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    Contrary Thinker Rants

    July 23, 2020

July 23, 2020

Contrary Thinker Rants

I am not setting out to write a critique here, I am simply posting what I see the majority of crossing my computer screen and seeing them for what they are, based on the first principles of our trade as well as understanding the consequences of a majority point of view at a market extreme by any historical measure.

Long time no talk Tom, but I can say this: I can certainly hold my Scotch better than him. Be that as it may.  Tom is not a forecaster,  he is a strategy developer. He has maned projects from historical event-based systems on high-speed sun computers to the sequential systems. The event-based systems he told me directly found nothing worth trading and I have a copy of the sequential that he gave me and in code with upgrades stopped working years ago.  In any event, he is bullish for the I-T it appears.

What will not change for the majority of the bulls, which is to our advantage, is their gross miss understanding of what volatility is. In their minds, it is either a non-offensive word used for a sell-off or an asset that has a value. Both of these are opposed to what it is which is the state of tension between expectations and reality.  So when I see the comments posted below, they are meaningless content. The person could have said the stock market is up 25% and crude oil is up 50% off their lows and been more meaningful. But this is somehow supporting her bullish outlook.

One of the first lessons you learn on Wall Street is the best performing mutual funds of last year will not be this year’s best. Another way of putting it is “don’t change the equity curve.” But in general, that is basically all you hear, read, and watch from too many analysts: how much the investment has gained and somehow that is reason to buy it or at least buy into the argument.  So it’s clear this content provider is bullish and excited about the markets.

But a key take away here regards the “rule of alternation” which our friends at Elliott Wave International made popular.  In the below statement, its the YTD that is key. While we all know everyone does not buy or sell on January 1, the calendar is our human way of accounting for things, especially money.

However, I first gained an understanding of alternation under Bob Farrell at Merrill and he used calendar demarcations when he discussed a prediction of change.  For example, after the lowest volatility year in history in 2017, our publication MarketMap2018 suspected a more changeable year in 2018; and we got a year with two major sell-offs. Furthermore, the sell-offs alternated, one in the first quarter and the second in the fourth quarter.

 

Top outside news events list by a major content provider is all bullish.

 

Just more of the same. I don’t want a medal pinned to my chest, but the information I provide is aimed to be educational, instructive, strategic and executable. Rather than a sales pitch about how “wow-wee-zow-wee” the market has been.

The last time I read about records like the one pointed out here was just prior to the peak in late January 2018, when the previous rally in the S&P and Dow did something similar.

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Back Story
Calibrating The Craziness

A pattern to which investors have become all too accustomed, the Fed pounced into action soon after stocks fell precipitously in March. And pounce it did. In a set of measures that were mind boggling both in terms of magnitude and breadth, the Fed sent a strong signal of its commitment to support markets. In addition, it kept rolling out new policies throughout the second quarter in order to quell any remaining doubt as to its intent.

In conclusion, this market has been far more resilient than I, and many other value-oriented investors, ever thought possible. Passive flows go a long way in explaining this phenomenon. They also suggest whatever craziness we have experienced can continue for some time. Fundamentals really don’t matter much in this environment and as result, stock prices have little information content.

 

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

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