"O, Lord, make me pure….but not yet" – St. Augustine
Although I keep cancelling my subscription, Barron's keeps winding up on my driveway every Saturday morning. I read a couple of interesting bits in there this weekend.
One of them characterized the change in the nature of the market's decline. Back in September and October (ahh, those were the good old days, weren't they?) the feeling was of panic. The selling over the last few weeks, however, have been borne more of resignation. I think that's a fine way to put it.
The other item they pointed out was how their cover story last weekend on the Barron's Economic Plan had buried them in emails. In fact, they got more emails on that story than any time in their "88 year history" (one may puzzle as to why a record for emails would span that much time……..they might as well have said it was the most emails they had received in the past ten millinea). Anyway, the number in question was 200. That's two followed by two zeroes. Sheesh, Slope gets over 1,000 comments every day. What's the big whoop? The average age of the Barron's reader must be in the triple digits.
Anyway, a brief comment on the markets – – – there seems to be a steady drumbeat, even among the bears, that by inching just a skosh beneath last November's lows pegs the final bottom of this fall, and we're at last ready for a sustained rally higher. Even apocalyptic types like EWT have laid out enough of a verbal exit plan that would permit the market to rise without their prognostications being incorrect (by the strictest definition, wave 5 could be considered complete at this point, if the market decided to lunge higher).
Newer readers should know there's really nothing I'd like more than a meaningful rally. Bear markets are hard to trade, and this stage of this bear market is like fighting wild beasts over a scrap of meat. Having the market more or less push higher each week, particularly in a market where multi-hundred percent gainers wouldn't be hard to find, would be a relief.
I still don't think we're there yet. As I said about a week ago, I'm looking for a low of 600 to 650 on the S&P before I abandon most of my shorts and go long in a big way. A favorite bear of mine, Atilla over at xTrends, closed out all his bearish positions on Friday, and although that makes me a little uncomfortable, I also recognize his entry points in the past have sometimes been substantially off (although I would hasten to add that, in the end, the trades were wildly profitable). So I'm not to let one other person's disposition warp my views.
Head and shoulders patterns don't really comply with their bearish purpose at bottoms as they do at tops, but I can't help but notice this kind of pattern showing up in a variety of indexes:
I also see that the VIX has crept up recently; if this chart were of a stock, I would be pretty bullish on it.
Returning to the theme of people I respect having a different point of view – – I've mentioned before how Gary Savage is ga-ga bullish on gold. My hat is off to Gary, because so far he's been very correct, and his analysis is, as always, thorough and logical. For myself, having a smaller cranium and a greater dependence on simple price charts, I remain bearish. Indeed, on dollar terms, being short precious metals is my largest position. If I'm wrong, the only good news is that I'm not that far away from my stops.
Ever since the year started, I've tried my hand at being an energy bull. Until the market is ready to truly move higher, this isn't going to yield anything more than pennies. Once the market in general is temporarily out of its funk, I remain confident energy is going to be one of the best places for be for a few reasons:
- Intuitively the public understands the need for energy far more than, say, the need for software as a service or high-end cheeseburgers;
- The public also has a general sense as to just how far energy prices have fallen and, thus, the opportunity for a rise;
- From a technical basis, the charts in the sector have the closest thing resembling a base
The lower trendline of OIH was violated last week, but it's a small trendline. I am leaving it where it is in order to maintain chart integrity. The moving averages, however, may be setting up for OIH to make a nice move higher. The percentage gains that I think are possible in this group are upwards of 70%, so I want to be ready when the time comes.
I will confess that this stage of the bear market is seeming a bit long in the tooth. The quandary I am in is simple enough to explain, though: most of my shorts are, on an individual basis, fantastic looking charts. The trouble is that a major rally has a habit of "un-fantastic-ing" charts. So on one hand I would feel incorrect in closing out a bunch of good-looking positions based on nothing more than the fear that a rally might happen; on the other, I don't want to have nothing but shorts if the market moves from 7300 to 9000.
My plan, and my defense, is the same as always: keep adjusting my stops. It allows for the partial sacrifice of profits, yes, but at least it leaves me open to the prospect of more downside. I would much rather forgo a fraction of my profits than run around closing positions, only to see these charts do precisely what it looks like they should do, which is go down.
