February 21, 2021

February 21, 2021

9:00 pm

Good evening!

When I first started reading about winter storm Uri, I felt sorry for those poor people in Texas who were unprepared for what was about to happen.  Then I found out that my web server is located in Texas!  By Friday there was only partial restoration, which meant that many parts of the country still could not access this website, including my own location.  The world wide web is a lot more intricate than I could have imagined.  Anyway, The Practical Investor is back in business.

One of my thoughts was to create a backup plan for a downed server.  This means that I would have to re-start a subscription plan and use emails as a backup.  No decision has been made yet.  However, if you agree with the idea please email me at tonycherniawski@gmail.com.  My decision to continue with a “Plan B” backup plan would be appreciated.

In the meantime, I have updated my Cycles chart.  The last Master Cycle landed on January 29 at day 260.  The next Master Cycle is due as early as Friday, February 26 (day 256), but may last until March 4 (day 262).  I will be monitoring this for signs of expected completion this week or next.


VIX is hovering just above a one-year old gap between 17.08 and 22.19 that remains unfilled since last February 24.   This gap has been tested but not filled for the past six months and it is my belief that it will hold for two reasons:  First, gaps in a trending market often remain unfilled until the trend changes.  That suggests the trend began in December 18, 2018 at 8.90 with higher lows ever since.  The second reason is that the Master Cycle low was made on February 10 at 19.69 with the next Master Cycle (high) due the same time as the SPX.

Last week ZeroHedge remarked, “Specifically, McElligott explains that “volatility is the exposure toggle” in modern market structure risk management – whether a discretionary / active manager on VaR, a risk-parity fund, a systematic CTA Trend fund with a specific vol target, a variable annuity with downside protection triggers, tactical allocation models from roboadvisors etc..

In other words, this means that the size of a position is set to be inversely proportionate to the instrument’s volatility.

The reason all this could be of concern is the worrisome echoes from Feb 2018, home of the “Volmaggedon” Equities Vol shock, driven by the extinction event for most of the leveraged VIX ETN space on account of their impossible supply or demand needs of VIX futs at end-of-day rebalancing, and eerily triggered by Fed policy-tightening concerns after a series of better than expected inflation / price data over the month of January culminated in a big CPI beat the Friday prior to “Volmageddon” on Monday, which “waterfalled” into crescendoed SPX selling, -6.5% in 2 days.”


TNX is “in the window” for a Master Cycle high, but thus far may not have made it.  TNX futures have reached a weekend high of 13.94, suggesting a higher open on Monday, day 262 of the Master Cycle.  A sudden spike to 15.00 may cause a panic sell-off in equities and a spike in volatility, even with a pullback hat is bound to follow.  Remember my comments that the Head & Shoulders target was due to be met in the current Master Cycle, so we may see the fireworks begin tomorrow at the open.

ZeroHedge observes, “For many months, traders and strategists have been warning – and dreading – a sharp spike higher in both nominal yields and real rates, and last week they finally got it with Real Yields finally surging the most since March…

… and joining the historic post-covid rally in Breakevens…

… sent 10Y yields to 1.36% the highest level since the pandemic and just 14bps away from the 1.50% level that Nomura predicted would hammer stocks as systematic, quant and CTA funds start actively shorting 10Y futures.”

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