August was one of those months I’ve been dreaming about since last March. Instead of the drip, drip, drip of 5-point, algorithm-driven melt-ups, we had some good old-fashioned volatility. Stocks were actually permitted to decline.
Those few hedge funds still around which have a short bias or are volatility plays also reported great numbers. Good on them. Except for a couple of very brief downdrafts in October and December, they’ve been sucking on fumes. The vast majority of funds, which gave up hedging a long time ago as too expensive and altogether unnecessary, got a pointed reminder of why the word “hedge” appears in their prospectuses.
Our August numbers were much better than average. Since calling a top on May 20 [see: The Last Big Butterfly] we’ve anticipated a substantial decline which was forecast by an analog I developed in late March [see: A New Analog.] Bottom line, it called for a good scare that would prompt BoJ easing.
Ideally, it’ll be preceded by a sharp downturn which is just scary enough to convince The Powers That Be that another expansion of Japanese QQE is vital to the global economy.
We’re waiting for the BoJ’s reaction, but I’d say this decline was reasonably scary.
The Nikkei 225 fell over 18% in less than a week. And, USDJPY had its biggest single-day decline since May 6, 2010 which, in turn, prompted the biggest single-day SPX decline since May 6, 2010. Some readers may recall that 2010 scare (and the hints regarding QE2 that were dropped at Jackson Hole shortly thereafter.)
This latest decline, and all the volatility — both preceding and following it — was favorable to our style of market analysis, which focuses on changes in direction as forecast by chart patterns, harmonic patterns and, of course, analogs. Unfortunately, the volatility led to what is, in my opinion, an excessive number of intra-day calls – averaging almost 5/day.
It’s always a struggle to find a balance between performance and level of activity. The more hectic a session, the more head fakes and reversals – which leads to more intra-day calls. August was an extremely hectic month, with six sessions involving rare 50-point ranges and many calls which were reversed within minutes after being posted.
Buy-and-hold and swing trading members, who aren’t as focused on intra-day trading, are reminded to check the Current Forecast page for my view on the next few weeks.
By the way, it has become quite common for whatever trend is in place at the end of each session to be reversed the following day — especially when the trend is down. It’s not at all unusual for SPX to plunge below support at the closing bell, only to gap up by 10-20 points the following morning. It happened just this morning (Sep 2.)
So, while I usually offer an opinion as to what I expect the following day, these opinions are wrong nearly as often as they’re right. It’s a lovely little feature of the predatory algorithmic trading that has prevailed since late 2011. I urge members not to put too much stock into these end-of day forecasts, and to trade on them only when they can hedge or at least monitor their position overnight.
One last note: a member pointed out last night that I still hadn’t changed the membership pricing back to the normal rates following our recent promotion. Unfortunately, I’ve been working 15-18 hour days lately and have just been too busy. I’ll change it back following today’s close, giving anyone who’s interested one last chance at a great deal. For more info and to sign up, CLICK HERE.
A reminder, these results reflect the performance of a theoretical portfolio where the S&P 500 index is bought or shorted based on signals generated by my research. Your mileage will vary. No leverage is assumed; the portfolio is assumed to be 100% long, 100% short or 100% cash.
Prices listed reflect the index at the time that tops/bottoms are called and are believed, but not guaranteed, to be accurate. There is typically a 2-3 minute lag in the posting of each call. Dividends, transaction costs and the cost of any hedging are not included. And, past results are not necessarily indicative of future results. See Disclosures and Use Agreement for important information.