September 24, 2018

Volatility Report September 24, 2018

Interest Rates

  1. Bonds made a major reversal head and shoulders top, with prices breaking below multiple necklines. The very long-term chart of interest rates at the same time has reversed its secular descending channel.
  2. True North on both a short and intermediate basis is short the markets, and prices are now testing long-term support zone at 143 to 134. The head and shoulders top projects 108 ½.
  3. Volatility modeling for both S-T and I-T provides a background that supports a high rate of change trend – refer to the blue higher boxes on the weekly and daily charts. Given 1 and two above the bias is to be a seller.

Precious Metals

Gold is in a clear downtrend with no long-term low likely here. The bull market that began with the 9/11 terror attached ended in 2011.  Volatility Reports expects new Geopolitical events over the next two years,  yet gold is not discounting them at this point and remain an “unknown- unknown.”

  1. The market background supports a high rate of change trend with our model – Technical Event Matrix – in sync for all three time-
  2. Strategies are on sell signals, being supported by the TEM setup.
  3. The daily chart on the right uses the I-T support and Resistance zones to project next likely lower extreme to be 1140 to 1164, which suggest a break of long-term support at 1121.00.
  4. There is no clear panic at this time. Hence the likelihood of a longer-term tradable low is a long shot.

US Dollar and FX

The bears jumped all over the recent weakness in the greenback, the majority being gold bugs. Their Intermarket relationships to support gold as a haven vs. USD does not hold water in the face of the longterm bearish outlook for the Eurodollar, and the carrying cost of gold.

The contradictory relationship worked from 2001 into 2011 but has stopped with the base building of the buck from the 2008 low to date.

  1. It falls into line with “hyper-correlation” that volatility will affect all the markets at the same time. So it is no coincident that our volatility modeling – is in sync across all time frames and supports a dynamic trend from here.
  2. The Intermediate-term trend is up, prices remain above long-term averages and the I-T S&R zones – right-hand chart – are stair-stepping
  3. Prices are in I-t support zone from 92.77 to 93.68, movements above or below this zone normally signal the direction of the next trend. This is especially true given the volatility background mentioned in #1 above.
  4. The wild card going into October is the expected Geo-political events, in a month notorious for market panics, our bias remains bullish on the USD.

Stock Index Futures

I will not rehash here MarketMap’s change of trend dates and their accuracy so far this year, please refer back to issue #1 dates January 18, 2018.

What I wanted to see after we called the mid-January peak and the type of decline that followed was a test of the January highs with a resurgence of the emotionally based optimism, that occurred in January.

On Feb 12, 2018, I pointed out: “Here is the background traders should expect now that a low is in place for the s-t to i-t.  ,…there is indifference reflected by the public and the media.  Buy dips is programmed into the mob’s behavior. However, smart money…uses the volume of new entrants to sell into.” Furthermore, “Typically, the news is still good, as prices retest the prior highs. Bullish sentiment quickly builds, and “the crowd” reminds anyone who will listen that the bull market is still deeply ensconced.”

I wanted to call it a déjà vu rally, which is only a test of the highs, a failed test. The market had its way and made new highs. An event, however, that negates nothing from a long-term risk management point of view.

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.  Along the way Volatility Reports expects an AOD decline,

Dates for the expected AOD decline are 12-Oct, 17-Oct, and 22-Oct based on the January peak cycle in this century. The annual one-day (AOD) rise or fall is taken as the biggest percentage one-day DJIA movement in the year. For this measurement, the academic research started the year on March 1, and since 1885 some ten major DJIA AOD falls (≥ -3.60%) occurred between September 10 and October 31.

The small tech sector has put a top in, the NASDAQ and the Russell both climbed to new highs from chart patterns that are considered terminal moves.

This picture of the mini Russell futures provides confidence because it did as expected.  Refer to our publication on the Nikkei as it is the same pattern and measuring method.

The big cap stock has a little more to go on the upside along with the Nikkei. With that in mind, the background going into this rally was supportive. The Technical Event model signaled a TE #2 preceding the trend move higher by the Dow and S&P.

The chart of the S&P below illustrates how the extremes by %C and our measure of historical volatility – highlighted in blue – lead to a break into resistance and a trending move, which remains in force.

What is appearing to be a top like the January peak is the emotional buying, which is something smart money will not ignore.

Along with the unfinished wave count that will push this market higher, our measures on volatility area nearing readings of panic buying.

If and when reached, alerts will go out to subscribers.

The problem with the bulls waiting for a clear reason to sell is this is the vast majority point of view. Add to the 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.

Top capital managers are patient, they endure and wait. When they see a weakness when they are provided the liquidity to exit – given the current risk/reward measured, they will act, leaving trend following for the average.  Single day risk measured by the Dow is 2000 points and risk going into November is at least 4,000 Dow points.

S&P Sectors with related ETF

Twelves of the seventeen sectors we follow have long-term sell signals.

The leading FAANG stocks are following with topping formations. There are long-term sequential sell signals on Netflix and Google plus Apple, Amazone and Facebook are all tracing out head and shoulders tops.

The banks and brokers sector just hit panic buying, and prices are now in long-term resistance, which sets up its success or failure to sustain. Prices need to stay above 74 if the market planes to attempt a break to new highs.

The I-T volatility context supports a low V sustained and persistent uptrend, and the s-t v modeling sees buying into an emotional frenzy. Not what is considered good long-term rational buying.

Offshore Stock Averages with related ETFs

Excluding the Nikkei and the FTSE, the remainder of the foreign markets are in bear markets are finishing their topping process.  Value type investors are talking about buying China, but on a technical basis they are early, there is no sign of a panic low yet.

Our long-term strategy – True North – is on a sell signal for all the markets except the Brazillian, where it has caught a counter-trend rally.  The other Bric nations have completed ahead and shoulder top with the opening today breaking the neckline.  This breakdown was a news related event that is sending contagion worries throughout the news media.

The chart above it the oldest ETF on this market and has a risk to 17 – 18 or 25%.


–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.

 

 

 

 

 

 

 

 

 

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