Market Analysis

The Big Calls

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:

“..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.

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.

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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18 replies »

  1. Amazing work.. never doubted you. Tried to warn everyone, nobody believed me. Hope you’re around in 5-10 years from now on the next one.. but somehow I think you’ll be retiring early.

  2. I knew you were going to be right Sven. I never lost faith but it took longer than I ever expected. The Fed’s “not QE” was brutally insane.

  3. Sven- you deserve much greater credit than you know. Sensational Calls and never, ever backed down regardless of the shit you were getting. How many analyst
    did just the opposite?

  4. Could you update your opinion to the DAX in addition to your broad opinion in the next briefing?
    Thanks and have a nice weekend.

  5. The FOMO and TINA fairy tale

    In 2007 the incestuous recipe between politicians and the FED gave birth to twins, the boy was called FOMO and the girl TINA. As was to be expected from an incest, the two infants were suffering from a strange form of reverse schizophrenia, the most obvious symptoms were the estrangement from everyday reality, the creation of their own fantasy world and a nervous and very frantic behavior.

    The parents found that if a drug called QE was assumed always accompanied by a diet poor in interest rates the twins could lead an almost normal life.
    FOMO and TINA spent their childhood without much gasp and seemed healthy, at least outwardly, so the mother FED, convinced of the complete recovery of FOMO and TINA and to hide the macro (economic) error of 2007 took away the two rookies the QE and began to raise rates in the diet.

    After a few slips between 2015 and 2016, the twins stabilized but remained weak.

    But the father could not bear to see them so beset, therefore in 2017 he invented another drug, never tried before and of dubious effectiveness: the tax cut and job acts.
    Initially the new medicine seemed quite effective and the twins regained the energy that always characterized them. Too much energy, Mom FED thought, so cautiously she decided that the diet should be even richer in interest rates. This change and the limited effect in time of Dad’s medicine proved to be almost fatal; in 2018 after a first crisis in February, FOMO and TINA, in December, almost pull the sipping.

    The alarm was so great that Mom FED promptly returned to the original diet and a few months later began to give QE again, now named Repo. In confirmation of the gravity of the situation, the Aunts BoJ and ECB also ran to the children’s bedside carrying their version of QE/ Repo.
    Re-established the initial diet and medicine, FOMO and TINA spent a serene 2019 in their fantasy world.

    So, that could be the end the twin’s fairy tale a happy ending and still many years of good health in their ephemeral reality.

    But, because that the majority of us do not live in the FOMO and TINA fairy tale of, it should not be forgotten that the two kids, result of the initial error followed by other errors of timing and misinterpretation, are weaker than they appear and are highly addicted to drugs and diets and to survive they need increasingly massive doses until the day when the drugs will no longer be enough to keep FOMO and TINA alive and these could the twins last thoughts:
    Anyway, I’m much too tired to speak
    And, as the waves crash on the bleak
    Stones of the tower, I start to freak
    And find that I am overcome

    From Van der Graaf Generator, Pawn hearths, A Plague of Lighthouse Keepers (1971)

    • Unreal, unreal ghost helmsmen scream
      and fall in through the sky
      Not breaking through my seagull shrieks
      No breaks until I die

      You’re going to love this Aldo, live 1972:

  6. Yeah but… and I hate to point this out (although I HAVE been pointing it our for 6 months now) YOU WOULDN’T COMMIT. You kept using the weasel language of the pro punter “IF it does this THEN it may that BUT IF it does this…” You’d have made a name for yourself if you’d on;y called it Sven. hey ho. Keep on hedging your bets.

    • Really? Wow so in your world Sven has been a cheerleader on these markets last several months eh? Get a life sour grapes! You are a sad sod.

    • Hedging your bets is a smart thing. No trade is perfect 100% of the time. You have to be aware of probabilities and plan accordingly. That is what “If this then That but otherwise XYZ” is all about.

  7. I crawl the wall till steepness ends
    In the vertical fall

    Sven was about as clear and precise as one could be without being a time traveller, Bill. And if he is I’d say he came close to giving the game away, and that really wouldn’t do.

    A horrid day for any bulls left out there. Not really rescued by a last 15 minutes blip up. The question now is: will there be Fed action over the weekend or will they wait for markets to force it later.

  8. Sven
    You have been spot on for some time and the only voice I’m aware able to properly interpret flow of confusing information and filter real issues at hand. I thank God your voice is available at this “peculiar” time in history. Hang in there!

  9. My close friend was a TA who only traded the Q’s…if anything he always said his biggest mistake was that he was always early…he retired at 37 and trades for fun…he always said “All Gaps must close” and I remember his calling the 2000 collapse…so if you believe that then look no further than July 14, 2009…Can it go that low? Conspiracy theorist claim the virus was created by China due to the imminent collapse of their economy…

    • spx below 1000? possible….but let’s face it, the moment the spx goes below 2500….they will start helicopter money or some sort….so will paper money just lose all its value????? My biggest problem is that I do not trust anything anymore….

  10. You are just amazing Sven. I have been reading 100% of your Tweets for the last 2 years and pushed the update buttons thousand times in desperate attempts to get new Tweets from you. You have become one of my main source of market-related information.

    You are the most accurate market analyst I’ve ever read and I am thankful you share your views with us. Ignore the haters, they are weak people who are scared of people telling them the truth, they are scared of people taking the other side of their trade because they are so scared of losing money and consider you as a threat for their investment. Of course, they will never apologize or get accountable for their words when you get right, but I guess their loss is a fair sentence.

    I like your humbleness, your honesty, your sarcasm, your empathy and obviously your accuracy when reading charts. You are one of the best out there, if not the best. Do not change anything, and keep on being the humble person you are.

  11. Sven,
    I enjoy reading your tweets and reports.
    VIX 46 analysis was quite scary scenario to be honest.
    However, your prediction was correct which surprised me BIG TIME!
    Congratulations!

    Thank you for your amazing work and don’t get hurt by haters.
    We love you!

  12. Thanks for your great work Sven, HUGE TRUTH: “…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.” The Fed and it’s MSM shills will find anything other than massive monetization to blame for this ginormous bubble finally popping.

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