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June 10, 2020

Monetary and Political Policy Blurred

Presidential Election Polls Preceding the Election will Predict the Stock Market, and all the polls are firming up going into the summer. Today it looks like a landslide favoring Biden, and because the Fed and Treasury are in Trump’s Pocket the Markets are now political and they (fed banks) will dump their holdings to protect themselves as it becomes clear the polls are right.

Today’s money is different because

  1. Unlike the pre-neo-liberal era when there was an industrial nation with workers, times have changed. According to Australian “MISES WIRE ” When the advanced nations had strong industrial cores, the periodic expansions of credit and their subsequent sudden contractions led to observable booms and busts in the classical sense, since the production of labor-intensive consumer goods dominated production overall.” Full Article 
  2. When the neo-liberals – including Reagan, Thatcher and Clinton –  liberated financial controls in the mid-eighties, London’s Big Bang, and the repeal of America’s Glass-Steagall Act of 1933, it allowed commercial banks to fully embrace and exploit investment banking activities.

 

Gold is for toss-up states updated 6.11.20 

His key points are if the Fed couldn’t exit from the extraordinary monetary policy it launched in 2008 or 2018, how does anybody expect it to exit from the extraordinary monetary policy on hyperdrive that it is engaged in now?

Federal Reserve Chairman Jerome Powell even admitted that the central bank has “crossed a lot of red lines,” but he insisted he’s comfortable with the actions given “this is that situation in which you do that, and you figure it out afterward.”  That is growing caution to the wind, for the market. 

But now enter politics at best and maybe corrupt politicians, the arm twisting began during the 2018 mid-terms. Donald Trump likes low interest rates, and he doesn’t hesitate to let the world know. And to the point, let the Federal Reserve chair, Jerome Powell—know about it.  Trump has publicly intimated the firing of Powell if he doesn’t get the message. Moreover, the White House press said Trump privately suggested that Powell wanted to “turn him into a Hoover. This did not stop until March 10, when Powel was still focused on combatting inflation and a bubble. No Pressure hey?

As a side note, there has been a long term debate if the Fed favors the banks and wall street not the public and the economy, with their focus on inflation. The logic of which ends with the conflicting goals of finance and the economy, banking vs workers.

Since 1980 it has been a balancing act but the diminishing bargaining power of workers resulting in the widest gap between the mega-wealthy and the poor being the greatest on the globe. It is this more recent rising economic inequality that is being called the second Gilded Age.

(The Gilded Age is defined as the time between the Civil War and World War I during which the U.S. population and economy grew quickly, there was a lot of political corruption and corporate financial misdealings and many wealthy people lived very fancy lives.)

The conflict as pointed out above is when the Fed raises interest rates, job creation declines, and the ability of workers to obtain their fair share of economic growth is undercut. A monetary policy that is accountable to working people would likely be less accepting of unemployment and more tolerant of potential inflation.

But the jawboning did not end with Powel, on March 17th  Trump told the Treasury to go big. According to the Times, “We want to go big,” Mr. Trump said at a news conference at the White House, adding that he had instructed the Treasury secretary, Steven Mnuchin, to introduce measures that would provide more immediate economic support than the payroll tax cut holiday he had been promoting.”

Leading to The U.S. Treasury’s official figure for the debt of the federal government on May 27, 2020, is $25.6 trillion. So how does the government unwind its portfolio?  How is the debt resolved?  Taxes? Devaluation of the currency?

Here are the market facts, since 1900, the direction of stock prices in the two months prior to Election Day has predicted the winner 89.3% of the time- that would be from September. However, Sam Stoval at S&P did the same study and found “Looking at S&P 500 prices since 1900, he found that the market action between July 31 and October 31 has correctly forecast the outcome of the presidential campaign 82% of the time.”

So the change of political regime discounting begins in July. It did so in 2016 have a look. However, the work we did and published here show peaks happening in the current time frame.

Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 800-618-3820 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

 

June 9, 2020

50-Day Stock Market Rally May Be Just The Beginning of the End

History Suggests Record 50-Day Stock Market Rally May Be Just The Beginning

Popular On Air Advisor says, “History Suggests Record 50-Day Stock Market Rally May Be Just The Beginning The S&P 500 has gained a record 39.6% since it hit its 2020 low back on March 23. Not only has that rally erased much of the year’s COVID-19-related losses, it’s also the best 50-day stretch in the history of the market. After such a strong rally, traders are understandably getting uneasy the market is overbought and due for a pullback. However, from a purely historical perspective, the strongest 50-day periods have generally led to even more gains over the year that follows.”

The analyst concluded that, ” since the S&P 500 was constructed in 1957 that the index has gained at least 20% over a 50-day period. In all seven instances, the index gained at least another 5.2% in the year that followed.”

But he does not do two things, one is go back to cover all the history of the stock market so there is some evidence of back fitting and two he does not say how the market may get there, which is tandemount to the capital managers p&l.

History tells a different story, for one so-called “V” recovery is not a historical record. There are many similar sharp – “V” shaped – and brief recoveries that lived inside of bear markets – like 2000-20003 and 1930-40, lastly making new nominal highs does not make it a new bull market by definition and mostly by its context.

 

2000- 2003

Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 800-618-3820 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

June 5, 2020

MarketMap 2020 Issue #11

“There were so many people who thought we had to retest the bottom,” said Cramer.

The best salesman on Wall Street went on to say, “Billionaire hedge fund investor David Tepper told CNBC in May the stock market is one of the most overpriced he’s ever seen, only behind 1999. Hedge fund manager Stanley Druckenmiller said in May “the risk-reward for equity is maybe as bad as I’ve seen it in my career.”

He was ranting by the end of his morning segment after the Dow was surging 700 points based on the unexpected unemployment numbers that those who waited for a test of the low will be forced to buy now, and there was little or no risk of Convid comeback and the economy should be reopened.

Sounds like Crammer wants his audience to chase the equity curve.

Obviously with the Fed in Trump’s pocket along with the ten big banks following Steven Mnuchin’s lead, only time will tell if the market regime changed as CT predicted back in January 2018 or if the market herd has gained risk immunity.

Well, every cartel cracks sooner or later.  At the end of 2017 I pointed out that the government had painted itself into a corner by using up all the tricks of the trade from QE to tax cuts at a time when it was not needed. Rather it would be needed to provide a soft landing when the next recession hit.

After looking at a Trillion dollars of debt on that basis, the trigger happy Fed and Treasury have dug the hole even deeper, to the extent that the risk is now hyper-correlation from either end of the normal volatility curve.  As we all know, the market does not like instability.

So, here are two historical charts, which puts today’s market in perspective, I think.  The chart on the right is the expanding triangle that formed after the post-WW-II 17-year long bull market consolidated. It began at 1000 on the Dow in 1966 and ended in October – December 1974 (when I joined Stix &Co).  It took another eight years from that low before the next secular bull broke out from the base.

The chart on the left is today’s market reflecting the same pattern and putting it at the beginning of a new bull market that after a rally to test the old highs will fall back into a trading range for the next seven years +/- a few years either way.

However, given that today’s market is likely inside the base building and has not experienced a bear market yet with its economic repercussion it is not likely in avoiding more declines greater than 20%.  The next comparison chart shows features the same expanding triangle of 1976, peaking at 1000 and leading to a bear market exceeding 25%. Note that the rally from the end of the triangle at point (E),[4] was truncated, it failed to make new highs. Given our outlook for a peak in June, this idea should keep hedgers and investors on the front foot.

Today and early next week the tidal systems flip from down to up, hence the down cycle was inverted aka it failed. Today you can see the effects of the cycle turning back up. The window for a peak begins to open June 13, which is a Saturday.  It runs from that date, let us include the 12th into June 22, a Monday.

