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    MarketMap 2020 Issue #10

    June 3, 2020

June 3, 2020

MarketMap 2020 Issue #10

Hope Permeates the Headlines with the
Felling of Back to Normal Conditions

Contrary Thinker has a number of new members and I welcome you on board, please feel unencumbered to ask questions or provide feedback in the private LinkedIn Group. I will send you a user doc on the Volatility Model shortly.

With that in mind, we are not in the business for the transaction and as an advisory, we do not consider opportunity risk, because a loss is hard to makeup – its simple math. Our point of view is the waiting is for low risk – ideal setups – that provide 4 to 1 or better risk-reward.  We did that this year with the collapse in late February into March 23, trading only long volatility systems and aggressive short-selling systems on the indices and crude oil.

Since the low its back into a holding pattern. We prefer the high volatility periods because they are less risky and the setups are direction neutral in some cases.  To make a point by extreme example, volatility can run at either end of the curve, hyper deflation, or hyperinflation.

with that in mind, forecast are just that, scenarios to keep capital managers on the front foot and prepared for what is coming – sooner or later. The forecast also provides risk outlook and market conditions outlook. For example, since 1/23/2018 we have been long term risk-averse and see each rally to new highs as an opportunity to at least raise cash.

Again, and this is not bragging as Contrary Thinker did it, we called the peak in late September 2018 and the most recent peak on February 12 and 19.  As it is a well-known fact throughout the investment community that a top is Harding to isolate than a bottom if you are looking for the master at calling peaks, you are in the right place. I am not talking about nominal highs for bragging rights, rather the low-risk setups to the right-hand side of the nominal peak to get my people positions to take advantage of the decline, to cash in their hard-earned profits.

Contrary Thinker has the guts to point out the low-risk lows, as you will read below; but from a long term point of view, the low on March 23, was not a low-risk low, even though it was a good long side trading opportunity.

Market Map is part of the comprehensive system we use, to pin down dates for changes in trend, and build scenarios. The first featured chart is published several times over the last year to 18 months. It shows one of my cycles calling for a peak late in 2019 and a spill from Mid-February 2020.  The cycle projected the low to happen in April-May. but it happened early,

No harm no foul as the aggressive long volatility systems were disengaged to avoid any whip-saw. action, which is the Achilles heel of our systems.  The long-only VX futures system made 60% over the few weeks, max DD was less than 1%.

18 1/2 year Tidal Cycle

 

Based on the early low and counting forward the next high in the US stock averages is expected in June -August, a time window I will refind here.

Event-Based Cycles

ECBs are tied into historical peaks that had the same seasonal and tidal configurations as the current one under consideration. Both the 1934 and 1966 had similar peaks leading to bear markets after pullbacks in April. Both scenarios have their next high pivot in mid-June followed by steep declines in July and September.

 

Going back 140 years – not showing pre-1920 that are similar- here are three additional late winter peaks but in March with the same tidal configuration.  All three show a tendency to peak in mid to late May to Mid June and collapse into July and September, like the above chats that peaked in February.

 

The suggestion is that a peak – be it at new highs or under them is not important – is expected between now and mid-August, and this is not a new secular bull market.

Unparalleled Market Events

It is without argument that the 1987 crash had no reason behind it that anyone could prove. The spill was unprecedented in terms of percent decline and the time it took. the collapse in 2020 is also a stock market event that was sudden – a known unknown – and the price damage and the amount of time it took was historical.

However, when you look back at all of the “out of the blue” selloffs the ones with “W” lows, where the low was tested preceded more bull market. A base was built as you can see in 1987.

However, when you look at the 2000 – 2003 bear market the 9/11 panic on the re-open was a “V” shaped low. That low did not lead to a new bull market. In fact, the low was tested and broken until a “W” low was established in 2003.  You can also is that the counter-trend recovery peaked 3 1/2 to 5 1/2 months later, a scenario that fits the above narrative.

While the chart is not shown, the 1929 panic was followed by 4 1/2 months of recovery, similar to the pattern outlined above and it too was a historical event.

Contrary Thinker via its “Volalaity Report” will provide the market background that will likely set up the market for its next decline.  No hurry from here. The most recent post worked over the Bitcoin market, which is a leading risk market and should be telling before the peak.  More on that later.

Great and Many Thanks,

Jack F. Cahn, CMT

A Thinking Man’s Trader Since 1989,

Copyright 1989-2018

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