The Only Variables We Control: Risk Management Concepts

slide 1

























S&P500 Expert Lounge Update – August 25, 2015

Our last formal update forebode the breaking of the long term bullish channel on the S&P 500 cash index around the 2020 level and looked ahead to what could be the next levels of support. 2000 did not provide any support & subsequently 1980 did not either.  For the S&P 500 futures market, the open on Sunday August 23rd was yet another gap down & immediate breach of 1960 ES, which was a major support shelf.  This action pointed to a possible extreme scenario which subsequently played out in the overnight session. It is important to remember that when hyper trends end in either direction, like the one which ended with the breach of the long term weekly SPX chart (attached), an equal or greater acceleration in the opposite direction is highly probable.

Monday August 24th cash open was one for the record books as the DOW opened down over 1,100 points & the S&P 500 futures index was 'lock limit' down prior to open.  As you'll see, the market found it's first level of long time support & then proceeded to put in a wild ride of intraday volatility which is shown in the additional SPX chart & contains near term potential inflection points if the market is to resume an immediate downtrend.  The first obvious level is the downtrend channel.

Please adjust trading approach to factor in the volatility expansion when taking position sizes or your trading will also experience 'risk expansion'.  Stay patient & disciplined.

As always, please continue to monitor the Market Structure Projections via our blog at  and stay nimble in this market environment.  Good Luck to your trading

These are key MA levels: 2077 (200sma) - 2095 (100sma) -  2086  (50sma) -  2052 (10sma)

These are key support and resistance levels: 1867 - 2040

Bulls Find First Level of Long Term Support

Bulls Find First Level of Long Term Support


Near Term Symmetry for Probable Inflections

Near Term Symmetry for Probable Inflections

S&P500 Expert Lounge Update – July 15, 2015

Best to your trading & welcome to our new subscribers

These are key timing for today:   8:30 AM - 2:30 PM EST 

These are key MA levels:  2095 (100sma) - 2100 (50sma) - 2090 (5ema)

These are key Fibs: 2097 - 2107 - 2115

Good day

Here is today's pre market look at the S&P 500 for  July 15, 2015 and good luck to your trading:

 After closing in the first target area on Monday, SPX ran into the second tier of potential resistance yesterday & stalled at the .786 retrace of the recent swing high to swing low posting a high of day at 2111.98.  A similar Fibonacci retracement from all time high to swing low lies just overhead at the 2115 level. If the market manages to clear the highlighted price levels, the probability of a move back to all time highs certainly increases.  Market Structure Projections also have the potential for a key pivot today, so it is optimal to manage long exposure accordingly for the imminent future.

Once again, manage risk, Good Luck and do not forget to keep close notes on the key timing via the MSP as they evolve .

2015-07-15_07-55-27 bear pivot or ath

SPX Key Inflection Point


Volatility Dead Ahead – Daily & Weekly Pushing Towards a Turn Around 12th to 14th

Lots of volatility ahead it appears - just enough to trap bearish and/or bullish traders. Still looking like we could get a flourish into early next week to wrap things up and being a longer 4 to 5 week pronounced downward cycle. I the mean time, my approach is to expect lots of conflicting forces to act on markets just from a chart basis. When you add Central Banks in full on panic that is an certainly another picture in the window. At some point soon, Central Banks will not be able to influence easily the outcome of market price discovery in the same fashion and instead end up contributing to an overall decline. The full impact of Greece has a few weeks to be discounted and it will be most interesting to see if ECB and other Central Banks can feign ignorance to their losses or better yet continue marking them as profits. In either case, the outcome is the same, these banks are gambling their credibility away and it seems that almost anything they do to attempt to retain credibility (with the exception of telling the truth) as high probabilities of resulting in loss of credibility and confidence in the short to medium-term.

Whichever way things end up playing out, medium-term odds are favoring a pronounced 4 to 5-week downward phase directly ahead - it could get ugly if inclined.