Contrary Thinker will be looking for its volatility model in that time window for a “no-fear” background that is exploitable and it will be looking for its OB/OS model to be giving out of gear ( as opposed to negative divergences) for a sell signal. Lastly, for strategy engagement, the market will need to be on the right-hand side of a high pivot.

The Short Term TEM on the four primary indices will be posted in the LI Space shortly, for the background.

Great and Many Thanks,

Jack F. Cahn, CMT

A Thinking Man’s Trader Since 1989,

Copyright 1989-2018

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

June 3, 2020

MarketMap 2020 Issue #10

Hope Permeates the Headlines with the
Felling of Back to Normal Conditions

Contrary Thinker has a number of new members and I welcome you on board, please feel unencumbered to ask questions or provide feedback in the private LinkedIn Group. I will send you a user doc on the Volatility Model shortly.

With that in mind, we are not in the business for the transaction and as an advisory, we do not consider opportunity risk, because a loss is hard to makeup – its simple math. Our point of view is the waiting is for low risk – ideal setups – that provide 4 to 1 or better risk-reward.  We did that this year with the collapse in late February into March 23, trading only long volatility systems and aggressive short-selling systems on the indices and crude oil.

Since the low its back into a holding pattern. We prefer the high volatility periods because they are less risky and the setups are direction neutral in some cases.  To make a point by extreme example, volatility can run at either end of the curve, hyper deflation, or hyperinflation.

with that in mind, forecast are just that, scenarios to keep capital managers on the front foot and prepared for what is coming – sooner or later. The forecast also provides risk outlook and market conditions outlook. For example, since 1/23/2018 we have been long term risk-averse and see each rally to new highs as an opportunity to at least raise cash.

Again, and this is not bragging as Contrary Thinker did it, we called the peak in late September 2018 and the most recent peak on February 12 and 19.  As it is a well-known fact throughout the investment community that a top is Harding to isolate than a bottom if you are looking for the master at calling peaks, you are in the right place. I am not talking about nominal highs for bragging rights, rather the low-risk setups to the right-hand side of the nominal peak to get my people positions to take advantage of the decline, to cash in their hard-earned profits.

Contrary Thinker has the guts to point out the low-risk lows, as you will read below; but from a long term point of view, the low on March 23, was not a low-risk low, even though it was a good long side trading opportunity.

Market Map is part of the comprehensive system we use, to pin down dates for changes in trend, and build scenarios. The first featured chart is published several times over the last year to 18 months. It shows one of my cycles calling for a peak late in 2019 and a spill from Mid-February 2020.  The cycle projected the low to happen in April-May. but it happened early,

No harm no foul as the aggressive long volatility systems were disengaged to avoid any whip-saw. action, which is the Achilles heel of our systems.  The long-only VX futures system made 60% over the few weeks, max DD was less than 1%.

18 1/2 year Tidal Cycle

 

Based on the early low and counting forward the next high in the US stock averages is expected in June -August, a time window I will refind here.

Event-Based Cycles

ECBs are tied into historical peaks that had the same seasonal and tidal configurations as the current one under consideration. Both the 1934 and 1966 had similar peaks leading to bear markets after pullbacks in April. Both scenarios have their next high pivot in mid-June followed by steep declines in July and September.

 

Going back 140 years – not showing pre-1920 that are similar- here are three additional late winter peaks but in March with the same tidal configuration.  All three show a tendency to peak in mid to late May to Mid June and collapse into July and September, like the above chats that peaked in February.

 

The suggestion is that a peak – be it at new highs or under them is not important – is expected between now and mid-August, and this is not a new secular bull market.

Unparalleled Market Events

It is without argument that the 1987 crash had no reason behind it that anyone could prove. The spill was unprecedented in terms of percent decline and the time it took. the collapse in 2020 is also a stock market event that was sudden – a known unknown – and the price damage and the amount of time it took was historical.

However, when you look back at all of the “out of the blue” selloffs the ones with “W” lows, where the low was tested preceded more bull market. A base was built as you can see in 1987.

