“There is time to go long, time to go short and time to go fishing”
The above quote is from Jesse Livermore. Those who spend more time than we should on the market are somewhat familiar with that name. He rose to prominence as a great speculator (I think that is what he considered himself to be), but also as someone who made and lost fortunes along the way, until his suicide in 1940.
When you invest (rather than speculate) based on Time Symmetry, it’s important to know when to get on and off the train. Magic T Theory–no matter how strange the name may sound–allows you to invest within boundaries divided by support of time and price. Utilizing any form of this concept allows you to open your investments close to bottoms, and advises you when it is prudent to remove risk from your portfolio. There’s enough information within the T-Theory Concepts page on this site to get you started if you have not begun this journey before.
The present chart for T-Theory is as follows:
I’ve removed earlier information from it in order to concentrate on the present state of the chart. We have a McOsci T that ends next Wednesday. It should show us some weakness in the market, but it doesn’t have to do that. The end of a T doesn’t always mean an end to higher prices; it means that it will stop showing excessive strength. Some T’s end in a muted continued advance, while others show a plunge, and still others have a minor move back to support. We do have additional evidence moving forward.
There is no Volume Oscillator T. The last of these ended August 7. It did produce a turndown in Price. It was validated by my personal tools of the Advance/Decline chart, the BPSPX chart, and the “Simple” chart. None of these has yet confirmed a Price top. They are still in Buy mode. What the VO tells us now is that there is some selling going on over the last few days–enough to finally bring the VO below the zero line, and forming some type of resistance at the advancing purple line. This could be in concert with the end of the McOsci T.
But that doesn’t negate the further positive role of both the Price T and Advance/Decline T that end in late January. The Price T is shown on the above chart, and the A/D chart follows:
The Daily Companion chart shows Price is remaining above the upper Keltner band, even through yesterday’s downward thrust. Price stopped moving down just above that upper Keltner. That is initial daily support, with the middle Keltner band lying at 4560, about 4% below today’s closing price.
The Hourly Price can give us some closer stops. The Hourly Companion chart shows Price movement has been bouncing off the middle Keltner band. Hourly support is 4758, followed by 4706.
“To anticipate the market is to gamble. To be patient and react only when the market gives the signal is to speculate.”
Jesse Livermore
Go fishing. Wait for a nibble before assuming it’s time to change tactics.
Back in High School, I took a theater course taught by Sterling Jensen, one of the founders of the Roundabout Theater in NYC. It was a strange place for him to be teaching, as Stuyvesant High School specialized in Science and Math. But he taught us nerds many things, including how to understand a character in a play. There are three basic ways to understand a character–what a character says, what others say about them, and what they do. This concept of understanding the nature of a character can be used to look at organizations as well–everything from the companies that offer us products (via their advertising, word of mouth, and their actual products) to governments and their organizations.
Let’s take a look at the Federal Reserve through this lens. We have what they say, how people react to the Fed, and what they actually do. The Federal Reserve offers a fairly comprehensive overview of its functions, which can be found at this link:
Looking at the above statement, their Primary Goal (as they have stated many times) is to conduct Monetary Policy. Secondarily, it is to contain systemic risk through engagement. Third on this list is the soundness of financial institutions. For me, these 3 main functions affect the economy, and represent the rationale for their actions.
Words to actions. That is the key. Over the course of many years, the Fed has learned that they can interact (or manipulate) popular opinion not only by their actions, but by what they say. It is a tool. These “words” are studied by pundits as if they were religious texts or mysteries. The market does what it always does and “buys the rumor, sells the news”. Right now, the words of the Federal Reserve have been infinitesimally changed to show a reluctance to raise rates any further, and to contemplate lowering them.
My hand-drawn chart of what this meant during the Quantitative Easing and subsequent era looks like this:
Some contrarian things are revealed on this chart as opposed to what “should” have happened. Early during QE, rate cut rumors created a spike in TLT, yet when these cuts were actually implemented, TLT fell. Again in 2019, when the Fed reversed course on raising short term rates, TLT fell in price, because those who actually buy and hold long term paper felt that this would have consequential inflationary results in the future.
