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(Bull) Market 2021

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@gartley


So I looked at this last night and had a think about it. I actually remember (now) a chap that used to trade currencies to this red/blue/yellow/green vertical bar set-up. Unfortunately I can't remember his methodology. Given that 'timing' is money in the markets, we have the following:

The 2 takeaways: (a) increased vol. and (b) in the next 2 months with potentially a 3'rd (c) the projected top 4150 not yet reached (implying that this is necessary or simply a possibility?)



Does compressing the time scale change anything?
Certainly the 7 year gaps in the bars ties in with various cycle theories (business, Kondratieff etc), how do Fib. ratios relate?

I agree that markets are 'toppy' atm. However, toppy in the sense of a pullback, not a bear market type of decline. That will (in my opinion) if rates hit 2%+ and the Fed. does not cap them. This is related to total corporate debt at $14T of which 90% is rated BBB, or junk. These companies currently are contributing to the disinflationary forces at play, producing X at subsidised prices, thereby dampening inflationary forces in the CPI, but not the PPI, as they contribute to the overall demand for raw materials, hence widening the spread between CPI/PPI and lowering profitability margins, raising valuations etc.

Whereas you seem to be calling for a major break, a bear market break in +/- next 2 months. Does your analysis require a catalyst? If so, what do you see as a potential catalyst?

China breaking out:




TSLA earnings next week. There could well be an earnings play available.



GM could be (if you are an EV convert) to play (at better valuations) the EV game:


Bonds & Gold resume:



Mr flippe-floppe-flye:



jog on
duc
 
Hi duc,

The the methodology is the Delta Phenomenon created by Jim Sloman and popularized by Welles Wilder. The chart that I attached is for a 19 year cycle. I also use another time cycle which I found myself which is a 4 year cycle but more on that another time. Ther are ofourse smaller cycles that can be applied but I find there is too much noise and don'r really use them that much.
The longer term cycles have been great however, given the long spacing between cycle points for helping you stay on the right side of the trend. I have been using this since 2004 and I remember the run to the GFC and I was looking at cycle point 16. I was expecting something big here given the degree of cycle we where looking at. The same for the low at cycle point 1 in March 2009 and recently cycle point 8 at the pre covid crash high.
Some things to bear in mind, generally speaking cycle points can be plus minus 2 points(months) compared to earlier ones but now and again we ge the odd that is out further. We only use the x axis. Disregard the position of the cycle points relative to y axis

Some more examples of the eurusd and audusd below:





With regard to the price projection. The price projection is 4150 at a minimum and 4286 max. This is generated by the offset of a FLD ( Future line of Demarction-refer to JM Hurst work) for a nominal 40 week cycle. When price crossing occur then the price meets these approx 76% of the time. Others are invalidations when price action crosses back over the FLD.
What happens when price reaches the this range? Three possibilities 1/ it reverses, 2/ It consolidates for quite a while before continiuing, 3/ It continues further.
What is important here is that once projection was given back in July, you know that ther is a 76% probability that it will be met.

That is a static price projection, attached in excel spreasheet I have my dynamic cycles routines which by the way do not suggest a top yet on the weekly or monthly (although that may change in the next few months) . But the monthly Price projection has been met at 3850 and the weekly is still projecting 4354. Personally I don't think we will get that far but who knows.
For now stepping back and looking at the way things stand, bullish sentiment is off the planet, highest recorded since 2000, as is rampant speculation of risky bets like Call options, leveraged ETFs and margin debt.
Yet we have the financial press telling us that the markets are about to embark on the most bullish decades in history.....
 

Attachments

  • SPX Cycles Analysis.xls
    1.4 MB · Views: 43
Hi duc,

The the methodology is the Delta Phenomenon created by Jim Sloman and popularized by Welles Wilder. The chart that I attached is for a 19 year cycle. I also use another time cycle which I found myself which is a 4 year cycle but more on that another time. Ther are ofourse smaller cycles that can be applied but I find there is too much noise and don'r really use them that much.