However, when you look at the 2000 – 2003 bear market the 9/11 panic on the re-open was a “V” shaped low. That low did not lead to a new bull market. In fact, the low was tested and broken until a “W” low was established in 2003.  You can also is that the counter-trend recovery peaked 3 1/2 to 5 1/2 months later, a scenario that fits the above narrative.

While the chart is not shown, the 1929 panic was followed by 4 1/2 months of recovery, similar to the pattern outlined above and it too was a historical event.

Contrary Thinker via its “Volalaity Report” will provide the market background that will likely set up the market for its next decline.  No hurry from here. The most recent post worked over the Bitcoin market, which is a leading risk market and should be telling before the peak.  More on that later.

Great and Many Thanks,

Jack F. Cahn, CMT

A Thinking Man’s Trader Since 1989,

Copyright 1989-2018

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

June 1, 2020

Volatility Reports Bitcoin a Risk Asset

Digital Assets the Inflation Hedge Assumption

The case is made for these “man-made” electronic mediums of exchange, that instead of owning shares of a company or a dollar bill, your invest your money – USD – as a store of value and to be used to buy goods and services.  The idea is to move your money from fiat currencies to these “coins” for protection.  The bulls list the following:

  • The Federal Reserve is vastly expanding the monetary base.
  • Like gold and other precious metals, Bitcoin and other digital assets should benefit from exploding money supply.
  • Goldman Sachs is holding a conference on crisis, Bitcoin, and inflation.
  • And it’s not just Bitcoin, other top coins look set to outperform.

The last point is very true. there is a burgeoning new industry manufacturing blockchain project/network for its computerized system of bookkeeping that is “fraud-proof.”  That is fine, but there is no control of the supply because every computer hack wants to be the next inventor of the next unique blockchain to use to buy and sell certain products and services.

So they have a supply issue plus they do not have the “full faith and taxing power” backing up this “digital assets.”

Like Gold back in the late 70s and early 80’s the boom and bust will take a decade of base building before it has its next leg up.

If you recall when you first heard about the Bitcoin, before the CME brought the futures markets into play, there were maybe two or three other competitors of BTC. Today there are many, here is a list with market caps:

  • Bitcoin: $163 billion
    Ethereum: $23 billion
    Litecoin: $2.8 billion
    EOS: $2.4 billion
    Tezos: $1.9 billion
    Cardano: $1.4 billion
    Stellar: $1.3 billion
    Monero: $1 billion
    Tron: $968 million
    Ethereum Classic: $782 million
    Neo: $695 million
    Dash: $695 million
    IOTA (MIOTA-USD): $540 million
    Cosmos: (ATOM-USD): $482 million
    Zcash: $420 million
    VeChain (VET-USD): $267 million
    DigiByte (DGB-USD): $249 million

What the fundamentalist needs to do is figure out which are overvalued or undervalued relative to their future functionality, capability, and market share potential.

What the charts reveal is a collapse when the regime change first hit the equity markets in early 2018. A decline BTC has not recovered from the smash in the face of new highs two years later by the Dow and the Nasdaq if you are looking at nominal prices only.  But, in money terms, it lost $16,000 per coin in less than a year, an 84% decline.

 

 

The recovery thus far looks typical to every other boom-bust market observers have witnessed throughout history.  The 62% retracement is common, it is not a magical number that is expected to be touched or if exceeded precludes a scenario. But if you look at Gold, Crude, and shares in 1929, you will see the fractal.  These two weekly charts tell a story of c bear market rally with one last rally to $1,500/coin to finish off the counter-trend. In EWT terms finish wave two going into the meet of the decline, wave three, which will take out the lows at [A].

The tension underneath the market is high and will support a valid trend once the direction is determined. In other words the weekly chart has TEM on a new rule #2, a background that sets up to exit the trading range and trend for a period certain.

 

The Short Term – Daily chart has the same set up by the Technical Event Model. This close up look shows the coiling up in the bar chart that should lead to the break to the $10,500 level.  A terminal move and a head fake from our side of the desk.

