Volatility Reports 7/10/23
July 10, 2023
July 10, 2023
AI Darlings Create, Destroy, Recreate.
Thus far in 2023 only the short-lived AI buying panic provided any semblance of opportunity that was above average. Its leader is featured here.
From a technical point of view there is too much risk to consider new purchases in NVDA and the macro sector of high tech.
Contrary Thinker has pointed out that progress – all progress – is dialectic. Simply ignore the archaic term to know that capitalism grows through what Alan Greenspan calls creative destruction. Unless the system fails, which means falling back on itself, like communism has in the old Soviet Union or the Weimar Republic of Germany did.
It’s out with the old and in with the new until the new gets replaced.
Jumping ahead logically with that as the working assumption AI will need to undermine the current bastion of the high-tech industry before AI rebuilds it. From a ground up point of view new plugins, widgets and apps will replace the existing ones, and the beat goes on.
Contrary Thinker pointed out in our LinkedIn blog space that #NVDA was making a climatic top as it moved above four hundred. The volatility model suggested that the share market would start to fall back and fill probing new highs as it builds an I-T reversal.
If you are a part of the group, here is the link from four weeks back in this regard. https://bit.ly/3PBvJYP
That top building is done or nearly finished. An important top is typical after “panic buying” as objectified by the volatility model TEM on the weekly bar. Adding to the weight of the evidence is that price-based event (TE#1) happened when the market’s price squared with time at four hundred. Refer to the notes in the chart for trade ideas.
Part of being a contrarian…
…is finding the message in the market few others are hearing. For example, in an exclusive study the data used is that of the profits achieved from programed selling of volatility premium. These programs are one of the methods used by institutional types to achieve better than average returns, aka alpha.
The featured chart of the S&P is running my %BB-VIX oscillator on that data stream to provide buy and sell levels on a short-term basis.
The red vertical lines highlight recent selling opportunities. Like the long term off signal generated by Contrary Thinker’s systems in mid-May 2021, what has been gained by holding risk except a second chance to get out near the ATH.
In lieu of publishing a MarketMap™ 2023 Scenario Planner here is another look at the short-term timing expected for traders. To premise the following, unless the decline causes a climatic bottom with low to zero risk, it will only be used to cover bear market positions. With that is mind, the current double top is in line with the MarketMap™ 2023, which is now trending lower into late summer early fall (Map not shown here.)
The featured chart here demonstrates the highly correlated double top with a favored Astrological formation. Along with a few others has noted in the COT table for the top. However, what is more significant is the Crawford attractor that is expected to pull the market to it over the next two to three weeks.
Hyper-Correlation is a Market Condition that should not be ignored
Since the advent of the e-markets all markets have been correlated. When there is dis-inflation – aka mild inflation – everything goes up and when there is recession everything goes down. The Bulls have wrapped themselves around the idea that the one lone negatively correlated market, the bond market (leaving the currency out of the mix here) will provide them with a smoother equity curve. Well, that has been true from the 2009 low until highs in 2021/2022, as the exclamations made headlines with bonds and stocks nearing a correlation “1”.
The following chart is our volatility composite index, which shows how perceived risk impacts all markets at the same time. The spikes in 2022 reflect that bond/stock relationship just highlighted. Today joint volatility has receded back to its lower levels but not as low as the fearless era of 2017.
From Contrary Thinkers point of view, tops are easy to predict. Being off-off-off wall street helps. However, spikes in volatility are difficult to predict, which is different from calling a top and the ensuing bear market. Because the reasons for the bear are not seen until the bear market has a well-defined trend or at climatic lows. So, spikes in VX are upsetting outside the market events, like the pandemic, which was public info in December of 2019. Early enough for several US Senators to cash in their stocks.
The point is not political, rather to anchor one’s memory for recall and to stress a point. Contrary Thinker called that top with the same methods used today. So, “heads up.” The annotation on this chart points out a the start of a cycle early in 2020 and that cycle unfolds into a secondary high in the fall of 2020. The same cycle hits again in this period with a Crawford attractor – a super-stellium of aspects – that should kick off the next round of inflation. Bearish for bonds, bearish for stocks and bullish for long volatility.
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Great and Many Thanks,
Jack F. Cahn, CMT
Contrary Thinker since 1989,
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
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