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August 7, 2022

Volatility Reports 8/8/22 Harbinger of Things to Come

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” George Soros

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July 6, 2021

Volatility Reports 7/7/21 US Dollar

Demand for the USD from all corners of the world is expected to increase with economic opportunities created by Biden’s “Build it Back Better” plans.

Contrary Thinker is bullish on the buck since its double bottom in 2014. Along the way, I have pointed out that the Euro was a farce based on numerous sovereign nations forming a union because their proximity would not overcome their differences in culture and language and leadership. The central bank for the EU has its own QE issues to deal with and a lack of economic recovery hangover because of the austerity measures they took after the WFC. To date, they are still trying to catch up.

But that is the speculation behinds the bearish Euro bullish Dollar outlook. What is more important is what the market is saying.

The features three window screen grab shown here moves from left to right, long term monthly bar to intermediate-term weekly bar to short term daily bar.  The red shaded area is the sell-off into August of last year, reaching a panic extreme. When TEM hits Rule#1 like that, it calls for a flat, choppy period to follow. The proverbial dead cat bounce after a panic sell-off. When TEM hits rule#1, 90% of the time or better, expect a low to be in place, and the market builds a new base.

Like a panic top, it is a change of trend, and the emotional pain that short positions are in will give them the impetus to flip out of their positions. The emotional selling started at 94. Thus the market will move to this area now without much problem. Why now?

My volatility model – TEM – for both the weekly and daily bar have cycled to new extremes that suggest a trending move will pick up a following on the next breakout or MA crossover. The latter has happened on the weekly bar, and my AlphaTracking MA gave a standalone buy signal three weeks ago.

However, what is more, important is the S-T daily bar is on a fresh and leading TE#2, setting up the spring for a breakout. I have included the data window in the chart so traders can see the breakout levels. A move above 92.80 is bullish, and as stated above, a move to 94 should be easy.

While the relationship between Gold and the USD has typically and very publically been one of negative correlation, it is not a necessity. Furthermore, a strong dollar does not put the bash on commodity-based inflation. Regarding the latter, the demand for raw materials priced in dollars is not the same as monetary-based inflation, which all the gold bugs and inflationists can talk about.

Bottom line and current working positions and suggestions.

I am bearish on emerging growth markets, bearish on gold, bullish on inflation, bearish on the local stock indices, and bearish on bonds. I would call that right-hand tail risk.

CT is long the USDJPY since 01/27/2021 at 11:40 am and plan to add the longs in the current time frame.
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May 28, 2021

Volatility Reports 5/28/21 USD @.90

The FX log jam is breaking.

Part of my checklist for an ultimate peak in the risk markets was for the ultimate risk market to peak and fall on its face. The bitcoin did so, and it did so based on our outlook 4/16/21. Nice call Jack, even though I say so myself. The decline thus far in the early stages of a new bear market, sell rallies long term,  if a day trader is careful buying dips now as the panic low is about worked off may continue to work before the trading range comes to an end. But more on that in the next BTC commentary.

The next item on the checklist is a recovery in the USD because it reflects the real economy and the demand for the currency to be used in the “build it back better” regime of Joe Biden.  We all know that the stock market is not the economy, it is, in fact, competition for the same capital used in the economy, and the latter is on the verge of a boom.

That boom is the dollar demand, plus it puts pressure on rates, which in turn attracts yield hunting investors to the dollar ten-year notes, which happens to be the third factor in our checklist that an ultimate top is in place for the Dow &Co.

From a price-based or technical point of view, the USD appears to be set up to renew its uptrend started in 2011. The chart above is the fear index when at low levels is associated with longer-term bottoms in the buck. In other words, when the indicator is oversold, the FX basket of major trading partner currencies is overbought.

I have highlighted the change of trend dates on the next chart associated with the OB/OS on the above %BB-VIX graphic. This weekly chart outlines the EWT count putting the dollar at the end of a major second wave pullback, ending at a .382 retracement to make Leonardo Fibonacci happy.  The recent low is also related to the length of (B) targeting 90.20.

It is easy to see the vast majority of commentators on the dollar pronouncing a bear market, especially with their unknowing use of back adjust data, which was created for systems traders to correct the gap at rollover affecting the P&L in some cases causing false entry or exit. However, it has nothing to do with technical analysis, and the modern system developer does not use adjusted data for their systems. They use real data. All our data is non-adjusted.

The point and figure chart are shown here revealing the 12-year base built by the US dollar market leading to the bullish head and shoulders bottom formation plus the breakout from the 12-year base.  The long-term descending trend line has been broken, and the pull backtest has held – the new ascending trend line –  thus far, all suggesting a bullish move to come.

The next chart uses both mundane and astrological cycles that are coincidentally bullish, both posting up lows in the current time window and pointing higher. The window on the left uses the market data itself to determine the cycles. I use an I-T cycle indicator to support the calendar math-drawn cycles both seen in that chart. window. This current period has a major longer-term (26 years) cycle making lows suggesting higher prices into 2034.

The right-hand chart uses several astrological aspects (angles) that are coincidental with the change in trends (COTs.) These aspects from March 3 through June 13 are happening, suggesting an up-trend based on their history. If the long-term wave count is correct where the USD goes into the bull market cycle wave [3], the geo-cosmic time window for a peak takes it out to 2026.

In the April 27, 2021 publication, I pointed out that ” Entering 2021, one of the top consensus trades was to be short the dollar because it was common knowledge that the Fed would be injecting liquidity as far as the eye can see, far beyond the ability of the economy to use it.” Obviously, that situation is about to change with a publically bi-partisan supported infrastructure proposal that will be passed under “budget reconciliation” with 51 votes. Hence the shorts that are turning a deft ear to this, thinking gridlock is here to stay, would be caught in the greatest short squeeze of all time.

CT’s featured three window chart from left to right shows how over the last ten months, panic selling, measured by TEM, has not been able to break the dollar, with the monthly bar holding its channel.

The middle weekly bar chart has the market bouncing off the high end of long-term support. The volatility model sees the most recent decline as persistent but old, feeble, and due to change, rule#3.  The daily S-T chart on the right is set up for a break, with TEM on rule #2. The market is pushing S-T resistance now. Any movement above 90.50 – 90.75 would be bullish.

Finishing off the top-down analysis, the intraday point and figures in Elliott Wave Terms shows the first wave higher, breaking the bearish trend line and posting an overbought above the Bollinger band.  The wave 2 correction pulling back to the broken trend line, which is typical.  The chat on the right depicts the end of wave 2 as a diagonal triangle leading to a breakout thrust. The pattern alone targets 91.50

Great and Many Thanks,

Jack F. Cahn, CMT

Contrary Thinker since 1989,
Copyright 1989-2020

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