The longer term cycles have been great however, given the long spacing between cycle points for helping you stay on the right side of the trend. I have been using this since 2004 and I remember the run to the GFC and I was looking at cycle point 16. I was expecting something big here given the degree of cycle we where looking at. The same for the low at cycle point 1 in March 2009 and recently cycle point 8 at the pre- covid crash high.

Some things to bear in mind, generally speaking cycle points can be plus minus 2 points(months) compared to earlier ones but now and again we get the odd that is out further. We only use the x axis. Disregard the position of the cycle points relative to y axis

With regard to the price projection. The price projection is 4150 at a minimum and 4286 max. This is generated by the offset of a FLD ( Future line of Demarction-refer to JM Hurst work) for a nominal 40 week cycle. When price crossing occur then the price meets these approx 76% of the time. Others are invalidations when price action crosses back over the FLD.



What happens when price reaches the this range? Three possibilities 1/ it reverses, 2/ It consolidates for quite a while before continiuing, 3/ It continues further.

What is important here is that once projection was given back in July, you know that there is a 76% probability that it will be met.

That is a static price projection, attached in excel spreadsheet I have my dynamic cycles routines which by the way do not suggest a top yet on the weekly or monthly (although that may change in the next few months) . But the monthly Price projection has been met at 3850 and the weekly is still projecting 4354. Personally I don't think we will get that far but who knows.

For now stepping back and looking at the way things stand, bullish sentiment is off the planet, highest recorded since 2000, as is rampant speculation of risky bets like Call options, leveraged ETFs and margin debt.

Yet we have the financial press telling us that the markets are about to embark on the most bullish decades in history.....

@gartley: which raises a number of further questions.

1. If going back to the left hand (earlier) side of your chart, we see pt. 16 & (16), which includes pre/post 1987 crash. In this instance, pt. 16 was a little late. Pt. (16) in +/- 1990 seems to be back on schedule, with pt.1 again preceding the rise. How much leeway re. timing is there? Is the timing fixed or can it evolve with markets? Is there an element of dynamism to the count? From what you say re. price projections, I would say that there is not, the timing of the points is seemingly fixed in relation to the price projection (but I could be wrong on this).

2. Would you use this analysis as a primary analysis or simply as an additional form of analysis? To me, these extended time frames would suggest this form of analysis as a starting point (primary) and other methodologies or combinations into the shorter compressed time frames.

3. Is there any form of fundamentals tied to this type of analysis? From above I'm guessing no, but then again, the Kondratieff cycles have a basis in a fundamentally based analysis.

4. Why the difference in the weekly and monthly price projections? I would have thought that the higher projection would have been the monthly, not the weekly. Why?

5. How do you arrive at a 76% probability? That is a precise number.

6. Sentiment is an interesting metric. It can be and is measured, providing a quantitative number, but sentiment is an emotion and very qualitative. It can and does, change with price. Does sentiment drive price or price drive sentiment? Does it even matter?

7. The financial press. Runs on a continuum from 0 to 10. Zero being worthless, 10 having something valid to say. The 10's mostly identify big macro-trends that play out over significant time frames. The 0's are just noise.

8. Speculation adds to (reduces) volatility for sure. Speculation adds to liquidity. Volatility and liquidity are intimately connected. When liquidity is high, vol. is low and vol. explodes when liquidity runs for cover. The massive increase in speculation post-C19 has squashed vol. The issue of course is that if liquidity runs for cover, speculators who do not understand that the bid has been pulled will be bankrupted. So the wheel turns.

The various 'bubbles':



The US dollar:




The DXY will continue to command a bid. Why? Because China is a mercantile nation, as is Europe as a block. Name any country, their currencies are in some shape or form pegged to the DXY. The DXY cannot fall below X. Looking at the longer term chart the DXY may fall to a median, possibly even 'crash', but it will bounce back. Without going into excruciating detail, the gist of the problem is:



Gold: just on a kinda wait and see vibe. The 10yr will hit 1.3%, potentially creating a DXY rally/bounce: gold?