July 5th, 2015 Daily & Weekly Market Structure Projections

July 5th, 2015 Daily & Weekly Market Structure Projections

EURO Broken, Breaking and Broke – Greece Plays Its Hand

EURO Broken, Breaking and  Broke

EURO Broken, Breaking, and Broke

The ECB thought they could back the Greek Government and leadership into a corner with no other choice than an insipid self-destruction that would have left them, culpable, maligned and threatened by their own nation. Soon to be replaced by a trinket government installed at the whim of a few EURO bureaucrats (or Neo-Nazis - take your pick).

Greece played it about as well as possible. Knowing that the objective of ECB and Germany was to make sure that no other political administration in the crumbling European Union would ever be willing to commit such an act of defiance and humiliation against central planners. They waited till after markets had closed to announce a referendum and to "stick the finger" to the central planners (see ECB & EU Strategy – Political, Not Practical). During the afternoon on Friday, Greece made overtures but just after the close of the markets they gave no wriggle room to a central bank that thought it owned the outcome of the situation.

This era, characterized by the senseless debt pumping by central planning bureaucrats all over the world, has destroyed many lives and is presently in the process of destroying millions more - which will inevitably be the driving force of more complex conflicts between nations. The fact is that, via side deals and convoluted transactions with the US FED, virtually all sovereign central banks operate US FED policy by proxy. Almost all of them are precariously close to losing control of the leverage they have been so desperate to pretend is a catalyst to growth when in fact it is clearly the opposite (see these charts). IMF and BIS have been projecting wild fantasies regarding Greek growth for years. As it appears, these delusions are influenced by blind deference to the concept that something can be created out of nothing by a few bankers with a "control-P" key. Sadly this is not the situation as so clearly shown in IMAGINARY NUMBERS. With so little real capital available and so much leverage, even a little disruption can have grave implications. The next months and weeks will likely reveal more regarding leverage (more accurately deleveraging) implications.

Leverage - Where are we now?

Leverage - Where are we now?

These crises arising all over the world may be a catharsis for people in the end, but it will be one of the most painful paths possible for rejuvenation. From this perspective, Greece knows they are in pain, it can not get much more intense for them. What you can not pay for does not get paid - so, there is somewhat of a limit. BUT IT CAN GET VERY PAINFUL for debt-pushing central-planners. The implications of huge and contagious CDS & derivatives losses, financial instability and challenges that are all pointed at the feet and minds of central planners (as opposed to indebted governments) is likely to be a trend.

If there is one lesson from Greece, it is while the drug is offered - take it. When the drug causes ill health and death, for the history books, make sure its manufacturers and pushers get the blame. 

ECB & EU Strategy – Political Not Practical

EURO Implosion

ECB and EU Strategy Political Not Practical

ECB and EU along with many politically interventionist central bank efforts have created a drawn out, conflicted and confusing environment. On one hand financing is readily available for an utterly defaulted nation that never quite made it into the EURO (Ukraine) - yet Greece is being an especially tortured soul. How can this ECB's/EU's conflicted strategy be explained?

It is clear that every day lately, a barrage of the most ominous and negative press grabbing sound bytes are projected by IMF, ECB, EU, etc. Occasionally with rhetoric from Greece and the obligatory 1 out of 10 positive test bubbles. What are the goals of this kind of unending, torturous behavior? Certainly, concern for Greek citizens can not be being improved with this gamesmanship. What kind of negotiation is this?


The reality of conditions is that ECB and most central banks have pushed the envelope to the extreme. They are in danger of losing control. It is likely that they have already lost control based on the impacts of their grossly irresponsible gambling and policy activity. A Greek exit for ECB is NOT an option. Yet hyperbole from Eurocrats seeks to project that it's just another day of doing business - nothing to worry about here. However, nothing could be further from the truth. The real fear that ECB and EU has is the potential that it appear qualitatively viable for any nation to pursue a similar negotiation as Greece. Behind the veneer, who knows what kind of deals ECB/EU is making or may need to be made. However, publicly ECB/EU and central banks need to project an image of balance and control.

They have a lot of power and do have the potential for a lot of control. This was on full display in the UK recently when just about any EU dissenter was served a knockout blow in the election process. Scarcely ONE of them got reelected. How convenient for the ECB and EU just as the UK was gaining momentum in its independence movement. If there ever were a clearer message to a politician - it could not be much louder than the one sent to the UK by ECB and EU with their successful and dramatic meddling in the UK political process.

