Small Caps Cracked

Posted by on Oct 2, 2018 in Be a Trader, Geopolitical Risk, Market Advisory, Newsletter, Thinking Mans Trader, Volatility | 0 comments

Today’s Chart of the NASDAQ reflects the August highs not being exceeded by the composite index supporting our newsletter commentary:

“August 22, 2018, the Nasdaq futures are on an L-T rule #4, signaling the expectation for the monthly high to low range to expand. The current average range over the last seven months is 560 full points. If the range expands as expected to exceed this seven-month average, the market is looking at the move from the first day of trading in September of better than 560 points or 8% with the largest bar in the last seven months of 780 points likely to be exceeded, hence a 10% spill is minimum expected.

Add to that the daily and weekly bar of the NQ – both S-T and I-T are on TE Rule#2, a market backdrop that precedes HROC trends.


Given the Geopolitical situations, the long-term cycles at work in this time window, the sentiment being arrogantly bullish, and our long-term strategy True North is on a sell signal for all the majors and most of the sectors,  there a high likelihood the next major market trend will be a high rate of change trend sell off with only shallow recoveries.  ”

The energy that drives the markets comes from conflict, the battle between buyer and sellers. CT gauges this tension with its measures of volatility and how the market typically reacts to four different extremes.

The Nasdaq (NQ) back in April hit a high level of %C and a high level of Historical Volatility at the same time leading a period of expanding ranges. That move is a trend that lacks brute force but advances based on the expansion of the high to low range for that period. In April there is a good example with the horizontal triangle contracted to an apex coincidental to the TEM indicators cycling out of their high extremes.

In August the NQ reached a new set of extremes, now the market had fallen back into its 2017 pattern of low volatility. I highlighted the weekly chart on the left the extreme readings into the current time frame. Expectations come with this low volatility backdrop to change trend dynamics from dull to forceful trend and from up to down.

Furthermore. It is this extreme low reading by TEM modeling that is associated with low %BB-VIX readings, like the CBOE data reflected today, that says there is a low perceived risk in the market.

From a contrary and experiential point of view, these two leading models -TEM with the %BB-VIX – lead to dramatic declines in the majority.

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