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May 24, 2021

Volatility Reports 5/24/21

Can the bulls grab victory from the jaws of defeat one more time?  Here is their chance.

From one of our event back testers pals, he mentioned in his latest sales ad, ”

“Once again, sellers failed to push the S&P 500 down even 5% from its peak. It got close last week but held above that threshold.”

Contrary Thinker’s %BB-VIX indicator reflects how fear maxed out with the slightest of sell-offs.

Jason Goepfert went on to point out that, “The index has now gone 134 trading days without a 5% pullback. That’s the 18th-longest streak since 1928, and it would take only a few more days to push it into 15th place.” 

I am not sure the relevancy of the ranking, but his inferences fit with Contrary Thinkers point of view when he suggests:  

“Once it got this extended, the S&P’s returns over the next month were poor. Even up to 3 months later, its risk outweighed its reward.” CT’s view is the S&P has a 5% potential reward from Friday’s close with a 9% risk based on the Long-Term resistance zone, to be conservative.

Here is the same %BB-VIX reflecting a similar pattern for the “shortest bear in history.” If the market does not make any progress this week and fear continue to dip and my Panic Index (100% price based ) as seen on the S&P chart pushes its high threshold as it did back in 2020, the market will be looking into the Abyss.

The point the market has made is that it grabs victory from the jaws of defeat at every given chance the bears have to bury its opposition. That is why they call it a bull market, it is bull-headed persistent and does not give up that easy.

However, to view this statistic in a vacuum and conclude that based on these rankings a few declines happened after such statistical events of more than 10% is not convincing.

Rather, what is visible based on 160 years of history are cycles cresting and the real-time seasonals going into their worse period.

Now that the month charts on all the major indices have peaked on panic buying, the weekly chart of the Dow has done the same by reaching a volatility extreme that reflects FOMO buying, not rational. Along with an inverted “V” high pivot, the reversal was a breakdown below I-T support where last week recovery is testing at 34,3111.

The S&P did the same thing with TEM reaching an extreme rul#3, call the trend old, feeble, persistent, and due for a change. It too failed to hold new support at 4,230, which is not resistance.

Here is the bull’s chance to save the market and keep the trend followers from jumping all over sell signals.

The Nasdaq and the Russell are leading the decline and the trend following sell signals have already taken effect. These signals are supported by TEM’s Intermediate-Term sets up of rule #2 and rule #4 both signaling carryover of the breaks and trend following signals.

I will draw a hard and fast rule here. If the bulls do not make a new closing high on the Dow this week next week – the first week of June – the market will go into meltdown.

Back Story on Liquidity 

Fed Drains $351 Billion in Liquidity from Market via Reverse Repos, as Banking System Creaks under Mountain of Reserves

This is the first time I’ve seen Wall Street banks clamor for the Fed to back off QE. The Fed is struggling to keep the liquidity it created from going haywire.Volatiloity Reports 5/24/21

In the fall of 2019, when the repo market blew out, the Fed stepped in and bought Treasury securities and MBS and handed out cash via repurchase agreements. When these repos matured, the Fed got its money back, and the counterparties got their securities back. The Fed also did this during the market rout in March 2020. But by July 2020, the last repos matured and were unwound.

Now the Fed is doing the opposite, with “reverse repos.” Repos are assets on the Fed’s balance sheet. Reverse repos are liabilities. With these reverse repos, the Fed is now massively selling Treasury securities to counterparties and taking their cash, thereby draining liquidity from the market – the opposite effect of QE.

This morning, the Fed sold $351 billion in Treasury securities via overnight reverse repos to 48 counter parties, thereby blowing past the brief spike at the end of March 2020, and more than replacing yesterday’s $294 billion in Treasury securities that it has sold via reverse repos to 43 counterparties and that matured and unwound this morning.

These reverse repos are a sign that the banking system is struggling to deal with the liquidity that the Fed has been injecting via its QE. And that’s in part why there is now some clamoring on Wall Street for the Fed to taper its QE purchases because the banking system is now drowning in liquidity that banks have as reserves on their balance sheet. By buying Treasuries in the repo market, the banks lower their reserves and increase their Treasury holdings.

Great and Many Thanks,

Jack F. Cahn, CMT

Contrary Thinker since 1989,
Copyright 1989-2021

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

March 22, 2020

J P Morgan Update

 

JPM in long term support, no sign of a low yet. 

