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CT Journal
Jack Cahn
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.
— 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 My indicators and strategies can be withdrawn for private use without notice, at any time.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 for your financial situation. Use only risk capital 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
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.
(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
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 15, 2020
Volatility Reports 05/15/20
If the 62% retracement is familiar to the majority, they are ignoring it. The comparisons to 2000 and 2008 are just the most recent when looking at today’s market. The history of the .618 retracement is well known back to 1929 and before. It also fits the market phases model seen below the first featured chart.
————-
The 62% bear market rally is the so-called “Return to Normal” phase of all market cycles, seen here overlayed with the speculative bull market in gold back in the late 1970s early 80s.
The “Greatest Bull Market” shows the same type of pattern as it cut through the behavioral phases that all markets go through. Today we are in the denial phase, the “I can’t believe it” period. That can be applied to the market, the economy, and the pandemic and other known unknows that will be impacting the market, like the geopolitical events and the election.
Our tidal model is providing sell signals in the current time window that are nearly identical to the configuration of the peak of February 12 (19th for the Nasdaq), with an inverted cycle and the same tidal forces. Next to October, May is the second most active month for panics. The time window running from May 22- May 30 should experience the same type of long bar days seen from March 9 through the 16th
If the secondary peak is in place as expected the decline will unfold like the chart on the left which is the primary top on 2/12/20. Hence, the price level at “2” should not be exceeded and another near term decline for <i> should make new near term lows before the meaningful period of the decline digs-in.
Contrary Thinker has already pointed out that Bitcoin is a risk asset, not a hedge. We have pointed out that after near-zero pricing to 10s of thousands of dollars bubble and bust, it takes years of base building before anything bullish re-emerges. From the massive spikes we saw in the late ’70s in gold and crude, all of my clients wanted to buy them after the markets crashed and it took decades to recover.
The same will hold true for the Cryptocurrencies boom’s fairy dust will take a while to rub off. The featured chart here provides three short term sell signals, one based on our OB/OS model, one based on the tidal forces flipping to down – see the track record on the left-hand side and the red high-lighted area points to the markets failure to hold its new support area.
The Bitcoin has been leading the stock market lower.
Another market that should concern risk markets is junk bonds. The narrow trading range has set the market up for a dynamic trend. Our Volatility model has been coiling up in a Technical Event #2 for a week plus. These #2 events are leading signals of a one-way trend. A drop below 77.58 should set it on its way. A move above 80.40 would be a break for the bulls.
For reasons CT has pointed out previously, our bias is bearish and the break should be lower and should lead stocks lower.
Visitors at the “Volatility Reports” Group in LinkedIn, need to opt-in as a subscriber before their free look runs out.
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.
— 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 for your financial situation. Use only risk capital 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
May 8, 2020
To be a hedge or a risk asset the Bitcoin
Until there are clearer signs of the commodity (food) based inflation, I will stay with deflation across the board. Bitcoin is a risk asset and leads the stock market direction. It is not a hedge.
While the supply of the coin is controlled everyone is a crypto coin miner, creating the new digital assets. So Bitcoin is a brand like Coke or Kleenex and a leader, but there are many many many more on the market and many on the way.
The sentiment is over the moon on BTC. calling for $50,000.
Yes, it’s truly one of my heroes, someone I have met is publically saying he is buying the coin. To be honest with you, I have hear all his calls going back to the 1980s, like the passive short on a head and shoulders on the Swiss franc, which was a disaster. Like I have said before, I never take his public ideas seriously, only his methods, which I have studied.
The BTC was s dream come true turning pennies into thousands, and sure if it happened recently it can happen again. If it was just that easy.
The public seems to be an enthusiastic buyer so the “pool” of liquidity is set up will buy dips and TPJ will be a seller and a short seller.
Here is a chart crime on the Bitcoin, that makes no sense. Its a triangle like a form this guy sees buy it’s based on no known formation and is not anchored to any volatility model that would support that breakout. In fact, the I-T backdrop provides an event that says the uptrend is old, feeble, persistent but due for a change. Plus the S-T peek here has been on panic buying, the kind of emotional buyers that are easy to take advantage of.
