MarketMap2021 Issue #12
July 5, 2021
July 5, 2021
Brutal Reality Check Expected
If you believe in Technical Analysis, your working assumption has to be that form (the market) precedes substance (media rationalization or the extra market news). No, the market is NOT a discounting mechanism. News event – hundreds are being presented daily via social news feeds to community blogs from Zero Hedge to Seeking Alpha. Contrary to Thinker’s looks at price context and the time factor, everything else is a “Back Story,” the sizzle, not the steak.
Today social media pundits and providers of market data are in utter amazement. They have never seen their event-based analogies break so many records. The headlines are streaming ” never have we seen…” For example, no dips quarterly, monthly, weekly, and daily exceeding all previous extremes among every observer that provides content in the social domain, but they remain optimistic. For the economic and media event-based bears, their story is the “same old same old,” with accessive debt being the primary issue and a crashing dollar and a gold rush. The bulls pointing to a reflation after the pandemic shut down will grow the market out of any problem. The news background has not changed much over the last four years.
Overvaluation, no fiscal or monetary tools to assist in a soft landing when the next downturn happens to the competition coming from China.
The debate seems to be over inflation. Is it a problem or not, is the relation trade-off, or will it get out of hand? The messages are confusing to investors. Here is an example:
Inflation May Have Peaked, Killing The Reflation Trade
“The reflation trade may have just died a horrible death on June 10. The CPI reading came in at 5% year-over-year, ahead of estimates for 4.7%. But despite the hotter than expected reading, bond yields continued to slide. Despite months of hotter than expected inflationary data points, bond yields have been moving lower, and breakeven inflation expectations are now plunging as well.”
Smart money is talking with their pocketbooks with a concern about either tail risk, both deflation, and hyperinflation—more on that below.
In the LinkedIn group space, I pointed out last week how the market tipped its hand from the beginning of 2021 as irrational in the same way that it made its peak in late January 2018 and late February 2020.
I understand that many Technicians base their work on the premise that all market activity – is irrational (aka fear and greed), excluding the lone Technician. However, I have found that many technical analysts are heard, thinkers. As a rule, they are social animals. Be that as it may, my Technical Event Model (TEM) provides a clear insight into the buying and selling motivation: TEM tells me if market action is rational or emotional and when it reaches an extreme. With the irrational signals being rare on the long-term bars, they are more important when they do happen, at both tops and bottoms.
As stated from the beginning of the year, near 30,000 Dow, the buying became irrational and, on that basis, will be easy to flip as it is grounded in fear of missing out, aka greed. Hence these buyers will be guided by their account balances as they drawdown instead of a rational technical reason to be an owner.
From the start of the year – see the eBook “Time Factor” I have outlined the big cycles that have crammed themselves into this period 2021-2022, and the point they are cresting as this publication is being written over the 4th of July holiday weekend. With the background, the context of the market primed for a reversal of trend in the first six months of 2021 is now all about the critical Time Factor. The 245-248 years of the beginning of this glorious country, which by the way, is a critical returning cycle as well.
One of the primary large cycles is the 90/45 year cycle, which I will not rehash here. But there is no coincidence that when the numbers 1 through 9 are added, as in Pythagorean theory, they add up to 45 or that the 360 degrees in a circle are eight 45 degrees.
The current time window is the same as 1931-1932 and 1975-76, one period of deflation and the other of stagflation, the former left-hand tail risk, and the later right-hand tail risk.
This work by Jack Cahn is licensed under a Creative Commons Attribution-NonCommercial 4.0 International