If you read the dedication to Terry Laundry above, you know that my investment technique is based on the larger principles Terry espoused. And right now I’m not following them. That doesn’t usually work out well.

The main Volume Oscillator T Theory chart gave us warning in early February that we were in for a wild ride until March 19. And that is what happened, almost to the day. Price concluded its move a day later with the collapse, while the VO started to move higher. It always amazes me that such a “simple” chart can give us such accurate information.

But it’s one thing to have that information, and another one to act on it. The red line above, showing the potential resistance for the start of the next T, was crossed on Monday. Even though it was at the -100 line, that was potentially the start of a new T. Right now, that 87 days from December 23 till March 19 leads to June 16. Will that be a regular T, or another Bear T? I am biased. I have looked at previous highs in Volatility above 40, and the bottom came weeks or months later. I have been tracking this volatility event as a duplicate of 2008, with the idea that we are now in November. The low came early March, 2009.

So let’s reference Terry’s next favorite technical, the Confidence Index. It represents the ratio between high yield bonds and Treasuries. That is presently at 52, recovering from a low of 47. But the angle of recovery hasn’t broken through resistance.

A different perspective shows us the level of descent.

As followers of this site know, I put much of my emphasis on the BPSPX chart. I should be fully invested here, based on the rules. “Buy when crosses above the middle Keltner from below.”

I am still looking at the Volatility Event.

The Simple Chart has crossed positive on two of three parameters. Only PMO, created by Carl Swenlin has not crossed. I am stuck on this Volatility Event.

So of course, it goes back to the original question. Am I wrong? The good news is price. It stopped where it was supposed to stop. If we spend 2 days inside the Keltner bands, I will have to reassess. Or just be wrong.

​​Little Red Riding Hood shouldn’t have had a chance. There he was, the big bad wolf​. In early versions, the BBW was only killed after eating Grandma and Red Riding Hood. ​Sanitized versions have Grandma locked in the closet, and Red being saved by a Woodcutter.

T-Theory looked the big bad wolf in the eyes back in February. The chart was expecting a bottom around February 3. We got that. But by February 7, the shape of the Volume Oscillator warned that there was no strength to the price bottom. It failed to cross the zero line.We are now 6 weeks past that. This has been a disaster for most long term investors.

I thank Terry Laundry for teaching me how to invest.​ While it would have been more beneficial to fully follow his advice (parking money in bond funds rather than just cash)​, at my age I am more concerned with protecting my assets. We went through what seemed to be an 80 year event only 12 years ago, and I didn’t expect to face this again.​

​But this is more than an economic event. This is a societal upheaval​–which we will get through. We’ve managed to get through similar situations in the past, even before we had the technological expertise that we have now. It’s hard to comprehend how our ancestors felt as they lived through the Spanish Flu. Or other pandemics (before we even knew what a pandemic was).
We are all dealing with the societal crisis that surrounds us. Stay safe.

T​he present state of the Basic T-Theory chart is showing more signs that this move lower will take longer in time than I imagined. Earlier, I had been looking for the end of the Bear T March 19. I do believe that is behind us. While we have had bottoms almost every two months on the third of the month since last June, I am no longer sure that April 3 will give us a lasting bottom.

As you might have seen from one of my posts a few weeks ago, I was starting to search for the next bottom. The descending trend line has continued to hold as resistance in the Volume Oscillator, and it is very probable that it will help us find the next bottom. That is now moving out in time, searching for a low on the green descending support line. When the 2 lines meet, or when the VO hits the bottom line and reverses through at least the -100 line (for more than a day, as it is not always updated), we will have a lasting bottom, and the beginning of the next T.

You can find the T-Theory Live Chart in the Menu, but please remember that the most recent data is usually wrong until about 11 AM of the following trading day.

The Confidence Index has deteriorated to .50. During the 2008 crisis, the CI hit a low of around .32. In other words, there’s further to go.
I’m going to re-iterate a point I made a few weeks ago. Volatility events similar to what we are going through now do not end quickly. They don’t find lasting bottoms quickly. You can trade those bottoms, but if you are investing, previous events similar to what we have recently experienced in VIX take a few months to complete. (I am concerned that my thoughts on this are coloring my opinion on when the next T will be formed.)

​Looking at the Simple Chart (thanks to Carl Swenlin of Decision Point),  Intermediate Term Breadth and Volume appear to be leveling off. That could make for the next rally.