All of this was cut short by the Fed’s actions during and after the Pandemic of 2020. Its actions to alter the projected path of the US economy during the initial stages of Covid created so much free money that, in my opinion (stated at the time), inflation was inevitable. Adding 8 Trillion dollars to the economy–10 times more than it did in 2008–had consequences that were not foreseen. I think they made errors in timing and judgment, but in general they performed their duties more than adequately. What were the alternatives, and who was there to implement them?
And here we stand today at the “new, improved” version of the Fed’s monetary policy. We have more than a hint that they will move now to lower restrictive rates. But what will that mean to rates going forward?
As a proponent of T-Theory, the Time Symmetry in Price charts led me through the morass of the pendulum in rates that we have been watching over the past few years. Back in August, I foresaw the end of strength in the Five Year Treasury, suggesting an end date of November 10. The chart I posted in August was the following:
We actually began this massive swing lower a few days earlier. This is the present state of that same chart:
The last sentence of that August post was as follows:
These T’s will be instrumental in deciding when to move funds into longer dates Treasuries, or their equivalent ETFs, and out of the shorter term Treasuries.
So where are we now? I know that this is the question that most readers have.
We are in a T on TLT, but there are two distinct possible endings for it. We have the potential for a T lasting until May 6, but more realistically, my POV is that this T will end January 22. Coincidentally, that is around the time that the Price and the Advance/Decline T end on the SPX.
The above chart is a bit different from what I have posted in the past. I’ve included TLT twice–once with its dividend adjusted price (reducing the historical prices), and its actual historical price. In the past, I have dealt with its dividend adjusted chart, which offers total return. The technicals on this chart are based on its dividend adjusted pricing. As you can see, they appear to be topping now.
This is today’s chart on the dividend adjusted chart:
We’ve been blocked by what I consider to be extremely strong resistance from way back:
However, it looks like the hourly chart has reset on support over the last few trading sessions, with technicals at a low:
Support and resistance parameters are on these charts, and should you use these charts in your trading or investing, I suggest you follow them.
This is what happened to Treasury rates over the last year:
The year started with 1 month bills at 4.17, and ended at 5.54. We can see that at the end of the 5 Year Treasury T, the 1 month reached levels where it still resides. The 5 Year has moved down by about 80 basis points, and the 30 year around 70 basis points. Are next year’s moves in short term rates already priced into longer term rates? Does the Fed mean what it says, or will that be different than what it does? For sure, it will be different than what people say about the Fed, for that is what makes news.
The inversion right now has gotten worse. If there is no recession, should rates on longer term maturities move lower? What is the incentive for them to do so? Historically, in the QE/TLT chart shown at the beginning of this post, you can see that logic shouldn’t play a part in your investment portfolio. Long maturity bond holders want to know that inflation will not eat up their return of capital, in addition to the interest rate they receive.
Forget the news. There’s some math on that chart that you can do for yourself regarding the length of bond maturities in your portfolio.
This post is a tribute post to Terry Laundry’s methodology. I am linking it to a site created by Bob Karrow, who has received approval by Paula Burke to post Terry Laundry’s charts and the audio files that accompanied them. On this site, you will find almost all of Terry’s posts, charts, and audios made prior to his creating his own private forum. At the end of this post, I will discuss how this information is topical to today’s market, by sharing how I used this concept to create Advance/Decline T’s this year.
The link to Terry’s explanation of Advance/Decline T’s can be found here
The best way to review this information is to keep the chart open, and then open the accompanying audio file in a separate web page. That way you can follow the chart along with his dialog.
As Terry’s explanation is a complete explanation of these Time Symmetries, my discussion assumes that you have listened and reviewed the chart along with Part A of his audio file. The audio was recorded sometime in 2010. (I am going to ignore the 8 year low cycle he presents on his chart as I find it irrelevant.)
