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The Big Calls

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Sven Henrich via Northman Trader

First rule of trading: Stay humble and don’t let a big call or trade get to your head. Second rule of trading: Don’t forget rule number one, otherwise the market will remind you.

That said I will unabashedly want to highlight two massive technical calls that have played out perfectly in 2020 as they contain important technical and market lessons and may also be relevant for what is to come.

First off, let me acknowledge again that this rally in early 2020 was brutally hard to be leaning against. I’ve been vocal about warning about this being a bubble and it’s not easy when your analysis swims against the tide. And as I said yesterday in Market Carnage, the rally went much higher than I expected, but I was also very clear on this rally not being supported by fundamentals or sustainable and hence this brutal market reaction now:


As everybody I get plenty wrong and I’ve said this as well:

On twitter you get hammered for your wrong calls, and dedicated haters mock you for years, but they suddenly fall silent when you get the very big calls right and won’t ever acknowledge them. And trust me, I got plenty of mocking and hating during this rally when I kept warning and pointing out issues. Now, it’s the silence of the lambs.

No, I do also get plenty right, and big calls in markets are rare, and they are hard and so yes I am taking some professional pride in having called these two big calls in advance. And both of these calls amazingly came concurrently to fruition today which may be structurally significant.

Now I know everything is getting blamed on the coronavirus. That’s the trigger and the excuse. But the charts had already outlined what was coming way in advance.

The first call I want to highlight was for $VIX 46. I posted this on January 6 and if you click on the thread below the tweet you can see how I tracked the charts publicly over time:

Here’s the original chart and what I said about the $VIX then:

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“..a compression pattern has formed. A massive one. Lower highs on the one hand and higher lows on the other hand. This pattern is coming to a conclusion sometime in the first quarter. We can’t know when, but it’s clear the pattern is running out of gas.


How meaningful is this pattern? See for yourself:”

“The previous mega spikes in the $VIX came following compression patterns and ironically the spikes came as the compression patterns were running out of gas, most infamously in late January 2018 going into February 2018 following another massive liquidity rally. One can’t help but compare the situation to now. In 2017/2018 the liquidity run came as a result of the US tax cuts, this liquidity run here being Fed driven.

As you can see the previous spikes produced market corrections in the 10%-15% range. We can’t know when this spike here triggers, but it could clearly occur at any time between now and early April and, if it occurs, it may run toward the 70 RSI line on the weekly $VIX chart.

During the previous events $VIX spiked into the 40’s. As $VIX appears to be very precise with its patterns one can envision a run toward the upper trend line connecting the two previous spikes to bring about a correction”.

“So. Who’s ready for $VIX 46?”

The immediate reaction from some on twitter when I posted this target:

And yet here we are 2 months later:

$VIX broke out in January, retested the breakout in February and now we have a 14% correction on $SPX. Fits perfectly with the previous structures and $VIX is now massively overbought.

So I repeat what I have said plenty of times before: One can chart the $VIX. I’ve posted plenty of $VIX technical setups before that have stated a specific target that have come to fruition. One of those was last summer when I called for a $VIXplosion. So I hope we can finally put this “you can’t chart the $VIX” meme to bed for good.

This was a massive call. Can I take credit for trading it perfectly? Hell no. This was hard, but our signals had us on sell and positioning worked out very well during this decline and now I have to regard this set up as closed.

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Does this mean an immediate rally and a bottom in markets? It may well be although risk remains to the downside, but that’s a separate discussion and I’ll address a bit more this weekend.

What’s really interesting me here is this: $VIX 46 was not the only big technical call I highlighted for 2020 that came to fruition today.

One other big call was $TLT. On December 30th I had posted It’s not Over (again click on the thread below the tweet to see the tracking of the chart evolution):

In the article I had made the point that the bond market was not confirming the equity rally nor the reflation trade and I stated this:

“Which brings me to the $TLT chart, with one of the strongest most consistent trends out there”:

Well, what does this chart actually suggest? As with $TNX we see a flag building. A bullish flag also suggesting that reflation celebrations may be very much pre-mature.

If anything this chart suggests that if the pattern confirms and breaks out higher we may see a run back to the top of the upper trend line.”

$135 on $TLT at the time with a technical view of reaching the upper trendline. Again nobody believed this at the time but now look at it:

 

Both patterns super clean with their targets reached on the same day no less. Now you could be dismissive and say one of these may just be luck, but both? Reaching their targets on the same day? Really? That would be a massive historic coincidence. So no, I stand behind the technical analysis work and let the results speak for themselves.

Now what’s the takeaway here?

First off, a basic comment: Big swing chart setups can produce massive results with patience and discipline. While none of us can predict the future technicals can help up identify directional targets. And the technical conclusions can defy common wisdom or expectations.

What makes big calls so satisfying is that they often go against consensus. Nobody expects them to come true or it seems a theoretical exercise. “Wiggly lines on a chart” I get a lot from detractors. I can’t know for sure, but I’m pretty certain that between December 30 and January 6 nobody called for $VIX 46 in Q1 and for $TLT to hit its upper trend line. Did I expect for both to reach their targets on the same day? Of course not and I’m also very much impressed by that fact.

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Most importantly for me though is this: BOTH of these chart setups had a message that was completely contrary to all the bullish giddiness that we saw in the past few months. These charts didn’t know about the coronavirus being a coming trigger, but both of these charts suggested specific targets that I outlined in advance and both came to fruition on the same day.

What does that tell us? It may tell us that markets were setting up for a specific set of technical events, and that these events have now taken place and that coronavirus was just the excuse.

For now we can note that both targets have come to fruition which could imply an important pivot in markets. A major low as during previous occasions? Or in context of larger technical damage inflicted on markets implying that maybe something more sinister is to come? We need to assess the meaning of these technical events and their impact and I will do some of that in this weekend’s video update. I don’t think these are events that any of want to easily dismiss as an aberration. Because they weren’t, they were big calls, both of which played out perfectly which means both have relevance and a message.


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All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.




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