I was a grumpy old man even as a child, so this post emanates from that legacy.
I’ve been puzzling over the peculiar reaction the market had on Monday to the savage attacks that took place in Paris. Never would I have dared imagine that assets across the board would excitedly zoom upward following this brutal mass killing in one of the most beloved cities in the world. It just made no sense.
This is still a working pattern and by no means is there any guarantees behind it.
But I spend a lot of time every day going through probably a thousand charts or so, and I spend a lot of time staring at the charts of the major indices. Well, today, this pattern leaped out at me on the daily chart…..
It is a massive head and shoulders pattern that could be forming!
Granted if we just blow through the highs of the year, this pattern means nothing, but if we start to see the selling pick up again and start to make a move back towards those August lows on SPX, then this pattern becomes very, very legitimate.
Now, based on on what we are seeing today and yesterday out of the market and the whole month of October, I’m not saying that we should all go sell our long positions. I’m still 30% long/70% cash right now (from 60% long this morning). I’m just saying watch this pattern and whether it develops further.
I can’t say with any certainty that it will happen, but it is definitely worth keeping an eye on.
Here’s the SPX Head and Shoulders Pattern:
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A Brazilian Reasons To Be Bearish
In a recent post (“A Brazilian with a Sudden Rip of the Wax”), Tim noted that Brazil ETF EWZ was in free fall. For those who haven’t been keeping up on the bad news from Brazil, the headline of this AP article from Tuesday will give you a sense of what’s been happening: “Brazil’s economy plunging; no relief in sight amid political, financial chaos”.
A Hedged Bet Against Brazil
Every trading day, Portfolio Armor ranks all of the hedgeable stocks, ETFs, and other exchange-traded products in the U.S. by its estimate of their potential return over the next six months, based on an analysis of price history and option market sentiment. Then it subtracts hedging costs, and ranks them all by potential return net of hedging costs, or net potential return. On Tuesday, the highest-ranked ETF, and the 6th-ranked security overall, was BZQ, the 2x levered bet against Brazil. Portfolio Armor calculated a potential return of 15.2% for it over the next six months.
The Tao of Steve
In the movie “The Tao of Steve” (2000), the lead character associates the name “Steve” with cool, charismatic men such as the actor Steve McQueen. Apple (AAPL) co-founder and CEO Steve Jobs was famously cool and charismatic, and when he passed away three years ago, investors wondered what impact that would have on the company. As we now know, Apple rocketed to new highs over the next few years. The company had a product pipleline in place, and a wide moat: the convenience of upgrading to a new iPhone, for example, and keeping all of your data and apps, was and still is a powerful inducement to remain an Apple customer. Reactions to Apple’s San Francisco product launch event on Wednesday, however, suggest that Apple may have finally ran out of the residual Steve Jobs cool factor.