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    ELLIOTT WAVE THEORY

May 4, 2020

Volatility Report 5/4/20

All the techies who missed the big top are getting itchy here looking for reasons to sell.

Contrary Thinker did not miss the top (called it 2/12 and 2/19 ) and engaged long volatility strategies (Sunday night 3/23) to hedge traditional portfolios and to profit in 80%/20% split Cash/Futures combination. Here is a link to the 16-page pdf that shows you how we did, track our thinking.

The majority in mid- March called to a quick return to normal as seen in the Goldman scenario posted at that time. Today after a 30% bull market in five weeks the majority on Twitter was back to being bullish. As we go to the open today with just a hint of decline the TA’s that missed the February peak is getting serious about a real bear market. Hedging their advisory and grouping together with the same idea to watch the FANNG sector-based ideas propagated by their seniors to add credibility to their advisory’s caution. 

Contrary Thinker labeled the peak in January 2018 a REGIME Change. Since that date, short only volatility breakout systems on the ES have beat buy and hold the stock index future ES.  CT called the peak in late September 2018 and again engaged long volatility systems into early January. On February 12, 2020, we reintegrated “risk-off.”   We have been faulted by the buy-side only managers for missing the bottoms, our advisory is built of capability and trust. Since the low December 23, 2018, and the low March 23, 2020, we have not given buy signals or risk on advisory.

We did, however, disengage our hedge – the long volatility strategies – when buy signals could have been made, “risk on.” But it was not worth the risk we expect. Furthermore, in the face of the before mentioned long volatility breakout systems in an 80/20 split portfolio with 80% in 2-year notes and 20% in futures, the performance has been above average.

Dow Utilities

Furthermore, as everyone knows bottoms are easier to isolate then peaks and that is CT’s specialty picking the lows is easy and the low in March was signaled weeks before it actually happened, a telling sign for divergence like 2007-08.

The above chart shows the pealing off of the defensive stocks. The group was bought in panic as the flow of funds exited regular shares. Now it is inferred that either the funds are rolling back into the advancing stock market or there is no place to hide in the face of the coming decline.

The above chart of the Dow utilities reveals a background that supports a forceful trend. A move below 753 would be the next sign of the downtrend unfolding and confirmed below 528.

Cash S&P

Like the fixed zones we use the variable bands show the same failure reversals and the confirming breakdown six days later.  What is also conspicuous on the chart it CT’s Technical Event Model (TEM) giving a Panic-Event Signal, highlighted in red.

Today the last two peaks have failed to hold and any trend that can pick up a following here will be dynamic, with the last TE being a rule #2.

similar to the variable bands used on the S&P index, the four markets showed here using our fixed zones; and it is clear that all four of the indices have failed to hold. With these reversals being preceded by Techcnail Event #2, there will be a carryover of the downtrend.

Bottom Line

Risk-off, raise cash use risk-free investments. 

Hedges- Long Volatility Strategies – remain off. While the nominal high may be in place for the secondary bull market posted on 4/29/20, CT will wait for the model to give a clear engagement signal before we go “staus-on.”

 

Subscribe to Contrary Thinker today, if you are a visitor to the LinkedIn “Volatility Report” you know the free look will end 

 

Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. 800-6183820 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

April 20, 2020

Contrary Thinker’s Spring Outlook

Deflationary Spike

This advisory has been expecting hyper correlation since the peak on the majority of markets in early 2020. That means a near one to one correlation between all of the markets includes the credit markets, like the long 30-year T-bonds. Yet the bonds have every reason in the world from outside world speculation like the world wide deterioration of credit quality the US government bonds of all maturities refuse to follow through in their decline, once a high pivot is in place.

That brings us to the background of the market today, on a short term basis is set up like a wild animal about to break out of its cage. The chart used here shows two critical factors. One is the triangular look of the sideways range, a pattern that typically leads to a high rate of change trend that is about the same length as the widest part of the triangle. That would target 200, which is a number we have mentioned before as a potential.

The context of the market based on our volatility model reveals a prolonged Technciual Event #2, such background is almost always the springboard and a leading sign of an HROC trend to come.  Our bias would be bullish here on a short term basis.

