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February 26, 2021

Volatility Reports 2/26/2021

The Best Reason To Be Bearish Is…There Is No Reason To Be Bearish”

Bracketing off the one-day Disney rally that took the Dow to a new high on the 24th ( I mean, who could sell short Mickey Mouse or Donald Duck?), the beginnings of a meaningful decline took the first bite out of the bull market. The change of dates from the 17th to the 24th does not make a difference in the outlook (more on that in MarketMap-2021 Issue#7.) The decline from the 17th into the low calendar time windows for a change of trend unfolded as Contrary Thinker outlined. Here is the thing.

The first set of charts shows the tidal extremes at the highs (red arrows) and today’s sell-off, highlighted by the red dots. This was CT’s call, and the Nasdaq was picture perfect. What was noted in the last issue is the expectation of only a temporary holding of any attempt to create a pivot low here before the weekend. My work and the teams do not see a new S-T upcycle to trade. With the two-week cycle making a low here, inversions – a mistaken attempt – are dealt with harshly by the market. As a rule, there should be an acceleration of the downtrend when the COT fails to reverse the current S-T downtrend.

Please note that TEM’s %C component has spiked higher on most of the charts, and a TE#2 has set up supporting a forceful trend. Context analysis is direction neutral, but given the breaking of support by the indices, a rally here looks like a shorting opportunity.

Note how the Bitcoin – part of the checklist of a peak is deemed to be a leader, and its recovery to new highs above 50k helps the stock market up. BTC and others made their peak on the 21st, two days before the Dow. It continues to be a leading bellwether. Furthermore, while almost everyone wants to throw America’s currency to the dogs, it has again held, and gold is breaking lower.  The vast majority of chatter in the social spaces is a myriad of reasons to abandon one’s own currency and buy gold. In any event, both the firm buck and the decline in the BTC and gold support the stock market’s bearish vision.

Crude Oil

A thorn in my side has been Crude Oil, just not because I am a tree-hugging environmentalist, but the panic low it made below zero was never tested, which is the typical course of market action after a panic low. A bead ct bounce and a test of the lows. From that point, I was correct at its short-term top in late August 2020, but I was looking for the deep test. Obvious it did not happen. On the contrary, it has been one of the hottest sectors from the low in November of last year. All of which brings us into today’s backdrop.

The next set of charts is the implied volatility for the oil market. I provided the chart on the left to point out how its power leads to peaks when it is oversold, highlighted in red and dated. The blue highlights the current oversold, meaning the oil patch bulls are complacent, seeing nothing to worry about.

Given that this is the Contrary Thinker’s decade, the remainder of the picture behind the markets suggests that the market is fragile, vulnerable to a shock. Its point and figure chart has already broken out, and the weekly bar has its smooth Bollinger Bands collapsing along with TEM reaching a fresh TE#2. All of that adds up to a massive move in fear by oil. With the caveat in mind that fear in the markets can be a FOMO and the fear of ruin, my bias is bearish, leading the stocks lower.

As a trader, I would certainly trade the next breakout or trend following signal in the underlying market, whether in the USO or the futures or the bearish ETFs.

There is no such thing as a nice neat, and perfect package when dealing with inter-market relationships. I know many of my team and membership use the signals in one market – like the stocks – to play another – like the bonds. The commodity indices have been cited as in the beginnings of a new bull market in any event. If you gleam over your LinkedIn feeds, you will see the new theme popping up in various and diverse online conversations.

Commodity Based Inflation

In the last week or two, I point out that the Bloomberg commodity index had run its course to complete its first leg up in a longer-term bull market. While the call was a week or two early, the market from the March 2020 low has done several things that add up to its fulfillment. The monthly bar on the left hit extreme volatility – a TE#1, panic buying, notorious for the trend’s chances. The weekly bar in EWT terms finishing a five up into this long-term resistance. Add to that the volatility models for both weekly and daily bar calling the uptrend old, feeble, and due for a change, a TE#3. The point and figure chart have this index hitting major resistance as well. LAstly, and to make clear for newer readers, the dates used in the Market Map calendar for trend change dates allies to all of the markets s just not the stock indices. to that point, the change date of 2/27/21 is key here for a reversal

PLEASE NOTE TradeStation Users

All of my tools are being uploaded on the TradeStation (TS) servers now that I have been assured of their security. That includes both the visual indicator as well as the tradable systems. I hope to have a complete menu with discretion and prices on the CT’s site by Monday.

Contrary Thinking members with TS have selective access to them with their membership.

