Volatility Reports 1/4/22
January 4, 2022
January 4, 2022
Just as financial repression of rates is unnatural, so is the suppression of risk in free markets. The logical outcome of a riskless market is a market that collapses in on itself because the nature of reward hinges on some amount of risk.
Socialized markets have all the perceived risks wrung out of them. It’s what I call risk repression. In this regard, I suggest reading anything by Christopher Cole, CFA, and his idea of the bull market in fear, and trading tail risk.
The New School of Technical Analysis does not use as a primary tool of oversold/overbought Stochastics. Rather what Contrary Thinking members use the oscillator of implied volatility. Members are familiar with this chart with the bull market spiking fear when there was nothing to be afraid of when the decline was modest. So modest the massive host of bulls see that fact as the wind at their backs for more of the same in 2022.
My second chart pick to assist capital managers, advisors and traders understand where they are in the big picture of things, is how the current sent of peaks fits the 2 1/4 year cycle portrayed in MarketMap-2022 Scenario planner. With the ATH before two major corrections in 2018, the series of highs in bullish sentiment from the peek 11/22/2019 and now 2 years later the series of differences from the high in bullish bravado on 8/6/21.
There are multiple inferences here. Actually starting with the late 2015 correction, and again the February 2018 sell-off, and the fourth quarter 2018 correction while all timed by Contrary Thinker, they were all ignored. Me and the team used to get “can does ” in previous decades. But with the advent of America First, not so much.
It was all about the long term with the sell-off being part of the secular bull market. Even in early 2020, and yes my group is just as good if not better than Senator Richard Burr’s broker who told him to sell.
As a sidebar, I am a square shooter, no one date has doubted my words, and many have seen the “sell” advice in publications. But no matter, buy the dips, and barrow to the max on the next sell-off of 30%.
Looking back from this vantage point of 2022, event the bear from 2000 into 2016, look mild to many. The thought that a market that travels over ten years with five bear markets could never happen here, again.
Lastly, the SKEW index remains at historical highs, signally that large capital fears tail risk. On the left deflation and on the right inflation. TEM on the SKEW index supports a breakout, which is the realization of one of the risks.
Dip-Buyers Beware: “The Reflexive Short Vol Trade Has Left The Building”
Something’s different this time.
For the first time since the collapse in March 2020, the S&P 500 has failed to rebound back to new highs after testing its key uptrend technical levels…”
Contrary Thinking Begins Here
Great and Many Thanks,
Jack F. Cahn, CMT
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