The Ticking Bomb

The Marker continues to Tick with 1987

Extraordinary markets. They have been and they will remain so for much of 2018. The latter part of 2017 into 2018 was extremely challenging because index corrections were sharp but shallow as volatility died in a relentless bull market. Now the stock market has broken its record run without a 5% correction.

VIX has been resurrected and stock volatility has exploded. This was and is a precondition of our 1920s and 1980s template.

In last week’s extensive premium article “The Marker” we explained how our best measure of volatility before (1993) VIX was ATRs (average true ranges) and how they should at least triple in value. In the last week they have tripled and, if history repeats they will not return to those lower volatility levels in 2018. Regardless of where indices go from here.. volatility is here to stay. Get used to it.

This presents a new challenge as with 3% daily index ranges, the classic 1% stop requires exquisite instant timing in a violent erratic market. Fortunately, we have a map that significantly increases the probability of trades succeeding. Although the jury is still out as to whether the Trump bubble has burst, we are even more fortunate that the market is ticking with the final correction before a final blowout and the run into the crash. Both are pretty much identical.

We do have a clear bias as to which the market is following but the confluence between the two templates is so extraordinary until the range is resolved that it makes no difference (certainly currently) to how we can trade it.

This week we are publishing “The Marker – How to Trade the Market of a Decade” for subscribers which outlines clearly the best evidenced identical trading strategies to get the most out of either or indeed both scenarios.

We are also revisiting our forex crash portfolio as well as commodities. as there are certain different nuances this time – most notably commonwealth currencies (GBP, AUD, NZD, CAD) and the not unrelated Oil market. Currencies are confused and flitting between their classic yield driven or risk aversion/appetite roles. USDJPY being the prime example. The market continues to follow our 1987 intermarket template of a stock bubble, falling dollar, rising yields and commodities that was finally broken in October 1987 by the current ramp in yields. Understanding how currencies should interact with this rally in yields and stock turn is crucial. It is why this weekend we are doing detailed correlation comparisons between the different phases of the current market and 1987.

We suspect this week’s inflation numbers (Wednesday’s US CPI and Thursday’s PPI) should give us a much clearer idea of how the forex market will handle the most volatile market in a decade. Remember it was the largest year-on year increase in average earnings since June 2009 that sparked the NFP stock capitulation on the Friday before last. If we get a high inflation report stocks will be expected to come under pressure again and the USD rally and the converse if it meets or misses unchanged expectations. Although the location in the marker should tip our hand clearly before the release as it has done this week, we will be monitoring all currency pairs closely to see in which – yield or risk – camp they are trading.

We have waited a long time for this volatility. Whereas before in a low volatility market one could contemplate trading strategies, now there is little or no time to react. It is reflected by the price action, traders are panicking in both directions when confronted by the unexpected. The dynamic of the market has clearly changed. But we have also waited a long time for this set up (the marker) and level of clarity. There can be no excuse not to be prepared for the Day of Days whenever it falls. We have waited long enough.

Here’s to making the very best.

Good Luck

Ed Matts
Founder
Matrix Trade

You can sign up here to receive these weekly reports in advance of website publication