Short only hedge intra-day scalper is engaged since May 27. No trades thus far.  It made 12k in May, but that is not our prime mover. The process laid out above is.  This is similar to H.M. Gartley’s entry technique, except we engage a trend following system that trades one way from point “C” where a normal dis-engage is if point “A” is taken out.

However, in the 1930s they would go short at point “C” and risk to point “A,” again a low risk. However, today, Contrary Thinkers, have a trend following system that only gets hit if the weather turns choppy, which is even lower risk. It should not whip-saw conditions after a new TE#2. Once the market breaks in will carry over intra-day; and once a long term trend is established the trend should be forceful every day.

TEM is direction neutral and the bulls could be right, if you have a breakout system that trades long or a trend following systems, you can run with the bulls. I will accept it if the break higher of $1,000 occurs, I do not see risk to the strategy unless the market turns into a windmill.

You don’t need TradeStation to run our systems, let me know what you use from NinjaTrader to Microsoft excel, etc.

Featured Image Header Source

Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 800-618-3820 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

 

 

 

May 27, 2020

Volatility Reports 05/27/20 late bear rally into panic buying

World Market’s recovery looks old and feeble, TE#3.

The Euro Zone rally on Monday and Tuesday put this market into a resistance zone – aka at an extreme. While at the same time TEM sees the buying that put it there as poor or panic buying, TE#1. In other words the rally is not based on a rational basis and is not expected to hold.  Reversal below its new support zones as shown in the data windows on the left would clear the signal from any noise by the media.

The German averages as measured by the MSC iShares is in the same set up as the EuroZone. In a cluster of resistance on panic buying.  A context that should lead to a reversal in the short term.

 

 

 

Great and Many Thanks,

Jack F. Cahn, CMT

A Thinking Man’s Trader Since 1989,

Copyright 1989-2018

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

May 26, 2020

Prepare For A Bear

 

What the market is saying is not noise but the relevant facts. You just need to look beyond nominal prices.

 

Prepare For A Bear Market

(Source: Robert Shiller, Yale)

Like the traditional appraoch, today a strategy suugest that long-term investors are best off on the sidelines. A model portfolio shows how purchasing power can be preserved for large amounts of capital. Fundamentals Financial markets have been extraordinarily challenging lately. Most investors were equally surprised by the market crash as well as the subsequent rebound.

The quarantine put a fair number of folks with time on their hands as first time investors and new online brokers jumping on the oppprounity worldwide from the USA to Australia the numbers of first time sahre investors trying to make a living from the confort of their confinded space spiked.

The put/call ratio MA durring the “Greatest of all Bull Markets” suffered corrections at least or something greater each time it moves above the dotted line ay 65%.

(Source: Tradingview, ESI Analytics)

If there is an outside world that is to blame for the big shifts in sentiment this year its COVID-19 obviously.  However, here is the headline that is driving the opening higher gap in the Globex pre-market. 

However just a thought, if the coming-out parties this holiday weekend and the push to get the economy going re-ignites the virus, it comes back in only 5 days to two weeks, way before the vaccine is ready at year-end.  But that reasoning can’t fight the tape by itself. 

Volatility Report ” Two more crashes to go.”

For over two years I have pointed out the risk and strongly suggested the market would correct its mistake all the way back to the election of 2016. The Transports did that convincingly and the industrials only a minor touch. When the market’s background became fragile to the extent that minor excuses or rationalizations would tip it over, Volaltiy Reports and Market Map pointed these windows of change as well. 

Contrary Thinker’s model has not wavered, it remains based on the decennial theory, were the year that begins with “0” since 1860 the beginning of the Civil War- has produced a recession or something worse. And from a market point of view, it has produced a bear market. 

Early this week the tidal forces we monitor via our systems running in TradeStation flipped in this time from up to down. Along with that cyclical change the volatility background has changed as well at the opening of this week.  The following series of charts reveal just that, as the current uptrend – kicked off my out Technical Event Models Rule #2 (green vertical line), a condition that states the underpinnings of the market are ready to trend, it has now run its course and is due for a change.

