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    CT Journal

    Volatility Report

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 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.

 

 

 

 

 

 

 

 

 

September 19, 2018

Dollar Doldrums to End Soon

The historical volatility context in general behind the greenback provides the essential foundation for a forceful trend.

Back in 2014 on these pages, we isolated the significant move potential of crude oil. We knew it was going to be an explosive run and all the trader had to do was trade the breakout – in either direction – and hold on.

When you look at the monthly, weekly and daily bar of crude leading into the crash in prices the Technical Event Model registered a rule #2 for all three time-horizons. On the daily chart, it went from Rule #2 to a Rule #4, which is also supportive of a trend via range expansion.

Today the TEM background for the Dollar is very similar, as you can see in the charts provided here.

Our strategies for the three different trading styles – long, intermediate and short-term – are not in gear, which is fine as the short term system will adjust of the long terms will. But it is clear from the charts our bias holing for weeks and months from here is bullish.

I am bullish and think 120 is a good target. However, let your systems take you into your position with the expectation of a forceful trend running 20 points or better.

September 18, 2018

Nikkei in a Terminal Move

Thinking Man’s Trader Report

in your mailbox September 14, 2018

After the February spill, it was unclear if the Japanese stock averages had put I a clear peak and kicked off a cyclical correction like the Dow and S&P. TMT had deemed the advance from the 2009 low the beginning of a new secular bull market that would rival the big bull run from 1950 into 1989.

That very long-term underpinning explains why the early 2018 spill did not take an EWT five wave structure, which leads our advisory to an I-T 4,200-hundred-point opportunity.

The first pop-up chart on this page is the NK last week. The chart on the right shows a large – multi-month horizontal triangle. A pattern that is resolved by a high rate of change (HROC) trend when prices break out of it. The left- hade chart depicts the TEM model on the weekly bar that supports an HROC trend with its TE rule #2.

I have labeled the daily chart with a bullish wave count however the move can go either way. This bias is where forecasters take too much pride in opinion, and a strategist mentality is more important. A breakout in either direction from here should get follow through.

Tuesday, September 18, the Nikkei made it clear. In right-hand chart from today, the NK is up over 600 points with new highs a few hundred points to go.

The middle chart makes it clear what to expect after an intermediate-term event #2 from the Technical Event Model. The daily chart in the right-hand window shows TEM now into panic buying with %C at an extremely low and directionality at an extreme high.

What is of critical importance is the breakout here, just like the small-cap break out back in July, it is the end of a trend not the beginning of a new one.  Every chartist I read is bullish on all the sectors that lead that small-cap breakout, and this is where being a contrary thinker earns its business.

Once new highs are made by the NK, a decline will begin following the same pattern as the mini Russell and the Nasdaq 100.

September 18, 2018

Rate frustration coming to an end

The 10-year and 30-year are breaking down

Bonds are coming off another S-T pivot high – triple tops plus one. This peak, however, was set up like the two peaks preceded by low perceived risk. The decline thus far has not increased perceived risk based on the CBOE data, as bond volatility has remained oversold.

Three more reasons to be bearish on T-bonds.

1. A big top was established with the monthly head and shoulder’s top.

2. True North strategy on a short and intermediate basis is short the markets.

3. The volatility background sets up like previous I-T peaks is followed by nice declines.

Our volatility model – the Technical Event Model – on both S-T and I-T  provides a background that supports a high rate of change trend, given the above our bias is to use short selling strategies.

September 15, 2018

The Bubble Indicator

 

1. Prices are high relative to traditional measures

2. Prices are discounting future rapid price appreciation from these high levels

3. There is the broad bullish sentiment

4. Purchases are being financed with high leverage

5. Buyers have made exceptionally extended forward purchases, such as of inventories, to speculate or to protect against price appreciation

6. New buyers have entered the market

7. Simulative monetary policy threatens to inflate the bubble even more.

We have pointed out number six above based on our modeling.

Our measures of volatility show that from October 2017 into the January peak the buying was based on fear of missing out FOMO. The Technical Event Model was in a sustained period of panic buying. Something that is normally an event not an ongoing condition. These late cycle buyers will flip out at the first sign of pressure on their account balance.

In fact, the February decline stopped right at their break-even level of these FOMO players; and from a long-term point of view our targets for the bear takes prices back the surprises Trump win in late 2016.

The chart here has they period of panic highlighted.

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Great and Many Thanks,

Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
Copyright 1989-2018
www.ContraryThinker.com

— ContraryThinker 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.

–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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September 13, 2018

Dump Stocks after the Election

“American’s should be very concerned and pay attention” Bob Woodward author of Fear-Trump in the Whitehouse

Read More

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

September 3, 2018

Volatility Report September 4, 2018

Continued Weakness Offshore Leading the US and Canada

 

The ETF of offshore market EFA is following the Chinese market with a leading diagonal triangle, a bearish chart formation.

Read More

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