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    CT Journal

    FAANG

October 22, 2018

Fanng stocks losing their bite

It is becoming more doubtful the bell weather Fanng stocks will reverse a series of sell signals from the high pivots in September. Failures to hold new intermediate term (IT) support along with a break below classic neckline formations add to the bearish outlook. The red arrows hight light these breakdowns. Both Amazon and  Google broke below I-T support and continue to trade under that level, a bearish indication.

GOOG is sitting on long-term (L-T) support (old L-T resistance) where the inability of this market to get back above this level would further the bearish outlook.

One of our favorite shorts is Netflix.  Of interest in the above daily bar chart is the 100 point risk the stock has until it reaches the high side of our L-T support zone.

 
Once the neckline breaks the head and shoulders top targets a decline of 100 points or better. Further, our measures of rational vs. emotional buying peg all of the buying from 190 into its historical pivot as panic or FOMO motivated. As such, it will flip easily once the decline puts pressure on these traders.

These diverse methods provide price targets clustering, which adds confidence. Now, its a matter of market dynamics to provide insights into when a forceful move can be expected.

Netflix’s background or set up on a long-term basis is similar to the Dow/S&P peak in late January when it peaked on panic buying followed by a mini-crash on panic selling. With Netflix, the panic buying into June provided a pivotal high with a decline that did not lead to panic selling, at least not yet and there has been no new long-term TE. From an I-T point of view, the dynamics only mostly support a forceful trend this week and S-T the market has not worked off its panic selling.

Puts

NOVEMBER 2018 (EXPIRATION: 11/30)

Strike Last Net Bid Ask Vol Int
NFLX1830W337.5-E  16.20 +0.74 20.45 21.50 1 59
             

My initial trading experience used only high delta puts and calls. These are deep – I mean deep – in the money options. Today it is difficult to avoid time premium, without giving up lots of liquidity – as inferred by the volume/open interest.  The weekly November 337 ½ put is 5 ½ points in the money and with six weeks to work has 16.00 premium. I would look deeper and keep an eye open for any OI.

However, the potential is there with a conservative target of 264 leaving the puts 60 points in the money.  The bid/offer spread is a full point; some option brokers are better than others.

It’s easy to get started, and the only thing that will keep you from quitting is your success. 

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ContraryThinking Starts Here

Great and Many Thanks,

Jack F. Cahn, CMT
A Contrary Thinker Trader Since 1989,
Copyright 1989-2018

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October 9, 2018

Volatility Report October 9, 2018

INTEREST RATES

1. Long-term RSI is at the lowest oversold readings since 2000, such a surge in momentum implies a new bear trend and further downside momentum.

2. Our volatility model has the market in panic selling, but not an extreme yet. The panic index is not over 65 where 70 is normally the signal near the end of panic.

3. Prices have broken below the I-T support zone – see daily chart – the next price level of interest is June low at 131 17/32 just below L-T outside support seen on the monthly chart.

4. There is a COT due in mid to late October.

5. %BB- $SRVIX reflects a volatility breakout support the current trend.
Outlook remains bearish

CRUDE OIL

On a near-term basis, crude has some un-resolved business getting to 79-80. TEM for all three-time horizons are signaling the trend is persistent and old. Until there is a fresh TE to change the trend condition, the trend is higher.
True North is long the Crude futures.

PRECIOUS METALS

Keep in mind the big picture always, “The bull market that began with the 9/11 terror attacks ended in 2011. Volatility Reports expects new Geopolitical events over the next two years, yet gold is not discounting them at this point, and the events remain an “unknown- unknown.”
It may not be so “unknown” today, I did point out in the 10.8.18 update that China and the US may be on a collision course.

1. Along with the moving averages the descending steps of fixed S&R point out the clear downtrend for gold.

2. Systems remain short, and the S-T TEM remains on a TE#2 supporting breakout or trend trading. However, prices are in I-T no man’s land trading inside the I-T fixed S&R zones.

3. If implied volatility – measured by %BB in the right-hand chart can spike to a higher level to reflect a greater amount of perceived risk while prices continue to hold, difference, that would be a bullish signal

4. As stated in last month, there is no clear panic at this time. So the gold market is on hold, not knowing which way the market will break and not much in TEM background to support a big sustainable move.

5. There is a COT date expected in Mid to late October.


US DOLLAR AND FX

A new high by the dollar index – above 101.62 – would confirm a longer-term bull market is in place. A bull market that began in 2011 it has L-T resistance from 102 to 106 1/2.

1. I mentioned last time that: “It falls into line with “hyper-correlation” that volatility will affect all the markets at the same time. So, it is no coincident that our volatility modeling – is in sync across all time frames and supports a dynamic trend from here.” The L-T and the I-T models have stayed on the TE #2 supporting a dynamic trend. S-T has not reached any other extreme as well, while it is close to moving into a persistent old trend mode.

2. The Intermediate-term trend is up, prices remain above long-term averages and the I-T S&R zones – right-hand chart – are stair-stepping higher.