 

All three-time frames are recording Technical Events #3, a context that calls the current trend – be it up, down or sideways – old, feeble, persistent but due for a change. Each chart has annotations and prices level that would signal the beginnings of a reversal, a change of trend (COT).

The risk in the S&P – basis the futures – is 250 to 300 points in June going into July.  This is based on the weekly range expansion expected given the context of TE#4. MarketMap-2020 has COT lows expected from July 3-July 9.

New Highs by the Nasdaq are not a factor regarding new bull or bear market rally. Rather, its advance from the early May low supported by the TE#2- see chart in left window- followed by the break above the low end of Long-Term Resistance and tested succsfully. This price level was mentioned in a LinkedIn Group post, that it needed to hold for the uptrend to sustain. That 8943 level remains key. With today’s open expected to be 9,551.25, keep an eye on S-T new support at 9,521 – see the data window in the middle of the above charts.

Lastly, the out of gear sell signal on the right hand chart has proved to be effective in calling the turns, much better than the old school “divergenes.”

Last Day for the Morrial Day week end deep discount, link here. 

Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 800-618-3820 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

 

 

May 21, 2020

The Shortest Bear Market in History?

Hope Floats

Back at the end of the 4th quarter correction in 2018 the buy-side only crowd wanted to claim that 19% downturn as a bear market, the shortest ever.  Well there are a number of reasons why that was not the case and CT argued the reasons back at that time. It has lots more to do with the form it took not the arbitrary definition given a bear of 20% or greater.

Today after the debacle that took place over 40 days or 6 weeks and cashed in 38% in profits,  the buy-side only mob is calling for a “V” shaped bottom and a continuation of the “Greatest Bull Market” ever.  Well like most humans we want things to get better, but it depends on what side of the desk you are sitting on that determines what that batter is.

As you will see history does repeat and if Einstein is correct “The distinction between the past, present and future is only a stubbornly persistent illusion.”  Without getting into the average time and the average price decline or the standard deviations above and below these averages, it is all about the “V” shaped low and the “W” based low. Its all about 2020 not being another 1987.

What the investing community witnessed in that 40 days was an unparalleled price based event. There was no Black Swan like a number of  “want to be” analysts or content providers called it. So to be clear a Black Swan event is an “unknown – unknown.” Whereas the excuse for the market’s vulnerability was known in December 2019 to the public, if they were listening. Just ask Peter Navarro and his publically available statements. Of course the majority in their sheepish fashion were not attuned. Hence it was a known unknown that acted as the catalyst on a market that CT called “fragile” So jittery that a feather could have pushed it over.  CT called for a risk of 50% and a spill on February 12 and 19 and loaded up the long VX system on February 24 and hedge off March 16.

That’s all good and fine but it’s this thing that a V” shaped low is in place and a test is not needed this time, and it will be different that bothers me, based on history.

In 1929 and 1987 no one saw the financial crisis coming.  Studies like Shiller’s found there was no EXTERNAL cause for the blood bath. There are other massive declines that at the time were unparalleled. When you consider similar out of the blue crashes in 1946, 1997, and 2001 with the 1929 and 1987 events you see what their form is and what makes them unique.

The daily bar of 1929 reveals a “V” low without a test that leads to a five-month recovery before a highly changeable bear market began for the next three years and a massive trading range into the secular bull market kickoff in 1949 – for us baby boomers. The long bar day on the 29th was a mear 21%.

In 1946 that was plenty of post-WW-II to be happy about, the St. Louis Cardinals d. Boston Red Sox (4-3) and Benjamin Spock’s published his childcare classic.  What could go wrong?  A head-and-shoulders top said, 24% decline over two to five months depending on how you measure it.

What is clear about the low is the testing of the low before a three-month recovery. While the market recovery did not last the successful test was the groundwork for three years of base building – a 20% trading range – into the 1949 low leading to a secular bull market. The key was the base and the test.