Greece is a vastly different story,. What they have in common though is "leverage": both in the UK and Greece leverage is much too high, and both can not possibly pay their debts. So, what is all this grandstanding for between ECB/EU and Greece? Political intervention. With the central banks losing control of the debt situation and more importantly the ever growing public awareness of what interminable debt servitude looks like, the EU and ECB should an "A" for demonstrating a new and innovative forms of control, manipulation and subterfuge.

The root of the problem at this time is the large amount of insolvency in the system. It is no question, that every politician in Europe and even some in the US are watching with great interest for when they can clamor onto the stage and beg for their own refinancing, bailout or funding.

The labored, conflicted, and irrational hyperbole from ECB and EU makes sense in that it is conveying a very clear message. "When negotiations are complete in Greece, there will be career ending, political and physical risks for politicians." If there is one area that any politician wishes NOT to occur, its reelection, financial, legal, impeachment or physical risk to themselves. Additionally, politicians generally would like fruits for their labor to be rewarded and spendable - both real and political capital.

Danger, potentially criminal or life-threatening, from constituents, is not fodder for a long political career, reelection or spending of real and political credits. So, what we are seeing here are the desperate attempts of the ECB and EU to both agree to anything required to get the Greek situation to disappear behind the curtain. While ending the political careers (not to mention other significant risks) of anyone stupid enough to cause trouble for their debt expansion agenda and marketing campaign.

From this vantage point, this strategy is showing some progress and is quite imaginative. The key to a signal of an end to Greek negotiations is the implosion of political careers of the "deviant operatives" in power and at the negotiating table in Greece currently. One could not send a better message than the ECB and EU events in UK and Greece can be conveying to Italy, France, Hungary,  Spain, Slovakia, Romania, Slovenia, Latvia, Ireland, Czech Republic, Estonia, Belgium, Croatia, Austria or Bulgaria politicians. While there is not even a shred of practical or sensible in this process - political it clearly is.

Will this kind of tactic be able to supersede or merely suppress temporarily the dramatic consequences of a destructive credit expansion while these eurocrats and central bankers search for the ever elusive "PLAN B"?

Daily Bias Positive into Wednesday

Worked on a few small coding issues until 5:00 am yesterday. One small little small rendering bug I thought would take only 2 or 3 hours to fix took 17 hours on a Sunday. Late getting to the charts. One thing that is interesting is that today's action is exactly of the type I have been concerned about.

Friday's weakness was structural IMO and, therefore, more related to normal market structure and expiration than people would want to think. Headlines are always more compelling.

This week overall is fairly upside biased into Wednesday. Monday's low came very early. Earlier than expected. Ideally, a retest of the Friday low would have been most probable. Last night, however, all probable overnight MSP, were upward biased as of the morning with action around 7:00 AM and 12:00 pm being key timing.

Anecdotally, my view has been for quite some time that the negative reaction could come with exhaustion on a positive news announcement and resolution. Projections are indicating a bias upwards into Wednesday overnight. NOT certain if projections are corroborating this type of squeeze, but its does seem that any rise could be Greece related and part of a general squeeze.

Monday CASH sessions are among the weakest of the week presently.  A strong open could pull back pretty well after seeing a 7:00 am or 12 :00 pm high with pullback continuing into timing window around 3:30 pm. Tues and Wed continue upward bias probabilities this week.

June 22th, 2015 Daily & Weekly Market Structure Projections

June 22th, 2015 Daily & Weekly Market Structure Projections

June 22th, 2015 Intraday Market Structure Projections

June 22th, 2015 Intraday Market Structure Projections

IMAGINARY NUMBERS – Part 2: The Shattering Mirror of a Centrally Planned Monster

If you can think like a teacher who cheats, and look again at the sea of data - patterns come to light. Patterns, which are subtle, buried under mountains and mountains of data. When looked at through varied lengths, suddenly it's just as clear as day. And when you know what to look for - You can't help but say [when] it has to be cheating.What he's really good at is: "PRETEND[ING]". He's a cheater a criminal, a thief, a cheat - all these things because really he's not far from it. I mean if you really think about what an economist is - the line between an economist and criminal is terribly thin.

