The Turnaround Points That Make Sense

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Everything continues to line up nicely for the drop-into-the-900s that I've been waiting on for the past seventy-two years (OK, OK, not that long……….but it sure feels like it). Psychologically, I am being cautious not to jump the gun two steps ahead. What I mean by that isn't that I'm wrapped around just-how-great it will be once we get into the lower 900s. Instead, I am already "pre-chagrined" that the party will be over at that point.

I feel very much like Colonel Kilgore who, in Apocalypse Now, admonishes his soldiers that "some day this war is gonna end." You can tell by his demeanor he's pretty heartbroken about that prospect.

This is not to say that we're going to cycle into a bull market at that point (ha! bwa ha! pffttt!) But if I am to follow my 1937-1942 analog, what comes after a drop to 925 is a choppy rise back to around 1125 (spanning months, perhaps) and then we can go back into bear mode.

What on earth could push the market back to 1125? Well, our dear friends in D.C. will probably dream up yet another way to hasten the demise of our once-great republic with some cheesey giveaway; maybe Obama and Bernanke will carnally embrace in the Rose Garden, each give birth to live unicorns, and auction them off on national television to help bring down the deficit. I simply don't know, and it hardly matters.

Perhaps you think I'm a fatalist. I don't think so; and even if I was, what could I do about it?

But how low with the S&P get? As anyone conscious here knows, I've repeatedly called for 925, but there are other possibilities. Here's the graph, and beneath it is a brief discussion of each possibility:

0824-stopzones

MAGENTA ZONE: This is the area of "noise" that we hit early in July. Bulltards will be thumping their bibles and stating how this is the buy-zone, since it bounced there last time. We always fight our last battles, don't we? I don't think it's going to hold, and I think bulls are going to soil their pantaloons.

GREEN ZONE: This is the area just beneath, and frankly, in spite of my 925-is-coming declarations, this is where I officially will start getting nervous and tightening up my stops. To date, the market has made a series of slightly-lower-lows, and getting down to, say, the psychologically-important 1000 level and reversing would make a certain amount of sense. If we earnestly crack 1000, expect the darlings in D.C. to start thinking of creative new ways to whore themselves for the sake of Lloyd Blankfein.

YELLOW ZONE: This is where I strip naked and dance on top of a harpsichord. I've been aiming for this zone for almost a year now, and although I'll probably be tempted to hold on to my positions, I will push myself to cover my positions (or at least give them extremely tight stops).

GREY ZONE: This, to me, is the farthest the market could possibly fall this year. It represents a major Fibonacci level, plus it just so happens to be the measured target for that gorgeous head and shoulders pattern. If we drop beneath here, even Tim the Bear will be very, very puzzled and confused. I'm seriously not expecting us to get this far.

And there we have it! I am presently about 120% short………..and I sort of wish I was shorter………and have no long positions (I briefly bought BP and CBS late today, but I tossed them under the bus in short order). The rest of this month promises to be tres interesting.

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