A new ETF:





BTC: the test is fast approaching. Will the 50 day hold it as support?



The answer is usually at the first test a big YES. If BTC fails at resistance and tests the 50 day a second time, the answer is usually a resounding NO. BTC is currently the best example of speculation/volatility/liquidity playing out in the markets.

Finally, Mr flippe-floppe-flye



Oil news:

Friday, January 22nd, 2021

Oil posted some losses at the close of the week, with Brent dipping back below $55 per barrel and WTI down below $52. More travel restrictions in Hong Kong, Shanghai, and the UK led to demand pessimism, and a temporary jump in the dollar also weighed on crude.

Biden’s first actions on energy. As expected, President Biden signed a litany of executive orders related to energy and climate, including canceling Keystone XL, rejoining the Paris Climate Agreement and beginning the process of undoing a long list of regulatory actions under the Trump administration.

Chamber, API open to methane regulations. The Chamber of Commerce and the American Petroleum Institute (API), the most powerful business and oil lobbies in the U.S., respectively, said that they were open to the reimplementation of methane regulations on oil and gas operations, after supporting a rollback in the Trump era. The industry has long supported voluntary actions only. “This is a new position for API, but we think given where the industry is at this time and the continued importance of reducing methane, it was critical we update this position as the administration changes,” API CEO Mike Sommers told the Washington Examiner.

OPEC looks to build ties with Biden. OPEC’s secretary general said that the group will seek to strengthen its relationship with the Biden administration, although thorny questions over the Iran nuclear deal and climate change loom.

Biden makes Glick FERC chairman. President Biden announced that Richard Glick would take over as chairman of the powerful Federal Energy Regulatory Commission (FERC), which regulates the electric grid and interstate oil and gas pipelines. Glick is expected to chart a new course with greater emphasis on clean energy and integrating renewables into the grid.

Biden places 60-day moratorium on drilling on federal land. The Biden administration halted new leasing on federal lands for drilling for 60 days. The move may have little practical impact as the industry has stockpiled leases ahead of expected restrictions. Reuters says companies have enough permits to last for years.

Energy shares plunge. Stocks of oil and gas companies fell sharply on Thursday in response to a drop in crude oil prices. EOG Resources (NYSE: EOG) fell by more than 8%.

Goldman bullish on oil. Oil prices will be supported this year by the upcoming massive economic stimulus package in the United States and the low probability of much Iranian oil returning to the global market, according to Goldman Sachs.

China’s electric grid still stretched. The cold spell that left Asian countries scrambling to buy enough natural gas for heating and electricity generation earlier this month made headlines and spurred a massive rally in spot gas prices on the regional market. It also highlighted a problem with China’s electricity consumption: it grew too much, too fast.

Suriname could be the last big oil boom. Majors are eying Suriname as the next big oil player. With recent success in neighboring Guyana, Suriname offers hope for low-cost oil exploration and production going into 2021. The NYT looks at what could be the world’s last big oil boom.

Oil spending outside of U.S. to rebound. Non-North American oil spending will rebound later this year, according to Schlumberger (NYSE: SLB). The oilfield services giant posted better-than-expected earnings for the fourth quarter and said markets outside of North America could see double-digit growth in spending in the second half of 2021.

Former coal plant turned to hydrogen hub. Vattenfall AB plans to turn the site of its recently shuttered Moorburg coal power plant in northern Germany into a hub for turning wind and solar power into hydrogen.

China’s wind power surges. China added 72 GW of new wind capacity last year, more than double its previous record. China also added 48 GW of new solar. The country’s previous record for all renewable installations combined in a single year was 83 GW.

EU Bank chief: “Gas is over.” The president of the European Investment Bank, Werner Hoyer, said that Europe needs to move on from fossil fuels. “To put it mildly, gas is over,” he said. The EIB will phase out all funding for fossil fuels by the end of the year, essentially transforming itself into “Europe’s climate bank.”