Long Term portfolios should continue to use opportunities to raise cash.

LongTerm  US T-Bonds

 

Bitcoin

Four days ago, I posted via the LinkedIn Group the following: “There are a number of risk assets that the group use as a leading indicator of trend direction. Bitcoin and digital assets, in general, are a risk asset, not a hedge as their promoters want everyone to believe.”

I went on to say “Our aggressive short-selling scalping system is engaged on BTC, it is trend following; hence you see “no trades” on the left-hand chart yet. The market is sitting on support in the screenshot, a move below 6725 should be a kick start. TEM provides a context that calls for a forceful trend. ”

Here is an up to date chart of the Bitcoin, which is set up for a run one way of the other. It remains locked mid-range on a S-T basis. It has been in a TE#2 holding pattern frustrating both bulls and bears from any one way trades. Hence a break should get carry over the S-T levels for the break is in the data window.

CT’s bias is bearish, our OB-OS model is on a sell signal, and the positive correlation BTC with the stock market fits with our outlook there. Our publications pointed out in 2018 that the BTC is a leading indicator of the US stock market, so a break lower here would be in line with the bearish set up for the stock market averages.

Traders should expect a minimum of $1,300 fall. Our short only breakout scalper is engaged when the market breaks below S-T support.

 

 

Crude Oil

Contrary Thinker has been bearish on Crude Oil since the peak we called in late September 2018.  In the report dated 9/26/18, it read, “The bar chart of the Crude Oil futures has traced out a 10-point wide triangle where prices have broken out. A measured move targets 80.00. ”  The report went on to say,  “The post triangle thrust fits the Maps change of trend dates with a peak in the next two or three weeks. ”

The peak occurred the same day the Dow made its peak October 3, and our long term target was 20 to 30 dollars per barrel.

The chart featured here suggests the panic selling is not over, and a target of 17 dollars to 13 is likely.  We will be looking for setups that priced one-day long bar short-covering really and keep you posted. But from a long term point of view, this market is dead in the water after it reaches a bottom.

Supporting the bearish outlook is our total wave system. You can see it flipped to the short sides only after a brief period with a bullish bias. You can also see its track record over the long term.

Gold

I pointed out late last week that ” Gold’s panic buying reached an extreme weeks ago when it first hit 1700/oz. The chart on the left reflects the underlying fear of missing out on the uptrend is rolling over. The chart window one from the left shows one of our sell signals with the OB-OS model being out of gear.”

“It also shows the break above our L-T resistance zone with the high side being 1700.30. As I post this for Volatility Reports, Gold is 30 bucks above that level.”

“Our volatility modeling is suggesting an expansion of the weekly range; therefore a run at the 135 weekly range is a target. I-T support is broken with a move below 1723 – see daily chart on the right. A failure to hold the long term breakout with a move back into the L-T zone would be seen as a failure and treated harshly by the market.”

“The bottom line is the market needs to fail to show its hand. A break below 1700 would signal for short-selling strategies, that includes FE plugin on TS. We are creating a table with dates of status on and off for the hedging program. ”

The up to date chart reveals the testing of the 1700 level, and as I am writing this, the market is at 1699.70. Short tern support zone runs from 1652 to 1687.20 with the low today thus far bouncing off it at 1685.00 A fall below 1652. would confirm the downtrend.

Revising the bottom line here, we will be patient before any new strategy engagement. 

Commodities

I heard several professional money men on LinkedIn say they would not consider rebuying the stock market until they see a recovery in the commodity markets. I do not find this strange anymore, that hyper-correlation is a fact of investment life, both long and short.

The cycle’s pattern uses to be the following: bonds rally followed by stock a few months later, followed by a bull market in commodities. As inflation kicks in, that starts the hike in rates and lower bond prices followed months then by a bear in stocks, the old three steps and stumble rule, and eventually, commodities and inflation are controlled. Prices decline to start the big cycle all over again.