30 year Bonds 

Over the last week or two – since the Todal wave low shown here by the most recent up blue arrow – Volatility Reports is looking for a low, a low that may provide a one-day wonder before going choppy.  I wanted to show the system’s numbers for percent accuracy based on an Algo with only two variables.

However, the cycle low inverted, and as you can see, the rule I posited with everyone previous is that mistakes are dealt with harshly. My ole friend Bob Prechter points out that truncated fifth waves among others, and just like the Rule of Alterations for corrective waves, many of the precepts in EWT have extensions in other forms price-based market analysis.

The above chart shows the bonds breaking below the I-T support zone leading to a panic low. From top to bottom, the panic index hit an extreme over 70, %C reached an acute low below 40, and historical volatility pushed to a high of 78. The question is the panic an event or a condition. Given the change of trend date due in this calendar window, 2/27/21 and next week is the start of a new calendar month, when the rule of alternation is best applied. The assumed Intermarket relationship of “balance” in the world of finance where stocks go down and bonds go up, Contrary Thinker is looking for a firming up for eh S-T in bonds.

P.S there is no such thing as balance in the world of finance except temporarily.

Back Story Risk Takers Taking on More Extreme Risk

Latest BofA Wall Street Survey Finds A Record Number Of Investors Taking On “Higher Than Normal” Risk

Volatility Reports 2/26/2021

The last time Bank of America found that complacency and euphoria were so pervasive across the market that a correction was inevitable was back in late 2017 when the VIX was trading in the single digits for a record stretch, stocks were surging, and the sentiment was one of widespread invincibility which culminated with the great Volmageddon/VIXtermina event of Feb 2018 when all the VIX sellers were crushed, and inverse VIX ETFs were wiped out.

The reason for that is according to the February FMS sentiment on global growth at an all-time high, V-shaped recovery is finally consensus (with virtually nobody believing in it just a few months ago), cash levels are at an 8-year low, and equity & commodity allocations highest since ‘11 (which incidentally was the last year both had negative returns).

And the punchline: only 13% of finance pros say it’s a bubble, as the BofA Bull & Bear Indicator rising to 7.7, just shy of a screaming signal.

… for the following reasons: Net 91% of investors now see a stronger economy in 2021, with the majority of 34% saying it’s a V-shaped recovery, up from just 10% 9 months ago…


The new decade of market timing is here after 13 years of being out of favor. Get ahead of the trends. It’s inexpensive to join and expensive to discard for any reason.  

MarketMap-2021 Annual Scenario Planner provides historical parallelism based on 160 years of data, repetitive extra market events and their effect on markets, tidal cycles peaks and lows, market cycles for predicting time frames for lows, and astrological cycles to isolate cresting cycles. 
Volatility Reports fine-tunes MarektMap’s longer-term scenario planner for the implementation of hedges and long positions. The research publication uses advanced price-based systems buy and short bias signals, traditional Technical Analysis, and new volatility modeling for market dynamics timing, including sectors and newer ETFs.
Both publications share curated news media to add backstories that fit with the ongoing market-based research. 

Great and Many Thanks,

Jack F. Cahn, CMT

Contrary Thinker since 1989,
Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 760-459-4681 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.

— Pricing is subject to change without notice. My indicators and strategies can be withdrawn for private use without notice at any time.

–Trading futures and options involve the risk of loss. Please consider carefully whether futures or options are appropriate for your financial situation. Use only risk capital when trading futures or options

February 21, 2021

Volatility Reports 2/22/21

Covid will be gone by April others say herd immunity by July. Either way, the news on the pandemic is good.

Interest rates

have begun to accelerate higher with the relaxation that the lid is about to come off the US economy. Add to that “the flying high money growth chasing raw materials and the bonds market sees inflation eating at its real return pushing bonds prices lower.

30-year treasury futures are almost in free fall on Friday with all the good news. From the long bars to the short bars, the Panic index is extreme, including the monthly where TEM is within a few decimals of extreme panic.  Panic lows are like water draining from a tub; the closer the water gets to the bottom, the faster the water moves.

Going back to our comment last week regarding a peak in stocks and at least an S-T downtrend, the bonds should counter the trend in their traditional role. Hyper-correlation is not expected here, but always possible.

Tidal wave trends remain down with a COT on the 24th +/- a day.


Back Story

Yields Soar, Sending 30Y Real Rates Positive Amid Overheating Panic: What Happens Next.

Click here to view the original web page at Yields Soar, Sending 30Y Real Rates Positive Amid Overheating Panic: What Happens Next.