Thet pointed their fingers in ’87 at “Program Trading” as the cause of the crash, a factor that has been debunked over the years. While on its longest decline day of 29% is greater than  1929 what is key here compared is the two successful sell-offs that could not make new lows.  Such a “W” test set the stage for the base building that leads to the next leg of this secular bull market into the early peak of 2000.  But hang in there because there is on more crash out of the bull before we get to 2001.

Everything is beautiful in 1997, US shuttle joins Russian space station and Hong Kong returns to China.  The market had a 19% correction by definition but it ended with a panic day long bar 9% on the day. The stuff a normal correction is not made of. However, what is important is the “W” test of the low.  Two times the market retraces 62% before taking back off on its historic bull run.

This brings the market to its peak in early 2000. One of the key points of the chart is how the “V” lows were only medium-term trading lows in the majority. After the attack on 9/11 and the market reopened the market experienced an 8% panic decline on the day and followed by more sell off the next.

That “V” shape low like 1929 was followed by 5 1/2 months of recovery, but no continuation of the secular bull market. In a similar fashion in 2001, the damage was done and it would take nine years of the base building into the low of March 9, 2009 before a new secular bull could begin. But it was the successful test in 2003 that was the start of the base building.

From the book of the rare and unparalleled market declines that caused one-day declines which marked a sudden and massive shift in investor psychology came the crash that will always be known based on the Corona Virus.  Large one-day declines that add up quickly to a superior annualized returns. March 2, down 5%, March 9 down 8%, March 11 down 6%, March 12 down 10% and March 16 down 13%.

To be certain this low from a rare unexpected sell-off and panic looks more like 1929 than the others cited above, because there is no test of the low, which leads to the base building required to begin a new leg up in an ongoing 140-year-old bull market. Rather the financial media is leading the market higher with “hope” and exaggerations in its headlines for a market that does not have a base to build from like 46′, 87′, 97′ and 2001.

To be clear to the buy-side the only crowd, CT encourages your focus on nominal prices, new highs and new lows, and the bragging rights you like to enjoy with them.

For Professional Advisors, RIAs, Capital Managers, and Pro-Traders

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Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 800-618-3820 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

May 15, 2020

Volatility Reports 05/15/20

If the 62% retracement is familiar to the majority, they are ignoring it.  The comparisons to 2000 and 2008 are just the most recent when looking at today’s market.  The history of the .618 retracement is well known back to 1929 and before. It also fits the market phases model seen below the first featured chart.
————-

The 62% bear market rally is the so-called “Return to Normal” phase of all market cycles, seen here overlayed with the speculative bull market in gold back in the late 1970s early 80s.

The “Greatest Bull Market” shows the same type of pattern as it cut through the behavioral phases that all markets go through.  Today we are in the denial phase, the “I can’t believe it” period.  That can be applied to the market, the economy, and the pandemic and other known unknows that will be impacting the market, like the geopolitical events and the election.

Our tidal model is providing sell signals in the current time window that are nearly identical to the configuration of the peak of February 12 (19th for the Nasdaq), with an inverted cycle and the same tidal forces. Next to October, May is the second most active month for panics. The time window running from May 22- May 30 should experience the same type of long bar days seen from March 9 through the 16th

If the secondary peak is in place as expected the decline will unfold like the chart on the left which is the primary top on 2/12/20. Hence, the price level at “2” should not be exceeded and another near term decline for <i> should make new near term lows before the meaningful period of the decline digs-in.

Contrary Thinker has already pointed out that Bitcoin is a risk asset, not a hedge.  We have pointed out that after near-zero pricing to 10s of thousands of dollars bubble and bust, it takes years of base building before anything bullish re-emerges. From the massive spikes we saw in the late ’70s in gold and crude, all of my clients wanted to buy them after the markets crashed and it took decades to recover.

The same will hold true for the Cryptocurrencies boom’s fairy dust will take a while to rub off. The featured chart here provides three short term sell signals, one based on our OB/OS model, one based on the tidal forces flipping to down – see the track record on the left-hand side and the red high-lighted area points to the markets failure to hold its new support area.

