bar of a move tends to be the last bar of that trend. The long weekly bar that ended the move in 2000 was 6.2% the one that precedes it was 5.8%, for example.

Thus far, since the October 3 peak, the biggest decline is only 3.2%. Exceeding that daily range will suggest a low is nearby, and MarketMap will look for cross-checks to confirm a low. Also of note here, the AOD decline in February was 6.9% and in a period of great extremes, in this era of the “tremendous” where anything is the “probably the greatest ever done,”  and after 2017 a year of the lowest volatility on record, expecting an AOD decline exceeding the 6.9% this week would not be a surprise.

The scenario has not changed: risk/reward favors selling with selective long V hedges. A low here in the latter half of October followed by a failed rally into the election with another decline into the COT dates mid-November. There is the potential of an alternate or second AOD decline hitting on or about November 23.

 

October 14, 2018

The New Paradigm in Risk Management is Direction Neutral

Almost everyone’s approach to trading/investing is forecasting price direction and calculating support and resistance for risk and reward.

This method looks at context first to judge risk and reward, based on market dynamics.

Here is what I mean by “direction neutral” and it does not matter if you trade mechanical strategies or trade a plan off visual indicators. The only difference is who (or what) is seeing the data stream.

To drive home the significance of this idea you need to contrast it to the industry benchmark. One of the pioneers of systems trading -Robert Pardo – in his original text said the following:

“Let us consider the plus side of the discretionary trader. It is quite simple. The biggest plus is that, to date, I do not believe that a systematic strategy has yet been created that equals, let alone exceeds, the performance of the greatest discretionary traders.”

I accept this as true that a robust trading system or plan will not make anyone rich, and that may be one of the reasons why you trade visually with discretion and not with systematic signals.

In other words, a trading plan or a system – at least the way Bob developed them – are statistically robust and in practice generic. They are designed to deal with all the major conditions in the markets going back over the longest period as possible. They are meant to provide the trader with an average winning trade each time he takes a position on a regular basis over the long term.

This goal of a trading plan or method is the heart and soul of the system trading school of thought that the industry is happy with and many traders do well at. Furthermore, it is likely your goal to make an average amount of money each day or week as supplemental income.

But as Bob says himself in so many words about system trading, it can be good, but not “GREAT.”   He goes on to point out the following:

“Proof of this concept is available by the mere consideration of a short list of some of the household names of the greatest discretionary traders. This short list of the greatest would include legendary billionaires such as George Soros, Paul Tudor Jones, Bruce Kovner, and T. Boone Pickens.”

You can’t argue with that, right?

One of the legends I study is Stanley Druckenmiller, and it is his notion of risk management that I set out to understand and replicate. As it turns out he did not have a corner on the idea, it goes back 100 years and in my lifetime cuts across all of the legends I am familiar with, that “the best risk management is not to take a risk at all.”

Traders like Jesse Livermore spoke about his first principle that big money is made by the sitting and the waiting, not the trading. Waiting until all the factors are in favor of his trading strategy before making the trade.

The modern-day hedge funds control risk by not taking a risk, but once everything is 100% correct based on their comprehensive system or trade plan checklist, they enter the markets and, in their words, “go for the jugular.” In other words, they leverage up and maximize profits.

It is easy to understand, once you cut through what the retail industry and the media publish every day, overlooking the above idea, ignoring or considering it trash. Our even seeing it regarding transactions or Vegas type of gambling, which is the opposite of taking no risk!

Everything the legends do is just the opposite of what the industry promotes, their idea of a trade plan. They only pay lip service to the great ones, when you think it through.  But once you take to heart what they say and what it means to implement you know it can’t be transactional or “you have to be in it to win it.”

The key rule of risk management is to avoid risk, do not take on a position until everything in your model is in your favor. A key rule of opportunity management is once you are in a position, you go for the gusto; you leverage up to maximize your profits.

To execute these two key rules, you need a strategy to get you in and out of the market profitably, the basic trade plan if you will. We have all seen strategies that work. There are many, hundreds of them that are sound.

Key number two is a governing model to tell you when to trade the strategy and when not to trade it.