An interesting point I’d like to make relates to Terry’s observations on T #3, which Terry describes as an unprecedented fortune-building rally. The fact that interest rates were around 10% kept many from entering on this low in equities, as it created strong competition for the equity market. When yields plummeted, investors moved into equities. Does this sound similar to today?
I believe it is important to remember Terry’s position on when to enter the market.
“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.”
That is great advice. Buying at support gives you a safety factor that allows for a retreat if your entry is wrong. For those using alternative technical indicators, or more conservative investment strategies, T’s are not confirmed until the movement higher in T surpasses the last peak before breaking support. This depends on the type of T you are working with. On the Volume Oscillator, that is the last higher low before crossing below the zero line. On Price, if you are considering this in conjunction with Elliott Wave Theory, it is when Price breaks above its prior peak before beginning its climb higher.
The other side of this is knowing when a T will end, as at that point, returns should equal the returns on a Ten Year Bond.
Returning to our review of A/D T’s, I can follow all the T’s as Terry discusses them, until he gets to T#9. I know that personally, I would not have been able to “see” that T as it developed.
Terry continues to review NYSE Advance/Decline T’s through 2010, but let’s look at what occurred after the 1998 period on the SPX Advance/Decline Chart:
A further review of this chart shows us that we were never again to see such a long mega T:
Earlier this year, I began discussing Advance/Decline T’s on a shorter term basis. Right now we have one that should last another 5 weeks–until January 27.
A post of mine back in August regarding the use of these T’s discussed how the dates on the VO T and Advance/Decline T didn’t match, and it’s something to consider when conservatively looking for the end of a T:
My instincts were correct in searching for that larger T, as I began to search and find these larger Advance/Decline T‘s (as noted in the April 22 and July 22 posts). The first A/D T I discovered ended April 27, which coincided with the smaller VO T’s end on May 1. The second A/D T had an end date of July 23, with the end of the larger VO T on August 6. I’m not sure if it is only coincidental that the A/D T’s end earlier than the last 2 VO T’s, but it is something I will consider in the future.
We have the opposite situation now, where the McOsci T ends January 3, while the A/D T and Price T end 3 weeks later. Be on guard, but watch support.
This week our Point of Recognition brought us a 70 point drop in SPX, and brought the McOsci down to its zero line before rebounding. It is still above that green support line, but has not returned above its most recent low prior to that. It’s at a critical juncture in my opinion.
Please feel free to comment if this review of Terry’s audio and chart of 13 years ago has helped any of you understand T-Theory more clearly. If so, I might continue to review other concepts of T Theory. I have been forced to remove the link to Terry’s 1997 article regarding T-Theory, as the link I was using has disappeared. I will try to find another copy of it.
The site’s been closed for a while, and at this point I have only re-opened the Posts Page and the T-Theory Concepts Page. As we are nearing the end of this year, I thought I would submit this post for those who have been part of the journey for the last 3 years.
Those who are subscribers to elliottwavetrader.net know that on November 26, I posted the appearance of a McOsci T that is slated to last until the first week of January. The post also referenced an Advance/Decline T and a Price T. Both of those have ending dates around the last week of January. In order to make the situation clear, I’ve put all the present T’s on the following chart:
The chart also shows the Positive Complex Signal we received at the beginning of November. It corresponds to the Zweig Thrust signal which occurred at the same time. I’ve explained in the past that Complex signals suggest a continuation of a move–higher or lower. In this case that move has been higher.
T’s are periods of additional strength, and should be taken advantage of. But there is one troubling item on the above chart, and that is the Point of Recognition which occurs sometime during next week. These PoR’s are not part of T Theory. They are my personal construct based on the “art” of time symmetry. One may or may not consider them important. I do.
And that leads me to a discussion of a more troubling situation I see developing. It is partially based on a review of commodities. Oil has dropped to the low end of the envelope I use. Gold was in a similar situation (until this week), but held the important 180 level on GLD. When did Gold’s advance begin? On the day the Fed announced that it was most probable to start rate cuts next year.
