Bounce-Back Look-Back

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If the market is going to have a chance of falling in a meaningful way, it has to start next week – the earlier, the better. All the technical prerequisites are lined up for a fall. If it doesn't happen, the helium in the market is simply too powerful.

The radiation relief rally was strong and swift. If we weaken, the next technical support to watch is the supporting trendline, circled in red below.


A broader view of the same market is shown below, with the two ascending wedges highlighted. My view is that we're in a very similar place as we were just after the "flash crash" of May 2010 (note arrows).


Another supporting graph for the bearish hypothesis is the Dow Jones Utilities, shown below. You can see the multi-year retracement to former support at 425 completed last month, and we're threatening to break an important trendline that encompasses virtually the whole recovery.


So that's where we are at – – we have the opportunity for weakness, but if the market doesn't take it, that points to an astonishing amount of strength that defies the technicals. I have only a little more than half my portfolio committed to positions, most of which are on the short side.