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May 27, 2020

Volatility Reports 05/27/20 late bear rally into panic buying

World Market’s recovery looks old and feeble, TE#3.

The Euro Zone rally on Monday and Tuesday put this market into a resistance zone – aka at an extreme. While at the same time TEM sees the buying that put it there as poor or panic buying, TE#1. In other words the rally is not based on a rational basis and is not expected to hold.  Reversal below its new support zones as shown in the data windows on the left would clear the signal from any noise by the media.

The German averages as measured by the MSC iShares is in the same set up as the EuroZone. In a cluster of resistance on panic buying.  A context that should lead to a reversal in the short term.

 

 

 

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. 800-6183820 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.

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Trading futures and options involve the risk of loss. Please consider carefully whether futures or options are appropriate for your financial situation. Use only risk capital when trading futures or options

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May 26, 2020

Prepare For A Bear

 

What the market is saying is not noise but the relevant facts. You just need to look beyond nominal prices.

 

Prepare For A Bear Market

(Source: Robert Shiller, Yale)

Like the traditional appraoch, today a strategy suugest that long-term investors are best off on the sidelines. A model portfolio shows how purchasing power can be preserved for large amounts of capital. Fundamentals Financial markets have been extraordinarily challenging lately. Most investors were equally surprised by the market crash as well as the subsequent rebound.

The quarantine put a fair number of folks with time on their hands as first time investors and new online brokers jumping on the oppprounity worldwide from the USA to Australia the numbers of first time sahre investors trying to make a living from the confort of their confinded space spiked.

The put/call ratio MA durring the “Greatest of all Bull Markets” suffered corrections at least or something greater each time it moves above the dotted line ay 65%.

(Source: Tradingview, ESI Analytics)

If there is an outside world that is to blame for the big shifts in sentiment this year its COVID-19 obviously.  However, here is the headline that is driving the opening higher gap in the Globex pre-market. 

However just a thought, if the coming-out parties this holiday weekend and the push to get the economy going re-ignites the virus, it comes back in only 5 days to two weeks, way before the vaccine is ready at year-end.  But that reasoning can’t fight the tape by itself. 

Volatility Report ” Two more crashes to go.”

For over two years I have pointed out the risk and strongly suggested the market would correct its mistake all the way back to the election of 2016. The Transports did that convincingly and the industrials only a minor touch. When the market’s background became fragile to the extent that minor excuses or rationalizations would tip it over, Volaltiy Reports and Market Map pointed these windows of change as well. 

Contrary Thinker’s model has not wavered, it remains based on the decennial theory, were the year that begins with “0” since 1860 the beginning of the Civil War- has produced a recession or something worse. And from a market point of view, it has produced a bear market. 

Early this week the tidal forces we monitor via our systems running in TradeStation flipped in this time from up to down. Along with that cyclical change the volatility background has changed as well at the opening of this week.  The following series of charts reveal just that, as the current uptrend – kicked off my out Technical Event Models Rule #2 (green vertical line), a condition that states the underpinnings of the market are ready to trend, it has now run its course and is due for a change.

 

All three-time frames are recording Technical Events #3, a context that calls the current trend – be it up, down or sideways – old, feeble, persistent but due for a change. Each chart has annotations and prices level that would signal the beginnings of a reversal, a change of trend (COT).

The risk in the S&P – basis the futures – is 250 to 300 points in June going into July.  This is based on the weekly range expansion expected given the context of TE#4. MarketMap-2020 has COT lows expected from July 3-July 9.

New Highs by the Nasdaq are not a factor regarding new bull or bear market rally. Rather, its advance from the early May low supported by the TE#2- see chart in left window- followed by the break above the low end of Long-Term Resistance and tested succsfully. This price level was mentioned in a LinkedIn Group post, that it needed to hold for the uptrend to sustain. That 8943 level remains key. With today’s open expected to be 9,551.25, keep an eye on S-T new support at 9,521 – see the data window in the middle of the above charts.

Lastly, the out of gear sell signal on the right hand chart has proved to be effective in calling the turns, much better than the old school “divergenes.”

Last Day for the Morrial Day week end deep discount, link here. 

Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020
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.
Trading futures and options involve the risk of loss. Please consider carefully whether futures or options are appropriate for your financial situation. Use only risk capital when trading futures or options

 

 

May 21, 2020

The Shortest Bear Market in History?

Hope Floats

Back at the end of the 4th quarter correction in 2018 the buy-side only crowd wanted to claim that 19% downturn as a bear market, the shortest ever.  Well there are a number of reasons why that was not the case and CT argued the reasons back at that time. It has lots more to do with the form it took not the arbitrary definition given a bear of 20% or greater.

