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August 15, 2020

In search of Crisis Alpha for its Clients

Shortest bull markets in history based

The risk markets are experiencing epileptic seizures. From erratic and violent outbursts up and down and windmill swing of 12% up and 12% down by the Euro/Dollar. We have witnessed the shortest bear market in history lasting five weeks, knocking off 37% in profits from high to low by the S&P. Followed one of the quickest bull markets since the 1930s lasting five months from the low to date and recovering all of the previous bear moving higher by 38% on average, pushing new highs.

And there is more with the great bull run by the gold of 42% in four months followed by a four-day 10% selloff. Contrary Thinker is expecting Bitcoin to be next on the big swing.

Advisors and capital managers are witnessing the most frequent run-ups in long VIX interacting with CB interventionist policy, responding to an economic and financial crisis. The unwinding of the pre-emptive monetary policy will not end well. They never do, and it is merely because there is no way to grow out of this amount of debt.

According to Ray Dalio, there are seven factors that the trained eye can see that rings the bell for a pending bubble ready to burst at the most straightforward outside event. Here is the checklist allowing you to check off on all the reasons WHY the markets should go into a bear market – both bonds and risk assets, if there is a difference anymore.

1) Prices are high relative to traditional measures. I would make this measure relative to your method of determining what is HIGH, and I would include extended in time.

2)  Are markets discounting future rapid price appreciation from these high levels? The expected return is purported to be high.

3) There is a broad bullish sentiment. That most bull/bear polls and measures of bullish and bearish activity.

4) Purchases are being financed by high leverage, like ratios of margin debt to finance the purchase risk assets.

5)  Buyers have made exceptionally extended forward purchases (e.g., built inventory, contracted for supplies, etc.) to speculate or to protect themselves against future price gains.

6) New buyers in the risk markets, to be precise to see publicly touted as the bullish new entry of investors/traders who were not previously in the market.

7) Simulative monetary (and fiscal) policy threatens to inflate the bubble even more where the tight policy will cause the popping of the bubble.

Ray provides a list of tables of countries and eras where the above series of factors preceded notable financial and economic bust that most market professionals like yourself will recognize.

If you see five of six of the seven manifesting today, that suggests more than crisis management, but opportunity management. What Country Thinker is in search of is Crisis Alpha for its clients. What is essential to professional advisors and managers is the engagement of an uncorrelated return stream that balances the risk and reward of a traditional portfolio. That return stream would improve the return of the portfolio no matter its style from high beta to stock/leveraged bonds.

Contrary Thinker’s goal is to provide return without the constant negative carry that is associated with traditional hedging. To be clear without always being engaged in a hedge or portfolio insurance. This approach is going to provide the manager and professional advisors with his best returns when the market turns bearish or crashes.

There are two types of long volatility to do the job.  Capturing increased perceived fear that is associated with bear markets like the first quarter of 2020, and the other is the regular volatility spikes that mean revert in the bull market, like the first quarter of 2018. This nuance is lost on many, but Contrary Thinker has a comprehensive model that is designed to capture the known unknown risk like the WFC or the pandemic crisis in 2020. It is also intended to foresee Black Swans, the unknown unknowns like the bull market in VX, from the terrorist attack on 9/11.

Please, we are not “Swamis,” full stop. Instead, Country Thinker’s model allows it to predict FORM without knowing what the substantive event might be that will trigger the change from short volatility to long.

To be clear what Country Thinker is suggesting the use of timing for the engagement of hedging strategies that take full advantage of swing trades in long volatility funds and the use of mathematical strategies applied to the VX futures. These similar systems evolved from Turtle Trend Following formulas with the same contract sizing strategies, easy to understand, and observe.

As a full-service advisor and model/strategy developer, we do the more manageable bits of finding bottoms and sorting out the relative strength of sectors and new idea stocks. But since 1980, I developed a talent for picking tops, starting with the big top in SA gold miners through today’s gold/silver market, and there is more to come looking into 2021.

If you are not a member yet, one thing you will know with Contrary Thinker: there will be no equivocations.

With higher confidence in what Contrary Thinker provides,

here are four good reasons you should become a fee-paying member:

       Less concern about risk assessment with better timing
       Leading and clear signals of market dynamics to enhance your strategies timing and engagement
       Timely newsletter production. Not a content provider’s newsletter every day but a brief based on serious and unique methods posted when timely and educational

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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. 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.

— Contrary Thinker does not refund policy; all sales are the finale.

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

 

 

 

August 6, 2020

Hot Money the US Dollar and Currencies

CT’s call for low in July around 96 on the US Dollar index was early, but that has not changed the long term point of view, which remains bullish. The low in 2011 was the end of a secular bear market. The six-year advance a cyclical bull market that kicked off a new very long term bull in the greenback.  On a short basis, the index should have made a low panic Wednesday,  August 5, 2020.
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July 1, 2020

Hot Money the US Dollar and Currencies

Inter-market-relationships, the relationship between risk assets is temporal at best. They can exist for extended periods and end without the media’s “breaking news” alerts.  So the keen interest in measuring correlations is when they ALL reach “one.” When that happens you have hyper-correlation. In a phrase, all markets move in unison, and asset allocation or diversification is mute.  Today the background of all of the markets from commodity index to bonds sets up for a period of trends.