Like I said above, “no one else talks about this method because no one else has my tools.” But I will rephrase because I assume others in the bastions of Wall Street and behind the boardroom walls on La Salle, that traders running hedge funds have a similar model.

Here is a Long Volatility Example

Regardless of how it is measured volatility reflects the difference between the market as we imagine it to be and the market that exists. It is that tension our model -TEM- seeks to measure its extremes and its outcomes.

If above-average performance is achieved moving between short and long volatility exposure, we will only attain that edge if we relentlessly search for nothing but the truth. Otherwise, the truth will find us through volatility.
Here is an example of waiting for the 100% set up. The overarching matrix of engagement is our Technical Event Model (TEM).

One reason why a few will ignore this idea is they doubt they will ever find a method that gives them 100% certainly before they get into the market.  This doubt is imbued into all interested parties no matter what side of the desk they are sitting. It is in every sales and marketing piece that hits the airways. The 100% certainly makes the point but in the real world mark it down to 99% or whatever level gives you supreme confidence.

These numbers to the left will make sense relative to the above approach using TEM. The annual results are from a short only breakout scalping system that implements the Turtle money management method. It is easy to see that the strategy had two good years 2008 and 2018, both high volatility years and both preceded by signals provided by TEM that the year

would be a high volatility one.

However, if you assume you have to “be in it to win it” trading the system blindly, it’s a long time between drinks and a little bit of a bumpy road. In the 14-year history, there is a $53,000 drawdown. So, if one uses negative thinking and assumes poor timing, then the drawdown is a certainly. Given the drawdown, a capital manager would need $1,000,000 in funds to have the risk limited to 5% +/-.

Again, taking every trade, you would expect to pick up at least one year in ten of $200,000 or a 20% return on the account. Now, what if you have a Macro Filter like TEM that tells you when to engage this long volatility strategy?

Going into 2018, TMT’s January 18 MarketMap™  suggested the use of this exact system.  Here is how the year to date would have performed after $32.00 a trade cost to achieve the $243,528.00.  The strategy has the filter embedded in the code and you can see it keeps the systems from trading from June through August. 

The first thing a risk manager will see is the loss in May, on a million-dollar account, is a palpable 1.6%.

However, the successful fund manager needs more than one opportunity a decade, isolating one or two a year would be adequate.

ContraryThinker’s job is to provide opportunities for its professional’s advisors and managers. For all the liquid markets on either side of the trade.

ContraryThinker is always looking for the truth, nothing but the truth.
Contrary Thinking Starts Here

 

Great and Many Thanks,

Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2018
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. 800-618-3820 or 25/1 Poinsettia Court Mooloolaba, QLD Australia 4557 614-2811-9889

— Contrary Thinker 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.
— Contrary Thinker 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.

NO WARRANTY / NO REFUND. Contrary Thinker 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.

October 14, 2018

Volatility Report October 15, 2018

Momentum Surge in Volatility

Looking at the CBOE perceived risk data as well as the long volatility futures ETFs (bearish investment vehicles) across the four major indices there is a momentum surge. Our chart on the left of the 3Xbull S&P ETF gives a clear picture of two failed tops at all-time historical highs followed by breakdowns. Following January peak, the February/April low pivoted when %BB-Oscillator was a divergent overbought long volatility ETF “SPXU”– right-hand Our Bollinger band oscillator is not yet at an extreme suggesting more decline to come.

What else is clear is %BB SPXU never moved above .382 during bullish trends. Looking back over the complete history of this bear ETF %BB-Osc only moved above .382 when the market moved into consolidation at least or a meaningful correction. With that being the context of the market now on an I-T basis, expect more decline.

Bottom line is our measures on V have surged past a point that implies follow through or lower prices for the major averages.

October 12, 2018

S&P Banks & Brokers

What the Bell Weather is Saying

While the small-cap leadership is taking a hit the key industry to the overall health of the financial markets is not getting too much attention.

The first thing you notice when looking at a long-term chart is the recovery from the ’09 low has not exceeded its historic highs in 2007. Such non-conformation with the major indices from the industry that is the engine room is a bearish sign, which is just the start of a running list of failures and sells signals.

The lower high it was able to achieve in January failed to hold in long-term (L-T) overhead resistance and again in September. On an I-T basis the XLF failed three times to break out above its resistance.