Not today, the flow of funds is all in or all out, investors want to see some amount of innovation before they invest in anything. In other words, everything is a risk investment. If you set credit risk aside, bonds are a market risk with below-zero yields.

Our chart of the S&P commodity index tells investors a few things here.  One is just like the other markets discussed above; it too has the priced based background of a Technical Event #2—this event from out volatility model process HROC trends in one direction or the other. Please remember, volatility modeling is direction neutral.

With that in mind, this market just failed to breakout with this background six days ago. The market is now testing S-T support from 146 to 151. A break of this zone suggests 108 -110.

Subscribe to Contrary Thinker today

 

Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. 800-6183820 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

April 15, 2020

Three Waves of Panic Two More Expected

MarketMap Issue #8 2020

Two More Waves of Panic Expected

You see in social media permeating the public domain the fractal overlays of 1929 with the most recent panic sell-off.  The problem with this parallelism it is not anchored to anything at all except the similarity visually when resized and overlaid with each other.

ContraryThinker uses a method discovered in 2000 that I have advanced called the Event-Based Cycle (ECB)  that produces a similar peak to low intervals, it projects related date windows for tops and bottoms based on how the highs are anchored with each other mathematically. The charts below provide what is expected to be the scenario of the market going into late summer; along with an alternate scenario main difference of the low this year hitting later than the others.

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September 28, 2019

Chart Gallery Big Turn September 28, 2019

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September 6, 2019

Risk is about to take on a new attitude.

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September 3, 2019

Bottom Up all time frames TEM Video

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September 3, 2019

Short Term Risk with Video

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June 24, 2019

The Good Bad Attitude, Contrary Thinking

February 16, 2019

Direction Neutral Risk Assessment

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November 6, 2018

MarketMap 2018 4th Quarter

CONTRARY THINKING

What is typical of a major market top is how most professionals in the industry speak about normalizing the corrections.

Contrary thinking looks for one of two circumstances to correlate with such major turning points.

The one is when data or events remain the same but the marketplace’s interpretation of the events changes. The other is when the data/events change yet the way the market is interpreting the events remains the same. The one is a shift in mood, and the other is a denial of change both imply a regime change regarding the market; and possibly the economy.

These interactions give subtle clues of change that allows the contrary thinker to act before others, before the majority.

So today while the facts have remained the same, the interpretation has turned to the above-referenced normalization process, which is par for the course after the first signs of the new bear markets.
This normalization process sounds like this industry-wide: “Wall Street has seen 56 pullbacks (retreats of 5-9.99%) in the past 73 years; the S&P index dipped 6.9% in this last one.”

And they will add that, “…the benchmark fully rebounded from these pullbacks within two months.”

They are also eager to point out that since the March 2009 low there have been 5 or 6 setbacks of 10% +/- while the S&P is still up 335% even after the October decline. But here is the catch, there working assumption is they can not time the markets. Furthermore, the inference is that if they can’t no one can.

That’s because as one “wealth manager” puts it based on the current bull market history: “…waiting out the shocks may be highly worthwhile. The alternative is trying to time the market. That can be a fool’s errand. To succeed at market timing, investors must be right twice, which is a tall order.”

Why would it be a “tall order?” It only makes sense on what he says next: “Instead of selling in response to paper losses, perhaps they should respond to the fear of missing out on great gains during recovery and hang on through the choppiness.”

Wow! Instead of looking at price-based timing models to avoid the risk and to find opportunity, he is reacting to the profit and loss trail, which is post hoc, reactive and emotional based. Hence this wealth management is not based on any “discipline” I recognize. It is based on the profitable of the portfolio. This explanation is what brokers normally say about their client’s failure because its based on fear of loss and FOMO.

Another sign of an important top is in place along with the above apathetic attitude is the modest appearance they are giving to the risk. The rare bearish voices have only modest expectations for the decline.

Lastly, the majority of financial news pundits are kicking the can down the road with 2019 being the consensus.

With that said, done and dusted, our focus is on risk management point based on an objective model not a rationalization or cherry-picked array of Technical Analysis. It is the independent use of price-based tools, strategies, and macro filters to provide actionable and straightforward support.

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