The long term bullish case is to but BTC maybe in two or three years and that may be optimistic. From an EWT point of view, the highest price would be the beginning of a very long term bull market, like the peak in Gold back in the late 70’s early 80s’. If the market is tracking out a triangle its a large [B] wave. With the late 2018 low wave (A), the recover rally into the mid-2019 wave “A ” the break to the March 2020 low wave “B” and this S-T recovery wave “C.” so an S-T decline from here is wave “D” and one last little advance inside the triangle wave “E” to finish the wave [B] before a collapse about the width of the triangle.
p.s. If its a triangle Today, CT’s chart shows the market nearing a peak.
Just like the world equity markets, the Bitcoin market is a leader and always in gear with its bullish and bearish moves. The chart I feature here shows an overbought market in S-T resistance. A sell signal today or Monday by our OB-OS method, a slip by the market below the low end of S-T support – aka failure to breakout – with the Tidal Wave system flipping today or early next week from up to down, should set in motion a meaning full decline.
TradeStation Members
I am working on the short only BTC system, a version of FastEd (FE), and as promised all workspaces and code will be uploaded to your Dropbox folders shortly. FE really likes short breakouts and working it for the long side at this point, will let you know. If you are using Eclipsed or %BB-DBR and you are showing it to run hot in the long side, email me. When I dust it off it looks fine and robust but no hot streaks – 18 winners in a row – as we saw 4 years ago.
Great and Many Thanks,
Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2020
Capital Managers and Professional Investment Advisors visit: www.ContraryThinker.com
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 to your financial situation. Use only risk capital when trading futures or options
May 6, 2020
Stock Averages Back Story Weekly
Bear Market Reasoning
The opinions why the market is expected to continue with its longer-term bear trend have been clear for many months if not years. (See MarketMap-2018 and Volatility Report 2020.pdfs). So we will start with the May Rule and CT’s chart of the trade plan in trading code to validate its reliability. The following brief we found goes into more depth.
‘Sell In May’ Will Determine The Fate Of The Bear Market Rally In S&P 500
Following a devastating Q1, U.S. stock markets came back to life in April, as S&P 500 (SP500) overcame record drops in major economic indicators such as consumer spending, services ISM, etc. to post the best monthly gain (+12%) since 1987. Though if we dissect further, bulk of the explosive gains were made during the first 10 trading days of the month, with S&P 500 largely unchanged over the past 2 weeks after higher highs were rejected ahead of the 50-week moving average:
Shooting Star Candlestick Pattern in S&P 500 Weekly Chart
In the process, an ominous “shooting star” reversal candlestick pattern was formed last week after a 2-day decline wiped out more than 4% of intra-week gains. Such technical pattern warrants our attention, as we noticed that similar “shooting stars” had marked the end of previous bear market rallies between 2001-2002:
Weekly Shooting Star Candlestick During A Bear Market Rally Since 1930
It’s good to see signal formations being accessed in context rather than generalized. But there is more.
Nomura’s McElligott Turns Bearish: With No More Buyers Left, Stocks To Slide Across The Summer
Failing to take advantage of positive dealer gamma, the S&P is now stuck in “no man’s land” and as Nomura’s Charlie McElligott writes in his latest note, the market is “essentially near the Dealer “Neutral Gamma” level (~2845) and between 2 of the 3 largest Gamma strikes on the board (2850 w $1.355B and 2900 with $1.284B), while also now at the “Neutral Delta” level (2882 incl this week’s expiry).”
‘Investors’ Ignore Mumbling 90-Year-Old Omaha Man – BTFD As Buffett Sells
It’s
not just airlines…
Here’s the real reason why billionaire investing ‘genius’ Warren Buffett didn’t spend one penny of his massive cash pile as stocks plunged at a record pace… according to his favorite broad market indicator, US stocks have never been more expensive…
And the “Virus Fear” trade is notably higher (i.e. fear is rising)
The Bear Market Just Started
Here are some key facts, if you are in this industry and know what you are doing, you’ve got a job. Even if this bear is like 1929 through 1939 based on the 20% definition of bull and intervening bear markets there where Ten (10) bull markets ranging from gains of 24% to 127% with five bear markets separating them that ranged from -37% to -56%. Market timing will be key and rotation from groups will be key. Just like the 1970’s we had theme stocks from gaming to production increasing technology to SA gold mining.