What is particular about the US dollar, is in the face of the proclaimed rabid printing of money since 2011 the dollar index has advanced from the low 70s to a recent high of 104 or 43%. A bullish move one would not expect with the world awash in greenbacks.  From the peak in early April, the index has corrected to the most recent area of bar chart congestion. That high to low range happens to be a 23% retracement of the entire move from 2011 low but more importantly, it is a 38% correction of the rally from February low. That advance is just the beginning of the meat and potatoes of the uptrend. In Ettiot wave terms, the third wave.

 

What gives Contrary Thinkers and this analysis confidence in this outlook is the context, , the volatility modeling underlying the market. The chart above on the left depicts a Technical Event (TE) #2 on the volatility data itself. This signal tells the investor/trader that a dynamic move is pending. This is based on weekly data hence it is a multimonth call. The weekly chart on the right shows the simple A-B-C decline with a typical “B” wave triangle.

The next chart is the first leg up from 2018 low that captures the A-B-C decline and the panic index on this weekly chart hitting an extreme and a buy signal.  It is also a low-risk chart pattern. From a strategy point of view, investors engage trend following systems here, letting the uptrend take you into the trade. with a system’s status off if the market falls below “C”. Much better risk management as opposed to simply going low here.

The condition behind the index is near identical to the volatility model for all other markets here in the early days of July.  For the buck, a TR#4 suggests that a low to high range of 10 points may be challenged, projecting 107.

The weekly chart in the middle says the current downtrend is old and ready for a change; and the short term chart on the right is registering a new TE#2. This background is calling for a trend and breakouts to get carried over. I have played the I-T support and resistance zones with the chart for breakout points. However, a short term band would be more sensitive to entry.

Back Story

The pace at which emerging market economies are losing FX reserves is staggering. In March, emerging economies lost around $1.5 billion in foreign exchange reserves per day, according to Bloomberg.

 

Become a Contrary Thinker Today. 

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. 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.

— Contrary Thinker does not refund policy; all sales are the finale.

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

 

 

 

March 10, 2020

Hot Money Euro Dollar

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February 25, 2020

Gold as Safe Haven and Algo Trading Dunn’s Deal

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February 21, 2019

Low Volatility ETFs in the Headlines for Contrary Thinking

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February 16, 2019

Direction Neutral Risk Assessment

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February 15, 2019

“Ninety Nine Cents Won’t get you into NYC, it will take a full Dollar”

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January 20, 2019

Market Outlook: Long-Term Trend Following Models Are Turning Bearish

Volatility Report January 21, 2019

From the many analysts and capital manager reports, I read they almost all sight the well-publicized concerns but only a few are bearish. Not a good sign from a Contrary Thinker point of view. From the many I found one who at least toned down his bullish enthusiasm as seen in his summary: “Some popular long-term macro models are turning bearish on stocks for the first time since 2008-2009. Throughout 2019, other macro models will slowly turn long term bearish as well. The probability of a pullback/retest is still high. As the stock market rallies higher and approaches its 50%”

However, Volatility Report dated September 24, 2018, explained things this way, “The problem with the bulls waiting for a clear reason to sell is the vast majority point of view. Add to that fact that the majority of systems and strategies all have sell signals within the same price range when the signals hit it will be a rush to the exits.”

That is what the market witnessed from late September right into Xmas. The only thing that is slow, is the unfolding of a bull market mentality. Bear markets are fast, that is why they are preferable for aggressive trading and hedge funds. Plus systems are already engaged and when this low volatility advance has run its course and the first S-T volatility expansion hits, the bear market will be back off and running.

As a market analyst, I stick with the facts, the high probability ones opposed to wild ass speculation.  Like the following statement is 100% ungrounded, “Dow Theory signal confirms that the short-term trend is up for stocks. Several converging factors increase the likelihood of another short squeeze.”

Well, from a one world point of view, the new highs by the Dow and Nasdaq in September were not confirmed by the world index – net the USA. They have not recovered back to their highs of 2007. Regarding the Dow Theory is how the novice TA and social media bloggers do not know the rules of Dow Theory and that the December lows by both the Industrial and the Transportant indices confirmed the downtrend, with the Transports hitting prices not seen since November 2016, the beginning of the extended bull market CT expects the market to correct completely.

Regarding the speculation of a short squeeze, there is no sign of panic here, TEM has just reached a Technical Event #3, an event that tells the investor/trader the current trend is laboring, it is old, persistent and ready for a change.

Systems traders, our group, has a library of trading strategies that fit every trading style. All of our algo trading strategies have the risk and opportunity management model – Technical Event Matrix (TEM) – embedded their code. Our member investor/traders can implement a comprehensive system with no second-guessing. They have the governing model for visual control as well. Membership includes ongoing tutorials with open code; non-members locked code only with 45 days of support. Library Link Here

 

Great and Many Thanks,

Jack F. Cahn, CMT

Copyright 1989-2019

Thinking Man’s Trader 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. www.ThinkingMansTrader.com, 800-618-3820

— Thinking Man’s Trader 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 to your financial situation. Only risk capital should be used when trading futures or options.

 

November 27, 2018

How to Time Long Volatility Strategy

How to use the Technical Event Model

Here is an example of waiting for near 100% certainty set up. The overarching measurement for engagement of the long volatility strategy is our Technical Event Model (TEM).

One reason why a many will ignore this idea is they expect to see profits every calendar period for the system, but consistency is not the point here, at least not yet. Instead, can a trader use a filter to tell him when to trade a market strategy and when to trade it aggressively or not to trade it at all?  That is the point; we can work that into monthly and annual profit consistency later.

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