Libya shuts down leaking pipeline. Libya’s state-owned National Oil Corp. was forced to shut down a leaking pipeline on Saturday, which cut oil production by around 200,000 barrels a day.

EV batteries with 5-minute charging times. Batteries capable of fully charging in five minutes have been produced in a factory for the first time.

U.S. Supreme Court hears climate arguments. The U.S. Supreme Court heard oral arguments on a highly-anticipated case in which the city of Baltimore is seeking damages from the oil industry related to climate change. The Court is only looking at a narrow procedural question about whether the case should belong in state or federal courts. If the Court decides in Baltimore’s favor, sending the case to state court, it could vastly increase the oil industry’s legal exposure as other states could sue. A decision is expected later this year.



jog on
duc
 
I base future cycle based on the last couple of cycle points. As mentioned earlier I allow plus or minus a few bars when doing this.
It's not about precision timing because this is a monthly chart over a 19 year timeframe.
It's more about once a cycle is established then you have all the "time" in between it and the next cycle point to trade the market. I have not seen anything else better than this, but also don't rely on this in isolation.
Fundamentals I don't use at all, don't need , don't have the time and as you have shown above it's usually only telling what has happened and what is supposedly " driving" the market. When in reality the forces driving the markets are internal and dynamic.
The 76% price projection is a statistic that I have arrived at.
I use these dynamic projections every day in my trading even off as low as a 1hr chart as I am taking up to 3 trades a day so I have a lot of data to work with. The disparity between monthly and weekly projections. It's my experience that when projections between 2 or more timeframes get reasonably close that it when a major reversal is imminent.
 
Last edited:
This is an example of trades taken off the 1Hr chart for the AUDUSD for the last 3 weeks. I use a confirmation indicator ( FT Swing ) crossing below 50 for sells and abobe -50 for buys. Trade is initiated after Confimation indicator no 2 ( Cycle differential) lines cross.
I then use the price projection tool as aguide to determine when to book initial profits. In this case AUDUSD off 1Hr is projected to be 0.769 for this leg down. I allow a 20% factor of safety Price projection targets on the 1Hr chart for booking profits.
 

Attachments

  • audusd_1hr.xls
    1.2 MB · Views: 33
Further to the earlier series of posts regarding SP500 and other US indices. The following is a chart of the ETF: VXX which follows the VIX.
Looking at this chart it shows an unusual development, ideally this should mirror the SPX but in the opposite direction. What has happened over the last 6 weeks is that downward momentum is waning in the VXX whilst the SPX has been rising strongly thus we have a divergence between the two in play.
It appears "heavy hands" are accumulating this in preparation for a low.
So a bottom may be close here OR it has one last "thrust" to fill the gap @ 15.23 and that for me would be a major consideration to buy, especially given the current price extremes reached by the indices.

 
gartley said:
A few more charts and to ponder over originating from 2003 low and 2008 high in NDX and SPXView attachment 118941 :
View attachment 118942
View attachment 118943
Click to expand...


The 'divergence' in the VIX has been an issue for a couple of weeks now. The difficulty is that when you have a number of false b/o higher and they fail, complacency sets in. The divergence is easily seen



An alternative view of the divergence:



There is also an interesting fundamental dichotomy at work. For the Bulls we have the Fed. For the Bears we have (an increasing volume) of Fraud:

What The Boom In Fraud Says About The Current Market Environment

"Crashes and panics often are precipitated by the revelation of some misfeasance, malfeasance, or malversation (the corruption of officials) that occurred during the mania. One inference is that swindles are a response to the appetite for wealth (or plain greed) stimulated by the boom; the Smiths wa
thefelderreport.com

The (potentially) biggest fraud is yet to come (detailed later in this post). In both the most recent market tops: 2000 and 2007, there was obvious (after the fact) significant fraud in the markets. This situation exists again.

Stock sales from insiders exist at all times, often they are legitimate. Always worth watching.