A peak happens every 5 years on average followed by a bear that consumes in an average of 21 months in time 38% of the wealth created. the two shortest bears were 1987 in less than two months took profits in the amount of 37% and the correction in 1990 that last three months and sold off 22%. Both exceptions.
The averages look like this over 140 years, so the bear leg from February 12, 2020, to March 23, 2020, would rival 1987 for the short length and cashed in 35% in profits, again similar to 1987. But that is where the likeness ends. The bull market was young, only five years old and under a single administration, Ronald Regan.
| Time | Months | Money Damage | price damage monthly | |
| Sum Average | 21.61 | 38.65% | 3.43% | |
| Less one Sdev | 14.59 | 14.61% | 4.34% | |
| One Sdev | 36.20 | 53.26% | 7.77% | |
| Two Sdev | 50.80 | 67.87% | 12.11% |
Whereas the bull market that peak in February 2020 was well past its prime was more than three standard deviations above a bull market average length and there was a change in political regimens, which bolstered the bull with corporate tax cuts by the Republican party that controlled all thee centered of power. So after eleven years of the easy money, the market was fragile as our volatility model had been pointing out with each top from late January 2018.
| 2009-Present | 133.00 | 455.00% | |
| 2009-Present | 133.00 | 495.00% | |
| Time (all data) | Time Limits/Months | Wealth Created | |
| Sum Average | 32.14 | 124.43% | |
| Sdev | 39.30 | 142.46% | |
| AvgDev | 27.95 | 101.64% | |
| One Band | 60.09 | 226.07% | |
| Two Bands | 88.04 | 327.71% | |
| Three Bands | 115.99 | 429.35% | |
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Copyright 1989-2020
Great and Many Thanks,
Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2020
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. 8006183820 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 4, 2020
Volatility Report 5/4/20
All the techies who missed the big top are getting itchy here looking for reasons to sell.
Contrary Thinker did not miss the top (called it 2/12 and 2/19 ) and engaged long volatility strategies (Sunday night 3/23) to hedge traditional portfolios and to profit in 80%/20% split Cash/Futures combination. Here is a link to the 16-page pdf that shows you how we did, track our thinking.
The majority in mid- March called to a quick return to normal as seen in the Goldman scenario posted at that time. Today after a 30% bull market in five weeks the majority on Twitter was back to being bullish. As we go to the open today with just a hint of decline the TA’s that missed the February peak is getting serious about a real bear market. Hedging their advisory and grouping together with the same idea to watch the FANNG sector-based ideas propagated by their seniors to add credibility to their advisory’s caution. 
Contrary Thinker labeled the peak in January 2018 a REGIME Change. Since that date, short only volatility breakout systems on the ES have beat buy and hold the stock index future ES. CT called the peak in late September 2018 and again engaged long volatility systems into early January. On February 12, 2020, we reintegrated “risk-off.” We have been faulted by the buy-side only managers for missing the bottoms, our advisory is built of capability and trust. Since the low December 23, 2018, and the low March 23, 2020, we have not given buy signals or risk on advisory.
We did, however, disengage our hedge – the long volatility strategies – when buy signals could have been made, “risk on.” But it was not worth the risk we expect. Furthermore, in the face of the before mentioned long volatility breakout systems in an 80/20 split portfolio with 80% in 2-year notes and 20% in futures, the performance has been above average.
Dow Utilities
Furthermore, as everyone knows bottoms are easier to isolate then peaks and that is CT’s specialty picking the lows is easy and the low in March was signaled weeks before it actually happened, a telling sign for divergence like 2007-08.
The above chart shows the pealing off of the defensive stocks. The group was bought in panic as the flow of funds exited regular shares. Now it is inferred that either the funds are rolling back into the advancing stock market or there is no place to hide in the face of the coming decline.
The above chart of the Dow utilities reveals a background that supports a forceful trend. A move below 753 would be the next sign of the downtrend unfolding and confirmed below 528.
Cash S&P
Like the fixed zones we use the variable bands show the same failure reversals and the confirming breakdown six days later. What is also conspicuous on the chart it CT’s Technical Event Model (TEM) giving a Panic-Event Signal, highlighted in red.