In the above chart you can also see the Elliott Wave count supports the bearish outlook with a leading digital triangle for the first leg down; followed by a 62% retracement for wave 2, a typical relationship. The wave two ended in our fixed resistance zone on 9/20, which is not accidental.

Momentum on an S-T basis measured by RSI has reached an extreme bearish reading that in every case this decade has to lead to a more decline.

A look at the monthly chart has our Bollinger Band oscillator breaking down, a technical event that leads to more decline.

Volatility Model (Technical Event Matrix)

The rally into the September peak was on panic buying as measured by out Technical Event Model. Emotional behavior in the market always has a high price to pay.

The volatility background supports continued monthly range expansion (TEM Rule #4) which projects a price low at or below 25.50, another 4% from here. The model sees the current trend as persistent and only on a short-term basis is it in a panic mode. It is only this latter bit that can suggest a near-term rally.

This sector is a bell weather for the long-term direction of stocks. Keep in mind that our call for another 4% decline from here is modest. If the sell signals pointed to above take prices below that 25 price level, the inference fits with our longer term bearish

Long Volatility  ETFs

Here is a bear ETF on this sector.  Prices are moving out of a weakish wedge formation. If the sector over the long term get back to its 2016 pre-Trump levels it is looking at 55 +/-


 TEM plugin is available for TradeStation

and NinjaTrader platforms, individual trader rates still apply.

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

Jack F. Cahn, CMT 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.

–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.CBI 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.

October 10, 2018

Trump and his tribe’s last line of defense is breaking

To be a public servant and NOT think the fourth estate will look at one critically, is more than naive it is dump thuggery. To be so unconcerned that no one would find out who one is and still run for the most powerful position in the land is worse than arrogant. It is more than a total lack of self-consideration and that of the family it is foremost an utter disregard for the country and the people one’s supposed to represent.

From where I sit in sunny Australia, the outcome of this conceit will be more than a “national nightmare,” like we had in ’74 with Nixon.

No matter what the cynics say, when one runs for public office – it is not the deep state that will realign him into a law-abiding citizen even if that entails one going to jail.

Rather, it is the rule of law- a nation of laws – that will put the one on the straight and narrow and it will be the fourth estate that brings it to the light of day.  And no matter how much that one may think his money will buy a legal team with entitlements to due process, there is not enough wealth to rally such an array of diverse legal experts. Ironically it certainly would take the entire Department of Justice for that.

How one deals with stress is the key here, and the more successful someone is, the more challenges he or she will have, so when something goes wrong, well like they say, “the bigger they are, the harder they fall.”

What Trump must deal with is formidable, it will ruin him financially.

Robert Mueller’s Russia Investigation, Manafort cooperating -Federal

Obstructing Justice firing James Comey regarding Flynn

Trump lawyer Cohen pleads guilty Campaign finance law, hush-money paid to Stormy Daniels, et.al

Russian money laundering Weisselberg CFO and Cohen cooperating So. District/New York

Violating the Emoluments Clause of the U.S. Constitution – Federal lawsuit

Income Tax Evasion- Federal and multiple states

Estate Tax Fraud, starting with the 400 million pilfered from father’s estate to build the appearance of a self-made real estate empire

Trump charitable foundation New York civil and criminal actions for self-dealing by the Trump Family

Sexual harassment allegations.

History and cycles provide the repetitive form of this recurring disaster. The above should be no surprise watching the 8.85-year cycle to consider Enron’s bust worth about $70 billion during this same cycle in 2000 (9 x2).

Even though the estimated worth of Trump is only 3 billion to 10 billion – depending on who one believes –  in comparison to Enron, his financial undoing has far-reaching tentacles including his family’s assets and far-reaching implications with the institutional connections of the family. Add to that his position in the office of the president of the United States, the threat of his financial ruin will have its repercussions.

“What the market has now is the sense that Trump is a fraud and he is financially under threat; but what they have not yet realized is he will not go quietly, he will bring down everything in harm’s way when he goes.”

Richard: When the fall is all there is, it matters.” ― James Goldman, The Lion in Winter

The best technical minds are Contrary Thinkers, starts here

 

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