Sentiment and Margin is high:




The potentially largest fraud and the one that could provide a catalyst for a serious market correction:



Bitcoin remains in a downside correction that started earlier in January. And it's testing some important support levels. The daily bars in Chart 1 show bitcoin testing a couple of support levels formed earlier in the month (horizontal lines). It's also nearing its 50-day moving average (blue arrow). Needless to say, those are important tests to its uptrend. It's hourly bars show those previous support levels more clearly:



The hourly bars in Chart 2 show the bitcoin correction that started during the second week of January. It also shows it testing a previous support zone ranging from 30,300 down to 28,500 (see circles). It remains to be seen if that support zone is able to contain the January correction. The hourly bars also show initial overhead resistance that needs to be overcome near 38,000 (red line):



Which is of itself, simply a correction/whatever in any financial instrument.

However, add in Janet Yellen's remarks, which are so misleading they are just unbelievable, re. 'criminal', that I simply dismissed them initially. However, read this article:



Now her remarks take on a completely different context. As the trial is yet to begin, comments by the (now confirmed) Treasury Secretary could/would be considered highly prejudicial by the defence team to their clients. Hence I believe, the very circumspect nature of the comments from Yellen.

The BTC value is +/- $500B. This potentially is a serious fraud in dollar terms. However, in psychological terms it is multiples bigger than that. This is (I think) a catalyst that can break the market significantly lower.

Therefore the current correction takes on a far more important (sinister) reality check. Is this correction the 'smarter' money bailing out? Time will tell.

With complexity, comes the opportunity for fraud. The other guy being smarter than you. Crypto is a perfect vehicle for those smarter than you to relieve you of your cash.

Earnings next week:



jog on
duc
 
I think one also needs to look at the USD for clues here as well. As it stands the dollar has either bottomed for this leg down or has just one more wave down before embarking on a multi month rally. Some good trades will be on offer soon.
 
gartley said:
I think one also needs to look at the USD for clues here as well. As it stands the dollar has either bottomed for this leg down or has just one more wave down before embarking on a multi month rally. Some good trades will be on offer soon.
Click to expand...


So DXY as against Gold.

Gold is looking vulnerable and DXY looking to rally. Really a reversion to mean type of trade.



Which raises the entire issue around gold. Gold has (seemingly) lost some of its lustre to BTC, although that may change again:



BTC looking toppy. Longer term, its fundamentals may even collapse. That however is a story that will play out over time. Gold however has its initial and fundamental issues re. rates:



With rates rising, the attractiveness of gold falls. Rates are looking very bullish atm. They will move to 1.3%. If inflation via PPI continues to gain traction, they will rise higher. At 2% +/- the stock market comes under pressure. At that point, the Fed. rides in with yield control. That is then bullish for gold.



From the gold thread, we have this chart:



Unfortunately, this is taken so far out of context, does it actually provide reasoned analysis?

Gold over a significant time period: the bear market ran from 1981 to 2001. That is a 20yr bear market. The reason? Bond yields (real) were above the inflation rate.



Slightly lower time frame: from above we can see that there were bear market bounces. What exactly differentiates the current situation? Currently real yields are still negative. That is bullish for gold. Real yields are rising, as is inflation measured by the PPI. The race is on. If yields rise above inflation, gold is dead. If not, gold is on.

Inflation of the PPI largely depends on the strength of DXY. If DXY is weak, inflation rises. If oil also rises due to other reasons than a weak DXY, inflation rises further.



Is the DXY going to collapse?

The short answer is no.

The longer answer is because the DXY is supported by every other currency where that country seeks to maintain or grow their exports. China is trying to grow its internal consumption and shift from pure mercantilism to something mid-way. While that transition takes place, which will take time (lots of time) they remain supportive of a (relative) strong DXY as do Germany, Russia, etc.

Therefore the DXY will fluctuate in wide ranges, but it will not (in the short term) come anywhere close to a collapse as predicted by Schiff et al. The fortune of gold resides in whether a weaker DXY at any given point due to capital/trade flows coincides with an oil shock re. supply as occurred in the late 1970's and early 1980's.

