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    Chart Gallery Bearish Tailwind into October

Bonds Leading via Divergences

What is interesting is the relative lack of movement by the bond market, the lack of rally, while the implied volatility of the bond market is at historical lows, based on rare data.  Across the three measures on Volaltity for the bonds, the trend following oscillators are diverging and trending higher. Not confirming a series of new lows by the fear index.  This lack of advance by the 20 years +/- government bonds reflects the Feds impotence to do anything more and the only weapons left are on the political side. This is the factor-outside the market- that it is discounting now.

The Technical Event Matrix on the 30-year T-bonds futures is flashing a background that supports a forceful trend, a break out of the prolonged flat. But NOTHING YET, which is the divergence.

Recently there have been similar patterns across the market, like the ascending bearish wedge in the Crude oil. Bondholders will sell if commodity prices continue to rally and/or the stock market continues its decline and the bonds FAIL to breakout in support.

US Major Equity Markets the Big Picture

It is a moot point if the bear market in the first quarter corrected the 10-year-old bull market. It is a moot point if the bull market from the March 23 low is the beginning of a new secular bull market or the continuation of the bull that began in 2009. What is key, is a top is in place and you are at risk holding shares in general. Risk-off.

What is impressive from the internal statistics of the equity markets is the lack of 52 week new lows that are associated with major bears like 2009.  So the bear markets since have been babies in comparison. Also, from the January 2018 peak – yes Contrary Thinker called the Regime change in late January – the robust needs of each bull market leg higher has failed to grab the same level of new 52 week highs as seen at the end of 2017. Not a bullish sign. Couple that with the ongoing divergences of the accumulative A/D line, the evidence is bearish. The big picture is bearish, and the expectation is for a correction of the last 12 years of the “Great Bull Market.”

Another theme that is starting to unfold is the rotation from growth to value stocks. The same condition unfolded at the turn of the century as capital managers took to defense in expectations of a bear. A bear that persisted for three years. The historical chart in the gallery reflects this. The chart we presented a few weeks ago – the spread of glamor and value – has made its peak and is breaking below is ascending MA.

Volatility Modeling

The next three charts provide a unique way of seeing behind the market’s scenes the media promotes. The synthetic market average SVXY last week rallied into a peak on panic buying, both daily and weekly! In the process did not make new highs and put itself into I-T resistance. At such an extreme failure here to hold the low side of that zone would be hit will aggressive selling. A move below 35 should do it.

The next chart is a support point of view to see the VIX price relative to the S&P price. It reveals the direction neutrality Contrary Thinker and its preceding companies have demonstrated. The chart plainly shows the high level of VIX with the S&P at 3,500, a bear market in fear.

CT’s Fragility Index in a similar fashion shows a breakout above the big base again in August, holding the break and a new uptrend signaled by the indicators. Thus the fragility of the market, its susceptibility to a pinprick, can cause a waterfall decline.

Cycle Timing

On the close Friday, the I-T Tidal Wave system flipped to short, suggesting the next two to three months will be lower. TEM provides for an expansion of high to the low range this week and CT is already long the PSQ and will add to the position. The last chart is the 30-60 year cycle that provides a scenario for the reminders of the year. Because 1930 was also an election year, I am focused on it but in any case, refer to the MarketMap table and its text for more insights.

Great and Many Thanks,

Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2018

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