On another note:
Back in the fall, I developed the following chart for GBTC . It is based on Terry’s concept of Optimum Moving Average. The OMA is basically a chart based on the Moving Average with the most ‘touches’. It builds a framework of Keltner bands around it, which give you a guide as to what to expect above and below the OMA. The OMA for GBTC is 75 days, and that has been working out. On Feb 13, we got a sell signal, as posted at the time. We bounced off the support of the lowest expected low last week. The shape of the chart is neither bullish or bearish, but I would expect a move up to at least the OMA. That’s $9.67.

The balance of the OMA’s discovered by Terry Laundry can be found on a page maintained by Paula Burke, who worked closely with Terry for many years. The link is here:

https://stockcharts.com/public/1172710

​

As I posted in the Slow Down post (on March 7), it usually takes weeks or months for a lasting bottom to be formed after a VIX event above 40. In fact, the VIX event was in October 2008, and the market did not bottom until March 2009.

We made the first step towards our future yesterday. The government finally admitted the seriousness of this virus. That’s the first step of a long process of healing.

What’s not healing is the bond market. It appears that Treasuries do not like being cloned to take care of fiscal stimulus.

This also occurred in October 2008. When TLT moved drastically above its Keltner bands, it took 6 months for it to recover.

The date of the end of the Bear T was always March 19, until I called it dead yesterday. That was more of a social commentary than where we were in time. You can’t fix a problem until you admit you have one.

It would be one more coincidence if we reached our low on April 3, which is 2 months after the last bottom Feb 3. We have had consecutive lows every two months since last June. As I wrote in earlier articles, the end of a Bear T does not mean that a new T begins right away. We just have to ‘slow down’ in our reactions while the world straightens itself out.

I have always been an optimist. What allows mankind to continue as a species is its inherent ability to adapt. We isolate the problem, whether due to ingenuity or reaction to tragedy.

The first step is to admit the existence of a problem. Even if it is done reluctantly, it is the first step to recovery. We have a rocky road in front of us. If you are an adherent of Elliott Wave, there will be threes and fives to face. But we’ll get there.

The Bear T is behind us. Time to look to the future. 

There is still no new T. That is in the future.

I want to repeat something that Terry Laundry wrote in 1997. But This is not That. Yet.

Terry Laundry’s method taught me how to invest my funds wisely, looking for the end of periods of weakness to invest in the future. We are at the end of the Bear T. That doesn’t mean that we are at the beginning of a period of strength. 
Historically, when VIX reaches above 40, we need to wait weeks or months until a good bottom is formed. Think October 2008. It took 5 months before we bottomed. 
I don’t know if it will take that long. Or longer. 

Based on some posts I’ve seen online lately, I can see how our news media and government have failed to clearly explain what it is we’re facing. When that changes, we can move forward. We will get through this, and in the meantime stay safe and socially distance yourself. I do know that at some point, we will move forward. And then I suggest you reread the quote that follows:

From Terry Laundry’s 1997 paper on T Theory

“During the early years, I became acquainted with Marty Schwartz, who took a very early interest in the T concept, and applied his exceptional talents to become one of the greatest stock market traders. His exploits, philosophy and comments on my theory were presented in Market Wizards by Jack Schwager1 in 1989. To this day I still receive inquires on how to obtain the “secrets to wealth” that Marty discussed in this book. On this point I am sorry to to inform many of you that there are no easy secrets, only powerful tools with which you might learn to uncover major opportunities before the masses arrive. Marty and I have often talked over the years about the special advantages conferred on us by our US Marine Corps training. It takes a special state of mind to “sign up” for a short boat trip, in a flimsy landing craft, to a beach completely controlled by hordes who have anticipated your arrival and have set up every imaginable way to do you in. Buying into major market opportunities presents a similarly discouraging picture. You may have good reason to anticipate profits, but if a great opportunity does indeed exist, nearly everyone will be against you, including your friends, and the predominant opinion expressed by your peers, including people you respect, will be that you are embarking on a foolhardy enterprise. I believe that T Theory’s major contribution will be to show you why it will always be difficult to buy at major lows, but using its reasoning you may be able to overcome these obstacles. At each and every great buying point you must struggle at the “moment of truth” where you face seemingly overwhelming negative odds. In T Theory this moment of truth is called “The center post of the T”. It represents the point in time where all the bearish negatives of the past have been discounted by the market and is about to be transformed into an emerging, new bull market. Finding this key juncture is a potentially dangerous occupation, but as with all good Marines, one eventually remembers during the heat of battle, to keep ones head down, shoot straight…”

Stay safe. Practice Social Distancing.