Today the last two peaks have failed to hold and any trend that can pick up a following here will be dynamic, with the last TE being a rule #2.
similar to the variable bands used on the S&P index, the four markets showed here using our fixed zones; and it is clear that all four of the indices have failed to hold. With these reversals being preceded by Techcnail Event #2, there will be a carryover of the downtrend.
Bottom Line
Risk-off, raise cash use risk-free investments.
Hedges- Long Volatility Strategies – remain off. While the nominal high may be in place for the secondary bull market posted on 4/29/20, CT will wait for the model to give a clear engagement signal before we go “staus-on.”
Subscribe to Contrary Thinker today, if you are a visitor to the LinkedIn “Volatility Report” you know the free look will end
Copyright 1989-2020
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.
— 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
April 21, 2020
Volatility Reports 4.21.20 Risk Off / Hedge On
If they’re not making any money in the Twittersphere, they are sure having fun
Here is a prime example of a common attitude among investors:
The fact is that over 140 years or better of market history it is either in a base-building trading range for 15 to 20 years or in a secular bull market for 15 to 20 years. The only difference is you have to learn to trade when you don’t have a bull market. Market timing is required.
Connecting the Spring Outlook Report expecting a deflationary spike, the stock market fits in with that scenario.
I like to compare the day session chart with the Globex hours only graph. I expect to see cross confirmation, like success or failure at the same time, the OB-OS model giving signals at the same time. The volatility modeling being in gear comparing the two sessions. In general, I assume the NY day session is local money and the other offshore funds.
Both sessions show a 62% retracement of the first leg down of a significant bear market. They both reveal a sell signal by the OB-OS method used by Contrary Thinker. The charts show a failure on Monday the 20th of April, which is a failure to breakout. The reversal is a sell signal. Now any move below the S-T support zone that starts at 23,065-22,995 on the high side with a clear break below 22,450-22,690 should provide bears confidence. The majority of bulls ruled out a test of the March low, CT expects the low to be broken.
The volatility model is not ideal for our hedging systems, which like the straight-line high rate of change trends. The direction does not hurt the short only systems, its the false starts that hurt, the whip-saws. The S-T model shows an uptrend that is laboring, old, and in need of a change. This condition can sustain; it called a low volatility trend like the market experienced in 2017. However, as I accented in the last Market Map 2020, the market has now rallied into a change of trend window. This week the cycles flipping from an uptrend to downtrend.
When you add up the above and the bulls seeing the change coming yet asserting an inversion without a basis and the deflationary spike hitting the commodity markets, it remains “Risk Off” and “Hedges On.”
A man without a vision of the future always returns to his past experiences. Use outside historical and independent research.
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.
— 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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April 20, 2020
Contrary Thinker’s Spring Outlook
Deflationary Spike
This advisory has been expecting hyper correlation since the peak on the majority of markets in early 2020. That means a near one to one correlation between all of the markets includes the credit markets, like the long 30-year T-bonds. Yet the bonds have every reason in the world from outside world speculation like the world wide deterioration of credit quality the US government bonds of all maturities refuse to follow through in their decline, once a high pivot is in place.
That brings us to the background of the market today, on a short term basis is set up like a wild animal about to break out of its cage. The chart used here shows two critical factors. One is the triangular look of the sideways range, a pattern that typically leads to a high rate of change trend that is about the same length as the widest part of the triangle. That would target 200, which is a number we have mentioned before as a potential.
The context of the market based on our volatility model reveals a prolonged Technciual Event #2, such background is almost always the springboard and a leading sign of an HROC trend to come. Our bias would be bullish here on a short term basis.
Long Term portfolios should continue to use opportunities to raise cash.
LongTerm US T-Bonds
Bitcoin
Four days ago, I posted via the LinkedIn Group the following: “There are a number of risk assets that the group use as a leading indicator of trend direction. Bitcoin and digital assets, in general, are a risk asset, not a hedge as their promoters want everyone to believe.”
I went on to say “Our aggressive short-selling scalping system is engaged on BTC, it is trend following; hence you see “no trades” on the left-hand chart yet. The market is sitting on support in the screenshot, a move below 6725 should be a kick start. TEM provides a context that calls for a forceful trend. ”
Here is an up to date chart of the Bitcoin, which is set up for a run one way of the other. It remains locked mid-range on a S-T basis. It has been in a TE#2 holding pattern frustrating both bulls and bears from any one way trades. Hence a break should get carry over the S-T levels for the break is in the data window.
