June 9th 2025: How to know and properly react to the difference between a trend and volatility.

"Performance is important, but Process is critical." - Mike Turner

AT THE BEGINNING OF THIS WEEK:

This morning, the market (S&P & Nasdaq) opened a bit on the plus side. What does this mean? All it means (ignoring the noise, of course) is this:

1. The current bullish trend that started, in our current trade, last April 25, 2025, is still intact, and

2. We now have one of our key analysis components locked down... the open for the week, and,

3. We know the approximate level at which we begin to look for an end to the current trend is a TMI that is trading about -5.76% below where the current TMI is trading, and

4. Our client's unrealized gains in the current trade are:

• TMI-1x: +10.97%

• TMI-2x: +21.50%

• TMI-3x: +33.71%

All of the above are based on where the market "IS" and "How it got there". There is zero speculation and zero forecasting. It does not matter what economic news comes out this week. It does not matter what Trump or the Congress does this week. It does not matter what happens to the "Big Beautiful Bill" and whether it gets passed or not by July 4. ALL THAT MATTERS is where the market is and how it got there.

Now... for you number-crunching folk who love to think about stop losses and protecting unrealized gains... You will notice that I gave you a tiny addition to some of the stats that we monitor all the time... the "approximate level at which we begin to look for an end to the current trend". Here are some 'facts-of-life' that all current and sophisticated trend analysis masters of the present and the past had to deal with: "How to know and properly react to the difference between a trend and volatility..." That, my friend, encapsulates the key to successfully and profitably navigating trend-trading.

The concept is simple... Trends can be measured and volatility can be measured (after-the-fact, of course)... That part is easy... But knowing when the current move in volatility has moved enough to signal that the trend has, indeed, ended is, as some would say, excruciatingly difficult.

We all recognize the market has volatility. It is a fact of life. And we know that volatility plays a role in all changes in trend. But, we also know that volatility, by itself, is NOT a trend. Yes, we use ATR (Average True Range) analysis in our trend analysis algorithms. And, we know when the TMI (Total Market Index) has moved enough against our trade condition (Bullish or Bearish) to cause us to move to cash and wait until the next trend is well defined.

So... What does this mean to you and the wonderful unrealized gains you see in your accounts that we are managing right now? It means this: Since we are NOT market-timers and never try to guess at market tops (or bottoms when in a Bearish trade), we have to wait, in this current Bullish trade, until the TMI moves low enough (on a week-ending price) to move below the maximum limit that we have mathematically calculated as to being LIKELY that the current trend has changed and we need to move to cash.

This week (and this changes from week-to-week), that number is -5.76%. If the market continues to move higher, that number will increase proportionately... JUST DURING this week's action in the market.

Think of it this way... There is a "Volatility Zone" around each trade that lets the market have room for "normal" volatility without triggering a "Change in Trend". This also means that we will never capture 100% of the "unrealized gains" that we are experiencing at the highest level of the market (in a Bullish trade) or the lowest level of the market (in a Bearish trade). In 100% of the cases, we cannot (by rule) exit a trade until the market breaks against us and moves outside the "Volatility Zone". At this moment, that number is in the -5.76% range.

Why the "range" instead of a hard number or a fixed percentage? We have multiple conditions that must be met when the market begins to cross one of our "Focus Trends"... the 20-WMA, the 50-WMA, the 86-WMA and the 200-WMA. Merely touching or dropping below (in a Bullish trade) one of those Focus Trends is not enough to trigger an exit. But... when the market gets near one of those Focus Trends, alarm bells begin to ring as warning signs that it is getting more likely that the trend is ending.

If Trend-Trading were easy... everyone would do it, but it is not. Have we mastered the art of Trend-Trading? No... I would say we are in the league of some of the best trend-traders of all time (at least that is what AI says we are), but that is not an exact science. I can tell you that our rules for Trend-Trading are exceptionally good and our dedication to following those rules with discipline is excellent, as well. Will we ever make adjustments in our rules? Of course... we constantly look for ways to improve performance and reduce risk. Our job is to grow your capital with the least risk we can, given that we live in a market that can change its trend at any time and that no one has the ability to forecast those changes in trend on a consistently accurate basis.

Have a Great Week in the market!

THE NOISE:

Alex Goodwin, Vice President

Last week the indexes put together another bullish session thanks to a little bit of tariff relief and an encouraging jobs report. Investors seemed to be optimistic that the U.S./China tariff drama was settling down and that the two countries were working towards an agreement.

In other news, two of the most powerful individuals on the planet got into a very public X dispute over a new bill that was being passed in Washington. The actual feud was not directly related to the stock market, but regardless, it certainly startled investors. While the feud was ongoing Tesla stock dropped as low as 15.5% and closed the day down more than 14% while the market followed suit and notched what would be its worst day of the week. In a not so surprising twist, it appeared that investors had reacted to “the noise” on Thursday, as pre-market futures rocketed higher and all of Thursdays drama was wiped out in a single Friday session.

What appeared to be the biggest catalyst for the positive move last week was the May jobs report. The report showed a 139,000 increase in jobs, and an unemployment rate of 4.2%. So far this year investors have been fixated on this monthly report, and May’s report clearly reinforced confidence in the health of the economy.

Thursday’s drama was a fantastic example of why we do not pay attention to the noise. Of course, the overall market move was likely not large enough to scare most investors, but this is not always the case. Last week we observed a market gain of +1.65% (S&P 500) and the continuation of the current bull trend, and again this week we are bullish and will be waiting for the next data point to tell us where we need to be.