May 28, 2021
The FX log jam is breaking.
Part of my checklist for an ultimate peak in the risk markets was for the ultimate risk market to peak and fall on its face. The bitcoin did so, and it did so based on our outlook 4/16/21. Nice call Jack, even though I say so myself. The decline thus far in the early stages of a new bear market, sell rallies long term, if a day trader is careful buying dips now as the panic low is about worked off may continue to work before the trading range comes to an end. But more on that in the next BTC commentary.
May 24, 2021
Can the bulls grab victory from the jaws of defeat one more time? Here is their chance.
From one of our event back testers pals, he mentioned in his latest sales ad, ”
“Once again, sellers failed to push the S&P 500 down even 5% from its peak. It got close last week but held above that threshold.”
Contrary Thinker’s %BB-VIX indicator reflects how fear maxed out with the slightest of sell-offs.
Jason Goepfert went on to point out that, “The index has now gone 134 trading days without a 5% pullback. That’s the 18th-longest streak since 1928, and it would take only a few more days to push it into 15th place.”
I am not sure the relevancy of the ranking, but his inferences fit with Contrary Thinkers point of view when he suggests:
“Once it got this extended, the S&P’s returns over the next month were poor. Even up to 3 months later, its risk outweighed its reward.” CT’s view is the S&P has a 5% potential reward from Friday’s close with a 9% risk based on the Long-Term resistance zone, to be conservative.
Here is the same %BB-VIX reflecting a similar pattern for the “shortest bear in history.” If the market does not make any progress this week and fear continue to dip and my Panic Index (100% price based ) as seen on the S&P chart pushes its high threshold as it did back in 2020, the market will be looking into the Abyss.
The point the market has made is that it grabs victory from the jaws of defeat at every given chance the bears have to bury its opposition. That is why they call it a bull market, it is bull-headed persistent and does not give up that easy.
However, to view this statistic in a vacuum and conclude that based on these rankings a few declines happened after such statistical events of more than 10% is not convincing.
Rather, what is visible based on 160 years of history are cycles cresting and the real-time seasonals going into their worse period.
Now that the month charts on all the major indices have peaked on panic buying, the weekly chart of the Dow has done the same by reaching a volatility extreme that reflects FOMO buying, not rational. Along with an inverted “V” high pivot, the reversal was a breakdown below I-T support where last week recovery is testing at 34,3111.
The S&P did the same thing with TEM reaching an extreme rul#3, call the trend old, feeble, persistent, and due for a change. It too failed to hold new support at 4,230, which is not resistance.
Here is the bull’s chance to save the market and keep the trend followers from jumping all over sell signals.
The Nasdaq and the Russell are leading the decline and the trend following sell signals have already taken effect. These signals are supported by TEM’s Intermediate-Term sets up of rule #2 and rule #4 both signaling carryover of the breaks and trend following signals.
I will draw a hard and fast rule here. If the bulls do not make a new closing high on the Dow this week next week – the first week of June – the market will go into meltdown.
Back Story on Liquidity
Fed Drains $351 Billion in Liquidity from Market via Reverse Repos, as Banking System Creaks under Mountain of Reserves
This is the first time I’ve seen Wall Street banks clamor for the Fed to back off QE. The Fed is struggling to keep the liquidity it created from going haywire.
In the fall of 2019, when the repo market blew out, the Fed stepped in and bought Treasury securities and MBS and handed out cash via repurchase agreements. When these repos matured, the Fed got its money back, and the counterparties got their securities back. The Fed also did this during the market rout in March 2020. But by July 2020, the last repos matured and were unwound.
Now the Fed is doing the opposite, with “reverse repos.” Repos are assets on the Fed’s balance sheet. Reverse repos are liabilities. With these reverse repos, the Fed is now massively selling Treasury securities to counterparties and taking their cash, thereby draining liquidity from the market – the opposite effect of QE.
This morning, the Fed sold $351 billion in Treasury securities via overnight reverse repos to 48 counter parties, thereby blowing past the brief spike at the end of March 2020, and more than replacing yesterday’s $294 billion in Treasury securities that it has sold via reverse repos to 43 counterparties and that matured and unwound this morning.
These reverse repos are a sign that the banking system is struggling to deal with the liquidity that the Fed has been injecting via its QE. And that’s in part why there is now some clamoring on Wall Street for the Fed to taper its QE purchases because the banking system is now drowning in liquidity that banks have as reserves on their balance sheet. By buying Treasuries in the repo market, the banks lower their reserves and increase their Treasury holdings.
Great and Many Thanks,
Jack F. Cahn, CMT
Contrary Thinker since 1989,
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
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May 12, 2021
Worth Repeating: “Price Based Method, Risk/Opportunity Forecast, Strategy, and Plan or Algo System Engaged with Timing”
If you did not read the post from 5/7/21, I suggest that you do, and I will not repeat it here. Instead, focus on the leadership of the bear markets. https://contrarythinker.com/volatility-reports-5-7-21/
The Dow and the S&P are the stalwarts of the old yet great bull market and showed cracks yesterday right on cue with MarketMap’s COT date expected on the 11th +/- a day. CT will wait for at least a few hours before we jump on the short side regarding the old guard.
