October 8, 2020

Volatility Report 10/8/2020

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Twittersphere Market Forecasters Continue with Unbalanced Point of View

The continued siting of 80% up volume days since the 9/23/20 low does not show up on the S&P averages, not the indicator or the system. As they say, “garbage in garbage out.”

There is more. The unbalanced pronouncement that the S&P Advance /Decline summation index made a new high is misleading to the public when seen in a vacuum as being bullish. The problem is the S&P average did not make a new high. If it does not, as is the rule of failure, has it, they are dealt with harshly. So, a reversal without the new high will lead to a high rate of change decline.

Let me tie in here that panic decline days can hit any time now, and such long bar days should challenge and exceed 5% on the Dow. Doing so confirms the continuation of a bear market that began 9/2/20.

Furthermore, on the A/D line, the Dow, the Nasdaq, and the broad market – the NYSE-  did not make new highs back on 9/2/20, while the Nasdaq has been out of gear since the 1999/2000 top.  Everyone knows the big rally in the Nasdaq is lead by the FANG shares plus two handfuls of company stocks.  Not a healthy bull market for some time and broadly publicized.

One content provider that knows the Fibonacci series in percent terms is projecting a 43% reward potential from here.

Based on 140 years of history to base actuarial projections, this “secular bull market” is old. Ok, yes, we all do live longer today- better living through chemistry for sure, and for sure, the Fed has “pumped up” the market, and before that, the Corporate tax cuts “pumped up” share prices.  But as mentioned in these pages, that did nothing to narrow the wealth gap. A situation that leaves the Fed chief bagging the White House for fiscal stimulus, which now becomes a political problem, not good leaving open the possibility of “social unrest” among other potential catalysts. But no matter the event that gets the blame for the bear, the long term risk into 2021-22 is 80%, and the risk this year is my long started 36% or Dow 17,000 +/- 1,000.

What is unknown to the vast majority is the panic buying in the majority of the Fang stocks leading to a peak. The same irrational buying measured by TEM for the Nasdaq comp and the cash S&P.  This is one reason these tools are a closely guarded code and method; and will not be entered for any award, like the annual MTA technicians of the year award.

To prove my point, TEM signals a change of trends (COTs) with a higher than 95% accuracy.  The last three major tops by the Dow, 2000, 2007, and 2020’s double top were all signaled by poor, aka irrational buying. Such buying is what smart money – investors sitting on big long term profits in a large number of olf shares – wants to be imbued in the late comer’s mentality, so they have the liquidity to sell into, full stop.

There are signs of a return to normal, with interest rates going up, leading the stock market lower as it competes for yield. The next three month charts show the 30-year government bonds futures peaking May 9 on panic buying following six months of the trading range and only recently breaking lower. All of which I predicted.  Gold, like the long Government bonds, went through a multi-month period of FOMO buying.

The working assumption is emotional buying is easy to flip as opposed to purchases based on sound reasons. Hence the long bonds are weak into the 152 price level where panic buying began. Gold peaked a month before the Dow on August 6 and is vulnerable to 1500/oz, where emotional buyers first entered frantically pushing prices higher.

Get with it!  Contrary Thinker can do.

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Great and Many Thanks

Jack F. Cahn, CMT

Contrary Thinker since 1989,
Copyright 1989-2020

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