Earlier today, we pointed out that after being frozen for almost a year

… real yields finally surged, and nowhere was this more visible than 30Y real rates (i.e., TIPS), which just rose above 0%…

… for the first time since June as 10Y real yields are exploding higher as a breakeven slump.

And now that Real Rates have joined Breakevens (which have moved sharply higher on the spike in commodity prices and especially oil) is surging fast, concerns about a real (no pun intended) VaR shock is also rising.

Crude Oil

If true, early signs of a reversal will support the bonds and put added weight on the stock market averages. The triple moving average cross has two out of three pointing lower, short term. Plus, the intraday bar has traded out a five-wave decline and a textbook three-wave counter to 38%, the ideal place to place shorts for EWT traders.

Gold a deflation leader

The longer-term cycle – the 13-month cycle had the metal cresting in August 2011 and at a similar place 9 years later in August  2020. Its sub-cycle cycle is trending lower with a low due in June plus or minus a month. This would fit a longer-term picture that the rally in 2020 was a post triangle move, and as such, a final movie, not the beginning of a new bull run.

This also fits with our contrary nature with 95% +/- of anyone that follows the metals bullish, as pointed out in our last comment on gold. The new narrative is that digital currency is replacing gold. The move by content providers touting the BTC as the better alternative to gold as a hedge against monetary inflation is becoming popular.

Major support is at the apex of the triangle 1350 +/-, and that is coincidental to the ratio projection we make annual for the support that runs from 1265 to 1490 for the year. Contrary Thinker sees that zone being taken out before any snapback.

The bar chart pattern reminds me of the recent panic high in the 30-year T-bonds in March of 2020, followed by a drifting channel lower. For the bonds that have finally broken into something more forceful. The gold background is ringing a bell for March to see from the month’s opening to the close of the month a 260 point decline or greater.

TEM on the monthly bar calls for that range expansion, and the weekly and daily bar continued to support a trending mode after a TE#2 still in charge. This fits with an EWT point of view of a 1-2 series. Such patterns lead to a waterfall decline, what they call a 3rd of a 3rd, etc.

Deflation Back Story

Middle East Oil Producers Are Drowning In Debt

Arab Gulf oil producers are losing billions of U.S. dollars from oil revenues this year due to the pandemic that crippled oil demand and oil prices. Because of predominantly oil-dependent government incomes, budget deficits across the region are soaring.

Middle East’s oil exporters rushed to raise taxes and cut spending earlier this year, but these measures were insufficient to contain the damage.

The major oil producers in the Gulf then rushed to raise debt via sovereign and corporate debt issuance. Bond issues in the region have already hit US$100 billion, exceeding the previous record amount of bonds issued in 2019.

One of the latest issuers is none other than the biggest oil company in the world, Saudi Arabia’s oil giant Aramco, which raised this week as much as US$8 billion in multi-tranche bonds.

Abu Dhabi, the emirate holding nearly all of the oil reserves of the United Arab Emirates (UAE), issued a US$5-billion bond in September, with one tranche of it maturing in 50 years—the longest term for a bond issued by a sovereign issuer in the Gulf Cooperation Council (GCC), which also includes Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. Abu Dhabi’s latest issue was the third bond issue this year, following US$10 billion raised in the spring.

However, as previous cycles have shown, higher oil prices could once again make Gulf producers complacent and slow to reform economies to cut dependence on oil income. The oil-exporting countries in the Middle East became rich and powerful because of oil, and they will never want to kill the goose that lays the golden egg.

Contrary Thinking Starts Here, 45-day trial. 

In finance, the term animal spirits arise in market psychology and behavioral economics. Animal spirits represent the emotions of confidence, hope, fear, and pessimism that can affect financial decision-making, which can fuel or hamper market growth or decline.


MarketMap-2021 Annual Scenario Planner provides historical parallelism based on 160 years of data, repetitive extra market events and their effect on markets, tidal cycles peaks and lows, market cycles for predicting time frames for lows, and astrological cycles to isolate cresting cycles. 
Volatility Reports fine-tunes MarektMap’s longer-term scenario planner for the implementation of hedges and long positions. The research publication uses advanced price-based systems buy and short bias signals, traditional Technical Analysis, and new volatility modeling for market dynamics timing, including sectors and newer ETFs.
Both publications share curated news media to add backstories that fit with the ongoing market-based research. 

Great and Many Thanks,

Jack F. Cahn, CMT

Contrary Thinker since 1989,
Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 760-459-4681 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.

