Thanks for your patience waiting for this post. I've been thinking long and hard about the markets, and I've got a number of things to share.
First, let me tell you something about me and bull market rallies:
(1) My timing tends to be very precise; ironically, my timing on bull rallies is way, way better than figuring out when bear plunges are going to start.
(2) My ability to trade them is horrible; in spite of me sharp eye for rallies, I tend to buy calls, get scared at the first inkling of trouble, sell the calls at a tiny profit, and "fight the market" all the way up, getting trashed all the way.
One day my knowledge of this behavior will cause me to – gasp – actually behave properly. Let's see if I can actually manage to get it right this time.
Let's take the last instance I was strongly bullish – in a post called, aptly, 180 Degrees, I stated (somewhat sheepishly) that I was bullish, particularly on China. The performance of the charts is shown below, with the date of the post marked with an arrow.
There's a lot of talk about how there isn't capitulation yet, so therefore the market has to fall a lot more. I'm not convinced. Let me put it this way – if the $VIX was a stock, I would short it right now.
As I look at the various indexes, I see much more likelihood of a lift than a fall. Here the $COMPQ shows a spinning top, right on its channel line. Notice the similar formation back in mid-April.
The $INDU is well beneath its lower Bollinger band. My feeling is that it will push higher toward the 12,000 mark, tinted below.
The $MSH behaved just as I thought it would, but I think it's ready to head back to the lower levels of that tinted zone.
And, in turn, I would look for the $NDX to get back to a level of about 1900, if not a little above.
Although I am still targeting the $RUT to fall to that tinted zone, I would feel far more comfortable buying puts if it fought its way back up to that $717 level.
Below I have marked the instances in the past couple of years where the S&P was at the bottom of its Bollinger range and the RSI has broken below the 30 line. As you can see, it typically occurs during a medium-range bottom.
Looking at individual equity, the carnage is simply amazing. I think it's time for a breather. Gigantic Bank of America has fully exhuasted its targeted range after it broke below this pattern.
Google is sporting a huge hammer formation based on last Friday's action.
Looking at the past couple of decades of JP Morgan, we are at a major lower, based on the supporting trendline as well as the broadening top formation.
Industry cousin Lehman Brothers is also at the deepest levels of the Fan lines, matching its mid-March lows.
PFG saw a surge in volume as it approach the lower supporting line of its descending channel.
And, as a person with many energy put positions, I was intrigued by the doji shooting star on the USO.
So, in sum, what I'm banking on is:
+ A drop in crude oil prices (and energy/agricultural equities)
+ A lift in equity prices, broadly speaking
+ An opportunity at a later date (how sure, I'm not sure, although I typically figure it way, way too early) to re-enter equity shorts for the next leg down.
And so, as midnight approaches on Sunday, I'm off to bed. This is a shortened trading week, but it's going to be a doozy.