CT’s bias is bearish, our OB-OS model is on a sell signal, and the positive correlation BTC with the stock market fits with our outlook there. Our publications pointed out in 2018 that the BTC is a leading indicator of the US stock market, so a break lower here would be in line with the bearish set up for the stock market averages.
Traders should expect a minimum of $1,300 fall. Our short only breakout scalper is engaged when the market breaks below S-T support.
Crude Oil
Contrary Thinker has been bearish on Crude Oil since the peak we called in late September 2018. In the report dated 9/26/18, it read, “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 report went on to say, “The post triangle thrust fits the Maps change of trend dates with a peak in the next two or three weeks. ”
The peak occurred the same day the Dow made its peak October 3, and our long term target was 20 to 30 dollars per barrel.
The chart featured here suggests the panic selling is not over, and a target of 17 dollars to 13 is likely. We will be looking for setups that priced one-day long bar short-covering really and keep you posted. But from a long term point of view, this market is dead in the water after it reaches a bottom.
Supporting the bearish outlook is our total wave system. You can see it flipped to the short sides only after a brief period with a bullish bias. You can also see its track record over the long term.
Gold
I pointed out late last week that ” Gold’s panic buying reached an extreme weeks ago when it first hit 1700/oz. The chart on the left reflects the underlying fear of missing out on the uptrend is rolling over. The chart window one from the left shows one of our sell signals with the OB-OS model being out of gear.”
“It also shows the break above our L-T resistance zone with the high side being 1700.30. As I post this for Volatility Reports, Gold is 30 bucks above that level.”
“Our volatility modeling is suggesting an expansion of the weekly range; therefore a run at the 135 weekly range is a target. I-T support is broken with a move below 1723 – see daily chart on the right. A failure to hold the long term breakout with a move back into the L-T zone would be seen as a failure and treated harshly by the market.”
“The bottom line is the market needs to fail to show its hand. A break below 1700 would signal for short-selling strategies, that includes FE plugin on TS. We are creating a table with dates of status on and off for the hedging program. ”
The up to date chart reveals the testing of the 1700 level, and as I am writing this, the market is at 1699.70. Short tern support zone runs from 1652 to 1687.20 with the low today thus far bouncing off it at 1685.00 A fall below 1652. would confirm the downtrend.
Revising the bottom line here, we will be patient before any new strategy engagement.
Commodities
I heard several professional money men on LinkedIn say they would not consider rebuying the stock market until they see a recovery in the commodity markets. I do not find this strange anymore, that hyper-correlation is a fact of investment life, both long and short.
The cycle’s pattern uses to be the following: bonds rally followed by stock a few months later, followed by a bull market in commodities. As inflation kicks in, that starts the hike in rates and lower bond prices followed months then by a bear in stocks, the old three steps and stumble rule, and eventually, commodities and inflation are controlled. Prices decline to start the big cycle all over again.
Not today, the flow of funds is all in or all out, investors want to see some amount of innovation before they invest in anything. In other words, everything is a risk investment. If you set credit risk aside, bonds are a market risk with below-zero yields.
Our chart of the S&P commodity index tells investors a few things here. One is just like the other markets discussed above; it too has the priced based background of a Technical Event #2—this event from out volatility model process HROC trends in one direction or the other. Please remember, volatility modeling is direction neutral.
With that in mind, this market just failed to breakout with this background six days ago. The market is now testing S-T support from 146 to 151. A break of this zone suggests 108 -110.
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Copyright 1989-2020
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.
— 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
April 15, 2020
Three Waves of Panic Two More Expected
MarketMap Issue #8 2020
Two More Waves of Panic Expected
You see in social media permeating the public domain the fractal overlays of 1929 with the most recent panic sell-off. The problem with this parallelism it is not anchored to anything at all except the similarity visually when resized and overlaid with each other.
ContraryThinker uses a method discovered in 2000 that I have advanced called the Event-Based Cycle (ECB) that produces a similar peak to low intervals, it projects related date windows for tops and bottoms based on how the highs are anchored with each other mathematically. The charts below provide what is expected to be the scenario of the market going into late summer; along with an alternate scenario main difference of the low this year hitting later than the others.