Steven D. Levitt & Stephen J. Dubner (23 minutes into documentary Freakonomics)

As the Steven & Stephan said above, when data is looked at via varied lengths and modalities - suddenly things can become as clear as day. This article is not seeking to endorse Austrian economics or debase Keynesian economics - rather it is focused on the data. We are probability and data analysts/statisticians. This article seeks to go into some considerable depth regarding the examination of the statistics and data whose subject was begun in the previous article: IMAGINARY NUMBERS. Hopefully, this presentation also derives implications that can be clear as day.

These days, the line between monetary planning and criminality appears to be very thin indeed. Malinvestment, asset manipulation, unimaginable leverage, theft, distortion & falsification, goal-seek & curve-fit data, false pretenses, special interests and every form of systematic, media & political manipulation - central planners/bankers have metamorphized the benevolence of their supposed task into an art form of criminality on a scale that even the largest criminal syndicates in history would and could not conceive or dream of executing in their wildest fantasies. If this paragraph sounds like a stretch, let alone a mouthful, please consider the accompanying charts and content before making your interpretation.

Shattering Mirror -  unmasking the FED Monster

Shattering Mirror - unmasking the FED Monster


Previously, on examination of the machinations of GDP (and by reference CPI and PPI) it is clear that the greatest area of innovation and growth in the US economy (and others too) is in the areas of "productive" economic contributions that do not require official transactions, can not be proven (and, therefore, can not be easily disproven) and employ new and fantastical techniques of conjuring. MAGIC.

We have touched on the subject of the astounding growth rates of imputations and hedonic adjustments but have not put them into broad perspective. This article seeks to add detail and perspective for the earlier observations. In light of broad data that can lead to some objective conclusions, we, therefore, examine many dimensions of data in detail: government/FED data, reporting, statistics and analysis.

The Federal Reserve System provides a database called FRED that is available from the St. Louis Federal Reserve. This database presents a whole host of variables with which one can see a vast amount of data - much of it useless and inaccurate. If the huge amount of effort that has been put into these data stores were accurate and useful, it follows that the FED would have at least been aware of any one of the issues leading into 2007 and 2008.

In 2005, 2006 and certainly by 2007, at least ONE of these should have been identified:

  • An Approaching Recession
  • A General Bubble
  • Asset Valuation Extremes
  • Statistical Aberrations
  • Housing Bubble
  • Credit Risks
  • Derivatives Risks
  • Earnings Risks

However, as is most often the case when one seeks to engineer data to bias a specific scenario, it becomes quite impossible to look at and for that which one is struggling so very hard to avoid. As it stands, most all Central Planners, especially the FED, missed every single one of the above issues.


Since the 1960's debt and leverage have expanded by orders of magnitude over earnings as reflected in the charts below. Tremendous leverage seems to be primarily shifting money from one account into another, with inevitable risk, depreciation and spread eating away at it. This is providing negative real economic impact, which can also be seen in the charts below. This negative impact can be interpreted directly from a look at the unimaginably large leverage increases resulting in a roughly net zero impact (or worse) in real economic terms. Globally, central planners have attempted to leverage as much as possible. More than imaginable. The thinking apparently is that ultimately this persistence would at some point break the resistance of people to accept finally the virtuous cycle they imagine. In most cases, central planners have more and more often resorted fiddling with data, as it is clear the FED has been doing. However, this is just another ploy to try to break the psychological resistance people have to the central planners ever near virtuous cycle. These are the basis for ever more and more credibility destroying, unsustainable and highly questionable policy.


Please click on the navigation buttons on the chart below to scroll through each chart. There are 17 charts and you can navigate via the location dots at the bottom of the chart or the left and right navigation arrow controls. We recommend that you click on the title link to view this article in detail which will then accommodate the largest chart sizes.  The method of viewing the charts below is quite effective because each fades into the next which makes it easy to track the changes from one chart to the next. If you would like to refer to a gallery, here is a dedicated page with thumbnails of all the charts.

