July 14, 2020

Volatility Report 7/14/20

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“Give me freedom or give me death against King George III, not Covid19”

A few weeks ago in Volatility Reports, I pointed out one alternative of the current rally’s change back to a bear trend. I pointed to the “1973-74 parallel. On that basis, “the current rally would take four to five months off the March 23, 2020 low before a dull and slow bear market took hold making new lows in 2021.” That timing for that peak takes the market into a July or August peak.

Volatility Report 7/14/20

The other alternative and the desire of many to get it over quickly puts the market early in the 1929 or 1987 crash, the first 62% retrace the first S-T leg down.

Given the fast recovery – the wishful thinking – of normal circumstances in the face of a pandemic and some in leadership pushing the libertarian ideal of “give me freedom or give me death.” So reopen fast and get back to work was their mantra. The problem is that we were fighting to be a nation, not fighting a pandemic.

The low cycle expected around the 4th to the 7th was a non-event, the cycle inverted, as previously noted. The cycles for long bar days have some potential this week. In other words, from the open to the close the day range can be greater than 4%. These are the types of days we lay in wait for, as low risk and better than 4 to 1 opportunity.

However, these dates jump out of the history books for long bar decline days, from July 20 through August 3, it should be hard down. These particular days are anniversary dates of previous long bar selloffs: July 19, 21, 26, and 30. As long as traders are on the front foot, it does not matter which day(s) hit, but the period from July 27 through August 3, should be the period of the highest rate of decline.

There are a number of things that need to start lining up to put Volatility into our bearish strategies, which is a futures short selling scalping system. Monday’s UpThrust – head-fake or failed breakout- was a beginning. Our featured chart here shows the typical set up for this distribution pattern.

Similar to the above model, the point on the mini S&P chart below wave (2) was the climactic high followed by the distribution range. The rallies to the peak of wave “a” is the phase “B” in the Wyckoff model; and the rally and intraday reversal is the phase “C.” That suggests the range lows should fall today, with possible testing pull back to the low end of the range. That puts the S&P mini futures below 3,000. The Dow has a similar chart pattern.

The important intermediate-term volatility model is set up to support a longer-term trend. Excluding the Nasdaq and its futures are ready for a trend, a dynamic forceful one-way move. Once it begins there should be little in pullbacks or whip-saws. The Nasdaq is a different story and not bullish, but I will take it up in a second VR today. Plus the newsletter via email that covers our proprietary volatility model

Here is the S-T chart on the ES, the price levels in red, in the data window, are the S-T breakdown levels that should accelerate the decline, once broken. If you have short or bear strategies, this would be your signal. Contrary Thinker members can use this break, but there are more details in the next two VR’s coming out today.

Contrary Thinking begins here. 

Great and Many Thanks,

Jack F. Cahn, CMT

A Thinking Man’s Trader Since 1989,

Copyright 1989-2018

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