3. True North is long the DX, and HedgX Superfund is long as well, both coming off support zones.

4. The wild card going into October is the expected Geo-political events, in a month notorious for market panics, our bias remains bullish on the USD. Will the dollar or gold or cryptocurrencies or something other is considered a haven.
We remain bullish on the buck.


S&P SECTORS WITH RELATED ETFs

Most of the sectors appear to be modestly bearish with 11 of the 16 position’s short on a long-term basis and evenly split on an I-T basis. We view this as a better indicator then the A/D line, which is now out of gear on some of the major indices.

1. The previous leadership from the high-tech sectors is now in the early states of a mini-panic sell off and no signs of a low, yet. IVG, for example, should test L-T support at 180, at least.

2. I pointed out on LinkedIn the problems the biotech sector had; it is now in a full-fledged decline just now entering panic mode. I do not post much inside info in the public social sphere. However, it is the only marketing I do, so please consider giving my newsletter to a capital manager you know. XBI has already broken I-T support, and a move much below 89 takes out the L-T support. Long Term support is below 60. The March lows around 80 may be the risk this time around.

3. The health care sector (XLV) is persistent here with a little momentum on the upside and no set up for a trend on the downside either. Waiting to suggest a long volatility hedge pending the next signal from TEM for a change in dynamics.

4. The financial media is trying to talk up banks and brokers sector (XLF) group, which had a rally as a result recently. They took advantage of the S-T panic to get a bounce. However, this key sector has failed twice to reassert its bull market since the January peak and has failed. Prices are mid-range without direction and little background technically to use as a springboard either direction. L-T TEM remains on a TE 2, but the I-T and S-T do not support a trend.

FAANG WITH RELATED ETFS AND OPTIONS

1. Apple is the strongest out of the bunch with the others completing top formations. Here are a few examples. The risk is considerable, and TEM provides the context for trending moves here based on all three-time frames.

2. Berkshire is showing good RS here and new highs. It is a place the capital manager seem to trust in the face of a pending decline. Please keep in mind hyper-correlation here. BRK will not avoid the bear market.

NOTE to Capital Managers. Cash or kind sometimes is a good place to be. With that in mind, relative strength analysis works best during bear trends. To see where the next leadership is emerging. As they say, “cream rises to the top.” Volatility reports will keep you posted.

OFFSHORE STOCK AVERAGES WITH RELATED ETFs

Last issue I pointed out that “Excluding the Nikkei and the FTSE, the remainder of the foreign markets are in bear markets are finishing their topping process. Value type investors are talking about buying China, but on a technical basis they are early, there is no sign of a panic low yet.”

Here is a recap of the Volatility Report update Sep 13, 2018
“After the February spill, it was unclear if the Japanese stock averages had put I a clear peak and kicked off a cyclical correction like the Dow and S&P. TMT had deemed the advance from the 2009 low the beginning of a new secular bull market that would rival the big bull run from 1950 into 1989.” And

“The …. – the multi-month horizontal triangle is a pattern that is resolved by a high rate of change trend when prices break out of it. At the time I pointed out that “TEM model on the weekly bar supports a high rate of change trend with Technical Event #2.

The market gave us what we expected, a 2500 point near the vertical run. Now the Nikkei has made it final top and has begone a new bear market.


Over the next 18 months to two years, it targets the bar chart resistance in late 2016. The bear market ETF for the NK is Ultrashort MSCI Japan EWV @ 25.70. CT is long this ETF today target 38-42.

Capital Managers Note: The very long term of the Japanese market is bullish and preceding the timely accumulation of shares the yen looks bullish today. If investment policy allows moving cash into the yen to maintain its buying power for the accumulation of Japanese shares looks favorable. A special report is forthcoming.
More offshore:

The only Bric nation with bullish technicals is Brazil, which will be monitored during the current downturn for positive money flow, good buying

V-Reports on the 24th of September pointed to the Nifty Indian index represented by its oldest ETF, Investco India with its topping pattern. The head and shoulders formation mixed in well with the weakness seen in the remainder of the chart. The call was for risk to 17 – 18 or 25%.”

However, the real-time PIN is in an I-T and S-T mini panic, typical of a low. This does not mean the market is not going lower longer term. The long-term chart’s Volatility modeling supports more monthly range expansion, hence lower prices. The October range thus far has broken out of its historical band, so another 10% is likely. The TEM set up is 4-1-1.

The Hang Seng is about to place catch up with its big brother. The risk is 30% from current levels. After looking at the historical chart from 1963, a cyclical correction is overdue. Context supports a period of range expansion backed up by the dynamic trend. Prices have failed to hold its bar chart breakout as well as its fixed ratio L-T new support zone. Shifting to long Volatility investment vehicles here is suggested.

What is curious is one of the most popular ETFs in Hong Kong a bear ETF. According to Blomberg “ The CSOP Hang Seng Index Daily Inverse Product has attracted some $148 million worth of cash in 2018, the biggest inflows for any fund trading on the city’s exchange.”

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