Published  2019/11/20 “JPM Play the Break or Fade the Break?”

Another way to say it, will the market continue to trend or will be correct. To dig deeper, will be a break to new highs and follow through with a similar rate of change as has been booked thus far since the 10/3/19 low?  Or, will it fail and sell-off, form an inverted “V” shape top and give back gains with a high rate of change?

CT’s featured chart shows JPM at an extreme. with the market in both L-T and I-T resistance zone. Plus the longer-term chart on the left reveals an uptrend that is old, feeble and persistent but due for a change, as well as the I-T basis in the weekly bar.  <more below>

The Short Term chart has the TEM model recycling to a fresh Techcnail Event #2, suggesting a high rate of change trend is back by the tension in the market. Like all volatility models, it does not suggest a direction, even in the face of the media’s bias of referring to stock market sell-offs as volatility.

However, the bigger picture of the JPM that divulges that a 13-year horizontal triangle was the springboard for this breakout. As such, a post triangle thrust is terminal trends, not the kick off of a new one.

Watch this space.

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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

NO WARRANTY / NO REFUND. Contrary Thinker   MAKES NO WARRANTIES, EXPRESS OR

IMPLIED, On ITS PRODUCTS AND At this moment EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL CBI BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THE PERFORMANCE OR USE OF ANY PORTION OF ITS PRODUCTS.

 

 

March 20, 2020

We are not chart whisperers

Contrary Thinker’s the Debrief

March 20, 2020

“To know where you are going, you have to know where you have been”

“The idea of record-breaking will continue in the headlines in 2018. It is only common sense to know this.  In each bull/bear cycle since 1974, there have been record-breaking price events. Each bull market has been bigger, better, and greater than previously. Each new period contained record-breaking events from the number of consecutive higher close days to the most significant one-day advance in history.”  I sent on to say,

“The same has held for the bear market cycles… both fiscal and monetary policy has painted America’s economy into a corner, a corner that has no alternatives that are positive to bail out the market and the economy when the next down cycle occurs.”

Many investors, traders, and managers focus on the outside world, the exogenous shocks, the known unknowns like Convid19. It was on Homeland Security’s radar at the end of 2019.

Like previous virus emergencies, the market’s reaction was based NOT on the morbidity of the virus, instead the market’s action is based on the condition of the market when it hit.

If you look at the two worse in terms of S&P damage, SARS hit at the end of a three-year bear market, to accent the low and scare buyers away. Zika hit during the most significant correction of the “Great Bull Market” to put an exclamation mark on the end of the correction.

However, Convid-19 is different, not so much in its morbidity, that is not the judgment we can make. Rather, what we can say is that after the tax cuts in 2017 and the QE monetary policy over the last 3 to 4 years, there is nothing left in the trick bag of the authorities to soften the landing of the market – and the market drives the economy.

So, after the Dow Jones falling 35%, what are the various sets of opportunities and problems; and if you feel ill-prepared, it is not too late to get caught up. Read on

Contrary Thinker wants your business, to “cover your six,” make sure your clients get your best and the time they deserve.

“As you can see in our change of trend (COT) table, the market is in a cluster of time windows likely to lead to a high pivot price, confirmed by a sizable decline %5 plus – established by our big swing (multi-month) systems sell (taking profits) and sell short signals before the end of the month.”

Contrary Thinker stays hedged until our measures of volatility exited panic mode, the nominal price low has nothing to do with profitability.

Volatility Report
September 24, 2018

Contrary Thinkers is not a chart whisperer; we have mathematical tools that confirm what the bar charts are saying. They precede the market’s bar charts.

In the above 9.24.18 VR, I said, “The scenario was for the failed new high in late August-early September, but as the January COT date was early by ten days. Now it looks like the peak will come at the end of the calendar month leading to a sell-off into mid-November.”

I went on to say that along the way; traders should expect long bar day decline, declines that measure near the expected return a buy and hold investor can achieve in one year. To keep our group on the front foot, our models project dates for the long bar declines. I said, “Dates for the expected long bar decline are 12-Oct, 17-Oct, and 22-Oct.” the long bar day hit October 10, of 3.6% from open to close.