Neither words nor correlation are the basis of my concern–it is based on what has happened to the Confidence Index created by Terry Laundry. Those subscribers to my posts here who are still members of Terry Laundry’s Forum may have seen my post on that site yesterday, linking to articles Terry made reviewing the importance of the Confidence Index. For copyright purposes, I won’t go into it deeper here.
This Confidence Index is based on the relationship between High Yield Bonds to Treasury Bonds. Simply stated, during risk-on times, the Price of High Yield bonds tends to rise more quickly than that of Treasuries. This causes the Index to rise. Yields fall when Bond Prices move higher. The Index becomes a product of Sentiment, as it reflects the faith (Confidence) of the bond market that risky loans will be able to be repaid easily as the economy expands. When the Index moves lower, it shows the removal of that confidence, as the yield spread widens between risky investments and lower risk investments such as Treasuries.
For the past 2 years I have been confused by the continued rise in this index. It has reached extremes that it hasn’t seen since –ever. The highest it reached was .95 in 1999.
And yet, after a precipitous fall from 1.25, it still is above that 1999 reading, sitting at 1.10. The Confidence Index shown above represents the spread between FAGIX (high yield bonds) and VUSTX (30-year Treasuries). It uses the same components used by Terry Laundry. Over the past two years, it has been more disconnected from the price of equities than at any other time I have observed it. There was an inherent faith that High Yield would in fact be a better bet than Treasuries. It’s my belief that the Fed and Treasury threw so much stimulus (ten times what they did during the Great Recession) into the market that inflation was inevitable. Was it better than the alternative of allowing the economy to collapse? My view is that it absolutely was. We were bound to face consequences from this extraordinary intervention. Giving everyone money–regardless of need–was excessive. Leaving rates as low as they were for so long was a mistake, and the pendulum has now swung the other way. Eventually we will reach equilibrium. The chart recently shows signs of Confidence fading. just as equity pricing seems to be whistling an all clear.
Back on July 2, I posted that I saw a confluence in the Confidence Index and in the Breadth Momentum (Simple) chart showing a Point of Recognition coming at the end of July, or early August.
That resulted in a drop of 500 SPX points, until the bottom was found on October 27. Please understand that I am not suggesting a similar situation now. As I pointed out above, these Points of Recognition are an “art”. They have kept me safe in the past. The “Halloween” formation I forecasted in November 2019 culminated at the end of January 2020 in the Pandemic drop, at which time I was not in equities. While others were feeling relief on reaching the highs of early 2022, I had an T scheduled to end that January which moved me out of equities for most of that year, with some short term exceptions.
There’s no certainty in life, and even more so, there’s only “art” involved in my concerns at the moment. It’s usually not a good idea to fight a T, or multiple T’s, as we now have. I don’t want to “think” about what is happening around me. I want to follow the charts. But at this stage of my life, I’m more concerned with capital preservation.
I am not invested in equities. I can miss the rally should it continue until the T’s end, fighting FOMO if I have to. I am sitting in Treasuries and bond ETFs with a maturity under 5 years. TLT has already reacted to a one point rate change by moving 16 points, while short term rates have not changed. What will change next–Long term Treasuries moving lower in rates, or Short term Treasuries attempting to confirm the movement of the longer end of the Treasury maturity table? I think the Fed answered this by revealing that it expects the short term rates (which are the only ones they control) to drop next year. The longer end has already priced those reductions into their analysis. ETF duration has already effectively reduced TLT’s potential until the shorter term ETFs catch up.
Speaking of bonds, the Five year rate T that was due to end November 10 ended a few days early, and the decline has been enormous since then. We’ve had a huge move lower since then.
The 30 year rate monthly MACD chart has not yet crossed into a positive mode, although it is sitting on that border:
TLT has crossed the middle Keltner on its weekly chart which is a positive, but it is now sitting in overbought territory on the Daily chart:
Happy Holidays, and see you next year. I don’t intend to post weekly- only when I see something that I’d like to point out. Right now, we are still in uptrends that should last a bit longer. But the concerns that I’ve stated above may become more prominent. In any event, it’s the end of the year, time to enjoy family ties.
T-Theory Thoughts 