January 20, 2019

Market Outlook: Long-Term Trend Following Models Are Turning Bearish

Volatility Report January 21, 2019

From the many analysts and capital manager reports, I read they almost all sight the well-publicized concerns but only a few are bearish. Not a good sign from a Contrary Thinker point of view. From the many I found one who at least toned down his bullish enthusiasm as seen in his summary: “Some popular long-term macro models are turning bearish on stocks for the first time since 2008-2009. Throughout 2019, other macro models will slowly turn long term bearish as well. The probability of a pullback/retest is still high. As the stock market rallies higher and approaches its 50%”

However, Volatility Report dated September 24, 2018, explained things this way, “The problem with the bulls waiting for a clear reason to sell is the vast majority point of view. Add to that fact that the majority of systems and strategies all have sell signals within the same price range when the signals hit it will be a rush to the exits.”

That is what the market witnessed from late September right into Xmas. The only thing that is slow, is the unfolding of a bull market mentality. Bear markets are fast, that is why they are preferable for aggressive trading and hedge funds. Plus systems are already engaged and when this low volatility advance has run its course and the first S-T volatility expansion hits, the bear market will be back off and running.

As a market analyst, I stick with the facts, the high probability ones opposed to wild ass speculation.  Like the following statement is 100% ungrounded, “Dow Theory signal confirms that the short-term trend is up for stocks. Several converging factors increase the likelihood of another short squeeze.”

Well, from a one world point of view, the new highs by the Dow and Nasdaq in September were not confirmed by the world index – net the USA. They have not recovered back to their highs of 2007. Regarding the Dow Theory is how the novice TA and social media bloggers do not know the rules of Dow Theory and that the December lows by both the Industrial and the Transportant indices confirmed the downtrend, with the Transports hitting prices not seen since November 2016, the beginning of the extended bull market CT expects the market to correct completely.

Regarding the speculation of a short squeeze, there is no sign of panic here, TEM has just reached a Technical Event #3, an event that tells the investor/trader the current trend is laboring, it is old, persistent and ready for a change.

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Great and Many Thanks,

Jack F. Cahn, CMT

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