Volatility Report
December 3, 2018

Without boring you with all the reasons for this conclusion, our group was ahead of the curve: “Bottom line is if the market cannot break out early this week, get above I-T resistance, there will be a crash going into Xmas.”

What was surprising is how the bravado mentality became so entrenched in 2019, “buy the dip” was the war cry. Today, nearing the end of March 2020, it still is.

Yet, what has a so-called perma-bull gained by holding since the end of 2017, over the last two years? Without the use of market timing at pivotal highs, all they have now is temporary social media bragging when they were at the new highs? Hence their investment method is based on pride and the unprofessional badgering and taunting of advisors that were advising bear market timing.

Today all they can do is hold their client’s hands as they see their 401k or other long-term investments give away their profits to the tune of 36%.

Volatility Report  February 10, 2020,

it was pointed out that “Multiple non-confirmations to go along with extremely high levels of optimism by 100% of sentiment readings provide a peaking background.”

All of the major stock indices made climatic tops on panic buying. So  given the 50% risk and the brazen attitude of the bulls, it was clear it is not going to be a pretty ending.”

Which brings us to the chart on the right and the Volatility Report dated February 19, 2020. Where, among other market-based reasons, one can see that volatility was about to go into panic mode. A situation that hit home in 2011 and 2008.

Our bottom line was the following: Risk is off, like cash and algo strategies to hedge (profit) from decline is the status on. Over the weekend, Contrary Opinion published.

 

 Hedges on short only CL, EX, NQ and RTY plus long-only VX. CT’s volatility model of CBOE’s volatility index gave a buy signal the week beginning Sunday the 23rd.

We don’t need to show you the profitability of our strategies, because the simple act of just raising some cash – taking some profits – would have been a great benefit to the investor/manager.

Contrary Thinker has been waiting for this debacle since late 2017, it was not wishful thinking. Rather it was based on research that covers over 120 years of the market history and new aged volatility modeling that provided risk warnings.

The good news is over the next ten years is Contrary Thinker can now shift its focus from the avoidance of risk side and from profiting from bear market corrections and larger declines to the buying opportunities side as well. To be clear, the timing of market dynamics at highs and lows will be more important than managers and investors have experienced since the late 1960s into the early 1980s.
We are not gloating here

 

Contrary Thinker, its private group of programmers, traders, and fundamental analyst friends have been working to protect our members, show them ways to prosper during the downturn and working to provide transparency to potential new subscribers so they can gain the confidence to let us do the same work for them.

 

I guarantee my work based on your happiness.

 

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. 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.

— 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

NO WARRANTY / NO REFUND. Contrary Thinker   MAKES NO WARRANTIES, EXPRESS OR IMPLIED, On ITS PRODUCTS AND At this moment EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL CBI BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THE PERFORMANCE OR USE OF ANY  PORTION OF ITS PRODUCTS.

 

October 1, 2018

Volatility Reports October 1, 2018

Market Context

Incalculable Sentiment Ignores the Bears

In my many years plus of experience I have never seen the market top on bad news. It is not in its nature. Sure, there may be hints of an underlying problem like in ‘07 sub-prime, but nothing in the headlines of mass media.  Rather, at peaks, the good news is an exaggeration.

All tops have the same background and process, from 1987, 1989, 2000, 2007, and 2018, each earmarked by inner greed and a conviction that easy money will never stop.

What was an ambitious market has now become a fear of missing out environment covered up by arrogance and bravado? Popularity is more important than empirical evidence.  All signs of the kind of ingrained buying a current generation of smart money need to cash into.

So broad is the public’s participation that even NYC taxi cab drivers are bull market day traders and making easy money like ‘87. In 2018 it has shifted from cab drivers to twitter traders. Add on top of that the fact that everyone in the social blogosphere is an expert market analyst vulgarizing the trained analyst and a just another sign of overconfidence.

It is in this phase, that capital managers need to see the highest level of financial risk, everyone is happy, euphoric.

The biggest debate is about when the bear market will begin, which is always – 99% of the time – put off “until next year,” to provide the appearance of a balanced argument. Being a bear or pointing to the bearish facts draws jokes and alienation.

Quants need fine data to generate signals for the above. So they count IPOs and the like. Yet, a simple periodic random sampling of the financial media should make it self-evident. A few of us have programs that count positive and negative tweets to spot optimistic extremes of a major peak.  But it’s not required.