The Bitcoin has been leading the stock market lower.

Another market that should concern risk markets is junk bonds.  The narrow trading range has set the market up for a dynamic trend. Our Volatility model has been coiling up in a Technical Event #2 for a week plus. These #2 events are leading signals of a one-way trend.  A drop below 77.58 should set it on its way. A move above 80.40 would be a break for the bulls.

For reasons CT has pointed out previously, our bias is bearish and the break should be lower and should lead stocks lower.

 

Visitors at the “Volatility Reports” Group in LinkedIn, need to opt-in as a subscriber before their free look runs out. 

Great and Many Thanks,

Jack F. Cahn, CMT

A Thinking Man’s Trader Since 1989,

Copyright 1989-2018

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

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May 4, 2020

Volatility Report 5/4/20

All the techies who missed the big top are getting itchy here looking for reasons to sell.

Contrary Thinker did not miss the top (called it 2/12 and 2/19 ) and engaged long volatility strategies (Sunday night 3/23) to hedge traditional portfolios and to profit in 80%/20% split Cash/Futures combination. Here is a link to the 16-page pdf that shows you how we did, track our thinking.

The majority in mid- March called to a quick return to normal as seen in the Goldman scenario posted at that time. Today after a 30% bull market in five weeks the majority on Twitter was back to being bullish. As we go to the open today with just a hint of decline the TA’s that missed the February peak is getting serious about a real bear market. Hedging their advisory and grouping together with the same idea to watch the FANNG sector-based ideas propagated by their seniors to add credibility to their advisory’s caution. 

Contrary Thinker labeled the peak in January 2018 a REGIME Change. Since that date, short only volatility breakout systems on the ES have beat buy and hold the stock index future ES.  CT called the peak in late September 2018 and again engaged long volatility systems into early January. On February 12, 2020, we reintegrated “risk-off.”   We have been faulted by the buy-side only managers for missing the bottoms, our advisory is built of capability and trust. Since the low December 23, 2018, and the low March 23, 2020, we have not given buy signals or risk on advisory.

We did, however, disengage our hedge – the long volatility strategies – when buy signals could have been made, “risk on.” But it was not worth the risk we expect. Furthermore, in the face of the before mentioned long volatility breakout systems in an 80/20 split portfolio with 80% in 2-year notes and 20% in futures, the performance has been above average.

Dow Utilities

Furthermore, as everyone knows bottoms are easier to isolate then peaks and that is CT’s specialty picking the lows is easy and the low in March was signaled weeks before it actually happened, a telling sign for divergence like 2007-08.

The above chart shows the pealing off of the defensive stocks. The group was bought in panic as the flow of funds exited regular shares. Now it is inferred that either the funds are rolling back into the advancing stock market or there is no place to hide in the face of the coming decline.

The above chart of the Dow utilities reveals a background that supports a forceful trend. A move below 753 would be the next sign of the downtrend unfolding and confirmed below 528.

Cash S&P

Like the fixed zones we use the variable bands show the same failure reversals and the confirming breakdown six days later.  What is also conspicuous on the chart it CT’s Technical Event Model (TEM) giving a Panic-Event Signal, highlighted in red.

Today the last two peaks have failed to hold and any trend that can pick up a following here will be dynamic, with the last TE being a rule #2.

similar to the variable bands used on the S&P index, the four markets showed here using our fixed zones; and it is clear that all four of the indices have failed to hold. With these reversals being preceded by Techcnail Event #2, there will be a carryover of the downtrend.

Bottom Line

Risk-off, raise cash use risk-free investments. 

Hedges- Long Volatility Strategies – remain off. While the nominal high may be in place for the secondary bull market posted on 4/29/20, CT will wait for the model to give a clear engagement signal before we go “staus-on.”

 

Subscribe to Contrary Thinker today, if you are a visitor to the LinkedIn “Volatility Report” you know the free look will end 

 

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.

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

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