Today after the debacle that took place over 40 days or 6 weeks and cashed in 38% in profits,  the buy-side only mob is calling for a “V” shaped bottom and a continuation of the “Greatest Bull Market” ever.  Well like most humans we want things to get better, but it depends on what side of the desk you are sitting on that determines what that batter is.

As you will see history does repeat and if Einstein is correct “The distinction between the past, present and future is only a stubbornly persistent illusion.”  Without getting into the average time and the average price decline or the standard deviations above and below these averages, it is all about the “V” shaped low and the “W” based low. Its all about 2020 not being another 1987.

What the investing community witnessed in that 40 days was an unparalleled price based event. There was no Black Swan like a number of  “want to be” analysts or content providers called it. So to be clear a Black Swan event is an “unknown – unknown.” Whereas the excuse for the market’s vulnerability was known in December 2019 to the public, if they were listening. Just ask Peter Navarro and his publically available statements. Of course the majority in their sheepish fashion were not attuned. Hence it was a known unknown that acted as the catalyst on a market that CT called “fragile” So jittery that a feather could have pushed it over.  CT called for a risk of 50% and a spill on February 12 and 19 and loaded up the long VX system on February 24 and hedge off March 16.

That’s all good and fine but it’s this thing that a V” shaped low is in place and a test is not needed this time, and it will be different that bothers me, based on history.

In 1929 and 1987 no one saw the financial crisis coming.  Studies like Shiller’s found there was no EXTERNAL cause for the blood bath. There are other massive declines that at the time were unparalleled. When you consider similar out of the blue crashes in 1946, 1997, and 2001 with the 1929 and 1987 events you see what their form is and what makes them unique.

The daily bar of 1929 reveals a “V” low without a test that leads to a five-month recovery before a highly changeable bear market began for the next three years and a massive trading range into the secular bull market kickoff in 1949 – for us baby boomers. The long bar day on the 29th was a mear 21%.

In 1946 that was plenty of post-WW-II to be happy about, the St. Louis Cardinals d. Boston Red Sox (4-3) and Benjamin Spock’s published his childcare classic.  What could go wrong?  A head-and-shoulders top said, 24% decline over two to five months depending on how you measure it.

What is clear about the low is the testing of the low before a three-month recovery. While the market recovery did not last the successful test was the groundwork for three years of base building – a 20% trading range – into the 1949 low leading to a secular bull market. The key was the base and the test.

Thet pointed their fingers in ’87 at “Program Trading” as the cause of the crash, a factor that has been debunked over the years. While on its longest decline day of 29% is greater than  1929 what is key here compared is the two successful sell-offs that could not make new lows.  Such a “W” test set the stage for the base building that leads to the next leg of this secular bull market into the early peak of 2000.  But hang in there because there is on more crash out of the bull before we get to 2001.

Everything is beautiful in 1997, US shuttle joins Russian space station and Hong Kong returns to China.  The market had a 19% correction by definition but it ended with a panic day long bar 9% on the day. The stuff a normal correction is not made of. However, what is important is the “W” test of the low.  Two times the market retraces 62% before taking back off on its historic bull run.

This brings the market to its peak in early 2000. One of the key points of the chart is how the “V” lows were only medium-term trading lows in the majority. After the attack on 9/11 and the market reopened the market experienced an 8% panic decline on the day and followed by more sell off the next.

That “V” shape low like 1929 was followed by 5 1/2 months of recovery, but no continuation of the secular bull market. In a similar fashion in 2001, the damage was done and it would take nine years of the base building into the low of March 9, 2009 before a new secular bull could begin. But it was the successful test in 2003 that was the start of the base building.

From the book of the rare and unparalleled market declines that caused one-day declines which marked a sudden and massive shift in investor psychology came the crash that will always be known based on the Corona Virus.  Large one-day declines that add up quickly to a superior annualized returns. March 2, down 5%, March 9 down 8%, March 11 down 6%, March 12 down 10% and March 16 down 13%.

To be certain this low from a rare unexpected sell-off and panic looks more like 1929 than the others cited above, because there is no test of the low, which leads to the base building required to begin a new leg up in an ongoing 140-year-old bull market. Rather the financial media is leading the market higher with “hope” and exaggerations in its headlines for a market that does not have a base to build from like 46′, 87′, 97′ and 2001.

To be clear to the buy-side the only crowd, CT encourages your focus on nominal prices, new highs and new lows, and the bragging rights you like to enjoy with them.

For Professional Advisors, RIAs, Capital Managers, and Pro-Traders

Relay on an advisor that is based in history and speaks from experience, subscribe to Contrary Thinkers Publications and Services. Here is the best deal offered this Memorial Day holiday, for new and returning members – inactive for three months or more. 

Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020

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.

–Trading futures and options involve the risk of loss. Please consider carefully whether futures or options are appropriate for your financial situation. Use only risk capital when trading futures or options

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