We can also look at hedge funds, as the professionals will be correct sooner or later.” Have a look at the high level of hedging since 2015 low that have preceded at least minor market corrections and most notably the February 2018 spill.

At major peaks, the market’s exaggerate good news and ignore the bad news. Today October 1, 2018, NAFTA is back as a trilateral agreement. The news as of this writing is driving the markets to toward new historical highs.

It is not so much the public’s ignorance of bad news rather they don’t have a clue regarding news events potential meaning or rationalization.

Many pros did not have a clue that on August 9, 2007, BNP Paribas’ announcement that it was ceasing activity in three hedge funds that specialized in US mortgage debt was a clue of the seizure in the banking system on the horizon.

Volatility

A perpetual state of low volatility since August

The energy that drives the markets comes from conflict, the battle between buyer and sellers. CT gauges this tension with its measures of volatility and how the market typically reacts to four different extremes.

The Nasdaq (NQ) back in April hit a high level of %C and a high level of Historical Volatility at the same time leading a period of expanding ranges. That move is a trend that lacks brute force but advances based on the expansion of the high to low range for that period. In April there is a good example with the horizontal triangle contracted to an apex coincidental to the TEM indicators cycling out of their high extremes.

In August the NQ reached a new set of extremes, now the market had fallen back into its 2017 pattern of low volatility. I highlighted the weekly chart on the left the extreme readings into the current time frame. Expectations come with this low volatility backdrop to change trend dynamics from dull to forceful trend and from up to down.

Furthermore. It is this extreme low reading by TEM modeling that is associated with low %BB-VIX readings, like the CBOE data reflected today, that says there is a low perceived risk in the market.

From a contrary and experiential point of view, these two leading models -TEM with the %BB-VIX – lead to dramatic declines in the majority.

Inverse VIX

One of the big money makers for the man-on-the-street in 2017 was the inverse VIX ETF. It doubled from its previous high in 2015 whereas the S&P only gained half as much.  These inverse VIX funds peaked and crashed in January/February 2018. Unlike the averages, they track they have not confirmed the new highs.

CT had a spread indicator of the short-term/medium term inverse VIX funds in January that did not confirm the new highs by the stock averages. It was part of our evidence supporting our appeal for the peak in January.

The charts above give the same comparison– short term on the left. They are not in gear relative to the averages they follow; they are in weak wedging formations and TEM is at an extreme TE #2, a situation that calls for a high rate of change trend.  All of which is bearish and calls for a spill in these investment vehicles. Such a spill cannot occur unless VIX spikes higher.

Bottom line is the risk to reward here in both time and price is avoidance behavior, move to the maximum about of cash allowed by your investment policy.

More to follow shortly

  1. MarketMap continual refinement of change of trend dates
  2. Offshore equity markets – Hong Kong and 21 countries ETF
  3. Sector leadership condition
  4. Failing sectors, the overall market is only as strong as its weakest sectors
  5. Twenty-year appraisal and long-term risk assessment
September 25, 2018

New Highs Majority see a Breakout

Stock Index Futures

On 9.12.18 in the TMT community, I posted: “The TEM set up gives way for the bulls to kick off an uptrend here with a Rule #2 background for the short term. If they do not take the opportunity, the bears should have their way. ”

The point of our volatility modeling was the market’s ability to trend. It did and made new highs in the process.  In the chart above the set up preceded “ii” on the chart.

The broader averages and big caps are now entering the late September COT time windows pointed to in Monday’s “Volatility Report.”

The Dow futures chart here provides the same picture of the S&P, an ending Diagonal Triangle.  It remains a valid pattern unless it breakouts above the pattern. From here what is expected as dull trade, a small decline for “b” and a small rally for “c” to finish off the 5th wave.

We often see a very sharp reversal after completion of the Ending Diagonal Pattern especially when EDT is a bigger wave (5) of the main trend, which is the case here – it is an ending fifth wave from the 2009 low. Therefore its effect will not be muted as if the pattern was in an inner wave (v) of bigger (3).

September 4, 2018

Majority of Sectors Topping Out

Except for a very few, the vast majority of sectors and the leading FAANG sector is topping out

 

Volatility Report Sector’s Table

Read More

September 4, 2018

Dow 30 Facing Increased Perception of Risk

The Dow 30’s inability to make new highs leaves it as a major non-confirming index.

Read More

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