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October 31, 2022

Volatility Reports October 31, 2022

All the talk is about the profit season from now until the end of May, before summer vacation. Hence the cliche is to sell stocks in May and buy them back in October.

My system development firm Thinking Man’s Trader (TMT) programmed that idea and tested it and since the 1920s on the Dow, it works. The drawdowns are larger than most want to endure, but in general, it works.

Be that as it may, here is a small sampling of the content regarding this seasonal factor.

“The next six months have been higher 18 of the past 18 times during a midterm year. Yes, things have been tough this year so far, but be open to better times. What happened in the rearview mirror doesn’t mean it’ll happen again.”  From a broker that appears on CNBC.

“Of the 11 S&P 500 Sectors. 8 are now above their June lows. ” From a CPA?

“This is the 4th time in 2022 that $SPX rallied 7% or more in only 9 sessions. How are we feeling about this one? 4th time the charm?”  A CMT.

$SPY $IWM +8% this month”  from a CFA chasing the equity curve. 

We’re at a point in the calendar where $SPX returns tend to have a clear upward bias, but that bias is further enhanced when sentiment is overly bearish. One of the risks is that offsides positioning develops into FOMO as the year draws to a close.”  A Research Firm

The sentiment remains bullish and bearish on bonds and not much talk about commodities.

Well chatting with a number of bulls in the public space they all believe that the market has experienced a bear market, which is over. While my expectation is the bear is not over but thus far, it has not been confirmed. Like everything that makes TMA rough for the many, by the price and time comes that the bear is confirmed, it will be too late for the perma-bulls.

I put it this way, “From the ATH the decline has only been a correction, not a bear market. There is more to a bear than a 21% decline with the average time from high to low. The nature of a bear is very clear and undeniable, and what has unfolded thus far is not a bear market, maybe the bull’s egos are a little touchy. They are certainly defensive worrying about their jobs. But so far, not a bear market, it is a ‘bull market in fear.'”

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October 24, 2022

MarketMap™ 2022- Scenario Planner Issue#22

The social media mob is really perky after last week’s performance.

With the majority of commentaries that cross my desk, it’s clear most are moving away from doubt and have bought into the annual seasonal kick-off of a bull market that makes an average of 17% in mid-term election years, from the October low.

Comments range from off-the-seat-of-the-pants use of DMAs, “Highest close for the S&P 500 in two weeks, and just above the 30-day moving average.” Well at least he is unique, I hope he is not back-fitting.

“Positive RSI Divergence on WEEKLY SPX Chart = Bullish – This positive divergence has historically preceded meaningful $SPX reversals”

The problem is his scope is only from 2009 and RSI does not work that way. A deep oversold is a confirmation of a bear and because of its extreme oversold, each subsequent new low is expected to diverge. Hence making that concept (bullish divergence) useless and the most common weakness cited by experienced professionals.

Another bullish twist comes from a good source of market data and information. However, information should not get confused with knowledge and wisdom; and I am afraid to say their analysis.

The Stock Traders Almanac annual book (2023 version is on the market, $100 +/-) is a handy reference tool.  The owner publishes bits in the social sphere like the table inserted below.  The publisher points out that of all the months of the year, October stands alone, since WW2 as the seasonal bear market ender. In other words, that time window starts more bull markets compared to any other month. Can’t argue with that.

But what you find in almost everything you read regarding market data and market analysis is the unwavering bullish tone. Here is what I mean,

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October 13, 2022

MarketMap™ 2022- Scenario Planner Issue#21

Nature of a bear market

“…good news is ignored, and bad news is exaggerated.”

After a top is in place there is indifference reflected by the public and media.  Buy dips are programmed into behavior. However, with the smart money, the early adopter uses the mass of new entrants for liquidity to sell into.  As the decline starts to pick up steam, the late majority average down their cost by buying more. The good news stops getting positive follow-through in higher prices because demand is overcome by supply. Good news leads to prices going lower and bad news accelerates the downtrend.

The structure of the bear is complete with its own forms and patterns, like one-day wonder advances: sharp and short-lived reversals that live for one to three days.

Fake news begins to propagate making headlines. Add to that all of the misdeeds, scandals and reckless speculation, and corrupt biz practices of the past upcycle come to light.

The overall mood of the unreflective

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October 10, 2022

MarketMap™ 2022- Scenario Planner Issue#20

The “Time Factor”

Patterns and certain regularities are revealing themselves in the US markets. “Volatility Reports” posted in our LI Group demonstrated the 6.5-week cycle, and how it nailed the low on September 30, the day of the closing low thus far for the Dow but the Nasdaq made a new two-year low today.

A subcycle of that dominant cycle, 1/8 of it made the S-T top 6 days later on October 5. The chart of the small-cap index on the left has the lunar cycles noted with green dots for the high tide and red dots for cycle low. There is no claim to efficacy at pining down the precise high or low pivots but it does a 50/50 job providing a near-term idea for a change of trend. Moreover, when the high or low cycle is inverted, that failure itself is notable.

Two rules:

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October 3, 2022

Volatility Reports October 3, 2022

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