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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