  • Imaginary Numbers - US Population Growth

  • Imaginary Numbers - US Population Growth vs S&P500 Price Appreciation

  • Imaginary Numbers - US Population Growth vs S&P500 Earnings

  • Imaginary Numbers - US Population Growth vs S&P500 Earnings (Float Shrink Version)

  • Imaginary Numbers - S&P500 Earnings vs GDP & Earnings Per Share

  • Imaginary Numbers - S&P500 Earnings vs GDP

  • Imaginary Numbers - S&P500 Earnings vs Price Appreciation

  • Imaginary Numbers - S&P500 Earnings vs Price Appreciation

  • Imaginary Numbers - US Government Debt in Perspective

  • Imaginary Numbers - Welcome to Money Amplification

  • Imaginary Numbers - Overall Leverage In Perspective

  • Imaginary Numbers - Amplification

  • Imaginary Numbers - Overall Leverage In Perspective

  • Imaginary Numbers - Can GDP be Believed

  • Imaginary Numbers - High Wire Act

  • Imaginary Numbers - No Other Conclusion


Since Alan Greenspan attempted to stabilize the markets out of the 1987 crash and the deep recession into the early 90's via any means necessary, derivatives and productivity became absolutely wonderful sound bytes in the 1990's to project a "NEW" era of order, stability, prosperity, growth etc. Nothing could have been further from the truth. It only takes a brief look through our charts to see that the productivity hyperbole was nearly a complete fabrication. Sure, new technology enables more efficient process and operation, however, the banking system and the tremendous debt and interest obligations of the "NEW" era quickly absorbed and re-purposed productive capital and energy into the wasteful and tangential elements that rewarded fools and penalized producers. Ultimately, producers figure out the trick to getting their slice and realize that they are better off trading and playing the game than doing something productive.

Fed Monster Hooved & Clawed

Derivatives, risks have increased for many reasons. Primarily stresses on real liquidity and real collateral. However, also because the markets have receded. Much derivative risk can not be quantified because it is NOT exchange traded performance bonded. With the FED's roughshod through the house of mark-to-maturity, mark-to-excuse-du-jour accounting - these risks are covered up behind the back room trap door. The one thing that is certain, like the Greece debt debacle is now twice the size it was just 4 years ago when every financial TV journalist indoctrinated the world with how irresponsible the Greeks were and how they would never be granted any credit with the large Central Banks if they defaulted...the Derivatives problems will likely be MUCH bigger next time. Why? Similar to Greece, AIG, Bear, Lehman the Central Banks rewarded imbeciles and have sought every technique known to man to avoid deleveraging...even if it means having to make up numbers to loan Greece 340,000,000,000 when it's clear they had just effectively defaulted on their previous obligations. Call me stupid, but Greece is not at fault here. The bankers ramming sovereign debt issued by insolvent nations to yields of 2% and below with a "take no prisoners" approach are responsible for Greek's inability to repay. Who does Greece think it is anyway - Ukraine?

From a rational perspective, central planning revolves around the concept of data dependence and disciplined application of structure and rules. What Kind of structure and disciplined application of data is it that both grants a state in full default - Ukraine - funding, and simultaneously, a state that is in paralysis but far more manageable situation - Greece - no funding? What kind of data can possibly support these types of contradictions? Most likely none. This leaves a perfect entry for discretion and data engineering to adapt the situation to a desired outcome with no discipline whatsoever. Perhaps, discipline is evident in no other form than the ticking boxes that indicate data was used in the analysis process?  If this is any example, then are central planners acting as glorified discretionary managers regardless of data or mandate? The implications are clear, for the charts presented earlier, no self-respecting data analyst would entertain the protocols that have been undertaken. However, a discretionary process supported by constantly revised data and mechanics fits the bill very well indeed. Could this be the reason that central planner decision making is so persistently rhyming with thinking that are so highly irrational and biased?

If we look at derivatives and say that we know 50% of what is going on. OTC derivatives stand at $650 trillion dollars; this creates a variable in our 50% scenario of $325 Trillion. Considering that OTC represents only a partial representation of outstanding derivatives risk, using only this 50% of reported positions as a basis is a reasonable hypothetical. A few capital calls, accidents, counterparty failures, settlement or shadow derivatives issues later and a small problem might become unmanageable risk of 12.5% of $325 Trillion - or over $40 Trillion - easily higher. These are gargantuan numbers, and there is NO plan B.