A broad corporate default, if the Fed. stepped in front, would also likely create an inflationary shock as the Fed. would have to monetise some potential $14T in corporate debt. This would probably create a huge move in gold.

So like @gartley I would expect a stronger DXY over the next few weeks, which, probably means a decline in gold as inflationary pressures abate. Rates in this time period will likely go sideways.

Stocks are flagging divergences everywhere and are simply waiting for some excuse/catalyst to sell-off.

jog on
duc
 
Certainly the DX will be interesting especially with respect to the broader market too. Certainly in the region for a rally and a daily close above 90.77 would probably confirm that. But also looking at a lot of the major currency pairs traded against the USD in terms of EW, they would have a better "look" if they had that last move up.
What they should look like they will and what they actually is another story and we can't trade by feel but only what the market tells us.
Gold is interesting and I expected it to forming this range bound pattern mid year. ( actually back then I got it wrong and it put one last leg up before starting it). But stepping back and looking at a very long term EW view it looks to me we in the a wave 4 sideways abcde pattern but time will tell.
 
Interesting start to the week:



Volatility threatening to break out:



Rampant speculation high:









Interesting charts to follow re. hyper-inflation:



Hyper-inflation does not resemble the 1970's



So, in a hyper-inflation, at least in the early years, stocks (potentially) are a good hedge. Gold is better. What is the market actually saying?

Whether it is extended or not, at some point this will come into play. Is the 'mortgage money' currently speculating in the market, being spent, being saved? All are possibilities. Only after the fact will we start to see who did what.



C19 news:



Last time, the new and old rose together, before the new took off:

What is the new and what is the old this time?



jog on
duc
 
Vxx was mentioned here.i though about it as a way to directly play the VIX
At current level, not a bad lottery game so left a reminder to purchase yesterday. That i quickly forgot until this morning.
Up in a rush and bought some. After a 5pc overnight jump ?
 
Earnings season is going quite well by all accounts. Market is meh.

As we head into Feb.




VIX still bubbling:



DXY



Now DXY and Stocks: DXY & Stocks have for the last 8+ years moved pretty much together. Currently we have a significant divergence. An issue?



Speculation via Options...influencing the Market?



Mr flippe-floppe-flye:



POTUS still chasing China:





Not much on offer via Fixed Income: this will be a driver of stocks for those who need yield.



jog on
duc
 
So yesterday, @tech/a posted this:



So with regard to supply:







Supply out of your arse on its way. Wall St. will provide supply infinity. This sort of garbage sunk the 2000 market. It took a while, but it will happen.

So we have had a Hedge Fund bailout. Melvin Capital (short GME ) was targeted by Reddit a message board, who, ganged up (LOL) on them and just about blew them up. SAC and Steve Cohen rode to the rescue:



This has actually been around for 25+ years. The Iomega's were possibly the first example of this where a message board ramped a POS stock to unbelievable valuations until it went to $0.00. Don't drink the kool-aid!

jog on
duc
 
The market is providing so many interesting sub-plots at the moment.

Spec stocks are jumping up like bait fish leaping out of the water when the predators are snapping at their heels.

Consistently unprofitable companies are flying high (like Icarus).

Corporate valuations are impossible to evaluate in this covid economy.

The geeks are sticking to the man (Wall Street). (GME and other stocks that are heavily shorted)

I love Dr FFF's comment: "in between reality and fantasy is this - the netherworld of spirit that permeates the essence of price discovery "

Currently there's so much hot air around that it's capable of lifting everything. I love this business. ?
 
peter2 said:
The geeks are sticking to the man (Wall Street). (GME and other stocks that are heavily shorted)
Click to expand...
My morning ritual for the last week has been to check how gamestock traded overnight (I don't hold), yet it is one of the wildest things in financial markets I have seen - It's like watching afterpays rise, if it occurred over the course of a week lol. The rise will be as glorious as the fall I'd imagine (A lot of people making huge coin, yet lots of retail investors will likely get burnt / buying in too late etc. when profit taking occurs and shorts have closed positions.

Great post btw Duc, great reads all round!
 
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