— Pricing is subject to change without notice. My indicators and strategies can be withdrawn for private use without notice at any time.

–Trading futures and options involve the risk of loss. Please consider carefully whether futures or options are appropriate for your financial situation. Use only risk capital when trading futures or options

February 18, 2021

Volatility Reports 2/19/21

A “fragile” market suggests that any surprise big or small can set off a period of profit-taking.

As pointed out in a recent “VR,” our volatility model had turned mixed. That is important as our research is based on first principles, that form precedes real-world content, and that context precedes dynamics. Back a week or ten days the background was not reflecting complacency, so bearish expectations drop a notch, and when TEM primarily pointed to a low volatility persistent trend, that was not much help either for the bearish side.

That does not mean “risk-on,” the actuarial tables put this market on life support. Plus, just like the life of a loved one who is near the end, it is always a shock to the system when they pass no matter how much it was expected. At least in the back of one’s mind, it was just not today.

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February 16, 2021

Volatility Reports Bonds 2/16/2021

The markets are in a time window for change. While the long-term correlation between the bonds and stocks will become positive later this year, the short-term relationship will continue on its counterbalancing framework.

With our focus here on the long bonds, it appears they have completed another leg of the new secular bear market.  In the first chart CT pegs the low hit last Friday as the end of short term wave one in the longer I-T wave (3).  Hence based on EWT, this market is just weeks away from going into a full-fledge – everyone sees the bear – sell-off.

The chart window on the left shows the Tidal Trend system short from right after the panic buying peak. Today all three trend-following indicators on that chart are trending lower. Our stand-alone “panic” index (not shown ) on the weekly chart is at 64 with 65 or higher being a bell ringer.

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February 13, 2021

Volatility Reports 2/13/2021

So far, investors are unfazed by the growing number of the “somethings” that have not happened. You know the “known unknowns” that are lining up. Plus for good measure, I will include black swans events – the unknown unknowns.

So how will the market react if the republican party breaks apart? Could a lurch to the political left unwittingly pop the everything risk taker’s bubble?

WHEN?

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February 11, 2021

MarketMap-2021 Annual Scenario Planner Issue #5a

Even the well-known contrarians are holding the traditional lines of thought.

The Short Term cycles have played out well; the lows expected in late January came in on the 29th, as seen in the first chart. All three of the major cash indices are at an extreme high in the COT dates as shown in the calendar. Further, the market is in  I-T and S-T resistance zone, the ideal place for a new trade to be put on, aka play the break or fade the gap.

I have posted their trigger levels below on each chart. The current market is set up for a sell signal this week. The unfiltered tidal cycles are expected to flip from today into the 17th. Contrary Thinker is expecting the peak and ATH in that time frame.  I thought we had them on the 14th, but the market quickly repressed the spike in volatility.

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February 5, 2021

Volatility Reports 2/5/21

Every dog thinks he’s an alpha until he meets a Wolf

A wolf can’t be trained to perform in the circus or corralled into an area to be speared for the sport of it.

Somethings are worth repeating, the high on 1/14/21 was expected, and tidal forces pulled prices lower into the 29th as expected – please see COT table for that period.  From that near term, if the 14th was taken out the rally into a peak of ” from 2/1/2021 to 2/8/2021,” would put the high in line with a previous secular bull market peak in 1966.

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February 3, 2021

Volatility Reports US Dollar 2/4/21

The unraveling of the secular bull market in risk assets will come from the renewed secular bull market in the USD that began in 2011.

The redistribution of the wealth from the very top 1% to the 99%, will not blow out the budget or create monetary-based inflation, not turning the USA into a banana republic. I understand why the majority have a hard time getting their head around this when they cater to people with money. But highly unlikely not anyone in the 1%.
Furthermore, long-term Rooseveltian Economics is not Communism – no centralized ownership of assets –  and has the basis for the longest bull market from 1942 to 1966 / 69 / 72, bubble up economics.
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January 31, 2021

Volatility Reports 1/28/2021

The right-hand side of the high pivot, or not.

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January 31, 2021

MarketMap-2021 Annual Scenario Planner Issue #5

The new shining object trying to get everyone’s attention is the “GameStop” short squeeze story and how it will impact the market. The 24-hour news cycle may play with it for a while, but I do not think the story has legs or any relevancy.

While Covid19 is certainly a concern for all of our well being, it is already known, and while it could get worse from a health point of view, it is not going to surprise the market. Volatility Reports will discuss the prime mover this week.
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