May 6, 2020

Stock Averages Back Story Weekly

Bear Market Reasoning

The opinions why the market is expected to continue with its longer-term bear trend have been clear for many months if not years. (See MarketMap-2018 and Volatility Report 2020.pdfs). So we will start with the May Rule and CT’s chart of the trade plan in trading code to validate its reliability.  The following brief we found goes into more depth.

‘Sell In May’ Will Determine The Fate Of The Bear Market Rally In S&P 500

Following a devastating Q1, U.S. stock markets came back to life in April, as S&P 500 (SP500) overcame record drops in major economic indicators such as consumer spending, services ISM, etc. to post the best monthly gain (+12%) since 1987. Though if we dissect further, bulk of the explosive gains were made during the first 10 trading days of the month, with S&P 500 largely unchanged over the past 2 weeks after higher highs were rejected ahead of the 50-week moving average:

Shooting Star Candlestick Pattern in S&P 500 Weekly Chart

In the process, an ominous “shooting star” reversal candlestick pattern was formed last week after a 2-day decline wiped out more than 4% of intra-week gains. Such technical pattern warrants our attention, as we noticed that similar “shooting stars” had marked the end of previous bear market rallies between 2001-2002:Stock Averages Back Story Weekly

Weekly Shooting Star Candlestick During A Bear Market Rally Since 1930


It’s good to see signal formations being accessed in context rather than generalized.  But there is more.

Nomura’s McElligott Turns Bearish: With No More Buyers Left, Stocks To Slide Across The Summer

Click here to view the original web page at Nomura’s McElligott Turns Bearish: With No More Buyers Left, Stocks To Slide Across The Summer

Failing to take advantage of positive dealer gamma, the S&P is now stuck in “no man’s land” and as Nomura’s Charlie McElligott writes in his latest note, the market is “essentially near the Dealer “Neutral Gamma” level (~2845) and between 2 of the 3 largest Gamma strikes on the board (2850 w $1.355B and 2900 with $1.284B), while also now at the “Neutral Delta” level (2882 incl this week’s expiry).”

‘Investors’ Ignore Mumbling 90-Year-Old Omaha Man – BTFD As Buffett Sells

Click here to view the original web page at ‘Investors’ Ignore Mumbling 90-Year-Old Omaha Man – BTFD As Buffett Sells

It’sStock Averages Back Story Weekly not just airlines…

Here’s the real reason why billionaire investing ‘genius’ Warren Buffett didn’t spend one penny of his massive cash pile as stocks plunged at a record pace… according to his favorite broad market indicator, US stocks have never been more expensive…

And the “Virus Fear” trade is notably higher (i.e. fear is rising)

The Bear Market Just Started

Here are some key facts, if you are in this industry and know what you are doing, you’ve got a job. Even if this bear is like 1929 through 1939 based on the 20% definition of bull and intervening bear markets there where Ten (10) bull markets ranging from gains of 24% to 127% with five bear markets separating them that ranged from -37% to -56%. Market timing will be key and rotation from groups will be key. Just like the 1970’s we had theme stocks from gaming to production increasing technology to SA gold mining.

A peak happens every 5 years on average followed by a bear that consumes in an average of 21 months in time 38% of the wealth created. the two shortest bears were 1987 in less than two months took profits in the amount of 37% and the correction in 1990 that last three months and sold off 22%.  Both exceptions.

The averages look like this over 140 years, so the bear leg from February 12, 2020, to March 23, 2020, would rival 1987 for the short length and cashed in 35% in profits, again similar to 1987. But that is where the likeness ends.  The bull market was young, only five years old and under a single administration, Ronald Regan.

Time Months Money Damage price damage monthly
Sum Average 21.61 38.65% 3.43%
Less one Sdev 14.59 14.61% 4.34%
One Sdev 36.20 53.26% 7.77%
Two Sdev 50.80 67.87% 12.11%

Whereas the bull market that peak in February 2020 was well past its prime was more than three standard deviations above a bull market average length and there was a change in political regimens, which bolstered the bull with corporate tax cuts by the Republican party that controlled all thee centered of power. So after eleven years of the easy money, the market was fragile as our volatility model had been pointing out with each top from late January 2018.

2009-Present 133.00 455.00%
2009-Present 133.00 495.00%
Time (all data) Time Limits/Months Wealth Created
Sum Average 32.14 124.43%
Sdev 39.30 142.46%
AvgDev 27.95 101.64%
One Band 60.09 226.07%
Two Bands 88.04 327.71%
Three Bands 115.99 429.35%

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Copyright 1989-2020

Great and Many Thanks,

Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2020
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. 8006183820 or 25/1 Poinsettia Court Mooloolaba, QLD Australia 4557 614-2811-9889
— Contrary Thinker does not assume the risk of its clients trading futures and offers no warranties expressed or implied. The opinions expressed here are my own and grounded in sources I believe to be reliable but not guaranteed.
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