May 8, 2021
Charts Support the Following Summary Outlook
From early May into the end of July, volatility should spike across all markets. The composite index Contrary Thinker developed represents just not the S&P but the world index, the bonds, the metals, China, etc.
By industry standard definition, volatility is bearish or perceived risk and fear by the general marketplace.
Contrary Thinker is S-T, I-T, and L-T on the following:
Bullish on Interest Rates (lower bond prices).
Bullish on the USD, it’s more than a technical point of view backing up the dollar to move. It is based on the nation’s sense of self-preservation. If any Sovereign Nation losses control of its debt it will lose its freedom. In the face of all of the people that can only think of buying without any regard for buying power are not thinking like big money and old money here in the USA. Nor are they understanding the “full faith and taxing power of the Treasury.
Bullish on the Aussie Dollar, S-T pullback underway.
Bullish on Commodities, on a new term basis, there may be a pullback buying opportunity.
Bearish on the Euro and Pound Sterling
Bearish n the US stock markets, the Nasdaq and the Russell have already made their ATHs, along with the FANG sector and the Tech sector.
Bearish on the World Stock Index, net the USA, the Pac Rim, and Asian Emerging Marfekts have already made their ATH. The EU market is mixed with a number still a good distance off their historical highs, with little chance of making new ATHs this cycle like the FTSE, while the Dax has posted up its ATH recently.
Bearish on Gold and Silver. Late last week the bullish sentiment jumped all over the higher prices with the trope, the same old story that is repeated during bull markets and bears. The inferred breakout looks like the move that occurred in January of this year. A head fake, the market will tip its hand early this week.
Crude Oil and Carbon Energy, S-T bearish and leaving the longer-term for fresh look after the expected “hyper-correlated” downturn.
Bitcoin and Cryptocurrencies, bearish. The first nine charts in the Galley feature how all of the markets made long-term peaks on irrational – panic – buying. The bonds are the leading example of what to expect after a FOMO peak. Regarding Bitcoin and others, they have no economic function, they serve no purpose in fiance or they do not feed people or build infrastructure. Plus, they are too volatile to be a currency for any country, and the supply is unlimited with new brands hitting the street weekly. As Buffet warned they are “risky and worthless. I can say almost with certainty that they will come to a bad ending.”
The second patch of charts features cycles both mundane (math-based) and others that are Galatic. They all suggest a trend starting this week and going into late July. Rates and the dollar up everything else down.
Click to Enlarge COT Table below for change dates and acceleration periods
May 7, 2021
Price Based Method, Risk/Opportunity Forecast, Strategy, and Plan or Algo System Engaged with Timing
It is this last bit that the majority do not get. Rather it’s all about the forecast. The methods and systems often repeat enough that it can not be, by chance, some random event. It’s a simple understanding – like life insurance or a casualty insurance underwriter – to expect losses. The actuaries expect some people to die young. Trader Vic Sporandio teaches the idea of “actuarial thinking” in his approach.
Regarding the market, when we have an “ideal” set up over the long term, the big gains will more than outweigh the small losses. That’s why P.T.Jones and Stan Druckenmiller have outstanding returns. They wait for their perfect – ideal – set up that provides a 25 to 1 opportunity to risk where they can be wrong ten times in a row and still nail it in number 11. Add on top of that Turtle Contract/Share sizing, and you have Alpha.
Too many, if not 90% of investors, managers, and traders hear or read the rationale behind a market or the story behind a stock, all of which are to buy, bullish, for the assets to go up. It’s always happening now because the industry is programmed that way. If not by the sales hyperbole, it’s by the transactional nature of the industry. It’s all about the sizzle, not the steak.
Whereas being able to read the market language provides the analyst and his advisory group of clients and capital managers the steak.
With that in mind, here is the scenario based on a combination of MartetMap 2021 Time Factors and risk assessment with Volalaity Reports dynamics timing.
The Russell 2000 sets up as the low-risk entry because it is on the right-hand side of the ATH or 52-week high pivot. That allows a near buy stop placement. Also, the Volatility Model is telling a story that the RTY is ready for a waterfall trend, a high rate of change directional trend.
The close Thursday at 2238.50 puts the market above these triggers clustered around 2325-2329. Obviously, a day trader would have his bands on the short bars. Here it is on the daily bar for an S-T trade.
The following chart of Russell’s implied volatility reveals a few items that are meaning full. One is the seven-year base and breakout of volatility in February and March of 2020.
The recent 2021 suppression of its volatility testing the seven-year base and holding. Contrary Thinker can also see the potential Bull Trap with RVX ready for an S-T short squeeze. To be clear, Contrary Thinker does not expect a crash from the high, and there may be a mini panic low in late May. the above