Given that the FED has proven that they have a mathematics deficiency. Could this deficiency be a side effect of having a dopamine laced “Control-P” key? Regardless, of this debilitating condition, all the issues presently are more untenable than they were in 2007. Yet the FED is sanguine and "la sai fare" of the risk of achieving negative equity of under -2% on its own equity. So, it is continuing seeks to find ways to expand leverage at just about any cost.

The quality of life and stress levels for 98% of people are high because 98% lines up very well with the little blue sliver on our charts called “the population." The population has 98% percent risk while the 2% has 98% potential as can clearly be seen in these data presented here. How can quality of life for Greeks or Americans get better when linear extrapolators who are practically, philosophically and mathematically challenged like Mario Draghi, Ben Bernanke, Janet Yellen, Alan Greenspan, Haruhiko Kuroda, Christine Lagarde are in charge? Debt servitude has only one result, no matter how much dopamine is added to the Control-P key.


The significance of the chart below is that it shows the dramatic distortions being spouted from the mouths of Central Bankers versus the facts in the real world. This chart demonstrates the dramatic amount of debasement and credit that has been irresponsibly pushed as the solution to growth problems, yet has produced little REAL growth over 120 years.

The FED knows this. However, they seem to accept that engineering numbers to suit their current mood or agenda without much of a quandary. Real Earnings Growth (a product the FED does not market) is following the trajectory of the US population growth over the last 145 years. Debt and modern financial weaponry employed for money amplification have grown in the real terms by many orders of magnitude more than earnings. Is it any coincidence then that it is those very products marketed by Central Bankers to the world? Clearly, it makes no sense to see S&P500 earnings and sales so out of kilter numbers reflected in GDP or CPI/PPI. There is simply no plausible defense to be offered by people whose math skills enable them to create the dichotomy between Nominal and Real performance as represented here that would convince a reasonably sensible person as to how 2 + 1 = 4 and the GDP numbers are perfect.

So, in closing, the Monster has still not got a face, but it is being revealed. The only way to avoid its wrath would be for Central Banks and governments to get back to sound practices with regard doing their jobs and maintaining sound data, analysis, and currency. This would require tough choices and a keyboard with more than simply a “Control” button and a “P” button that is so profoundly used and evident in our charts.

As our recent example, IMF will willingly lend to a country in complete and current default - Ukraine thereby prolonging its agony and impoverishing any potential its future economy may have had. At the same time, IMF/ECB wish to appear prudent with an impetuous Greece, who suffered a similar fate as Ukraine a few years ago. Ironically, IMF and ECB are marketing debt - its all they have to sell…how long will it take them to figure out some scheme to further leverage the > 98% and empower the < 2%?

Sadly these are not choices that the Central Bankers will make easily, or willingly. Many will likely require judicial consequences in their various lands to alter practices. This monster looms large…it has not shown its true face but the mirror is shattering and in every shard will be a reflection of the beast - a beast that looks rather unlike the sanguine figures of central bank leaders.

One thing is certain, appearance of this creature will be anything but pretty.

Imaginary Numbers - Not a Pretty Picture

Imaginary Numbers - Can You Afford to Believe Them?



Imaginary Numbers: Article Charts

Imaginary Numbers: Click for Article Charts


An Eye on next Week…

With an eye on next week, market structure projection generally shows weak bias early in the week with potential for a reversal starting around the Tuesday AM session and into early the following week - so, the following week's Monday AM session. It is not without merit to anecdotally mention that it is very common for significant ECB/Greek announcements to be made on a Sunday. If such were to occur now, it would most likely be also coming together with factors and emotions that can create exhaustion.

As, mentioned before in the "January Effect" article published earlier on these pages. Among the best timing for a reversal for this long-term market-structure occurs in June. I encourage to you look at the statistics and also the companion article: "Drama on the Market Seas".

June 5th, 2015 Daily & Weekly Market Structure Projections

June 5th, 2015 Daily & Weekly Market Structure Projections