The Permanent Waiting Game

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Well, it's unusual for me to wait so long to put a post together, but I've been digesting and processing the antics from yesterday. I have a few general thoughts:

+ The bear market that should be in full-force, cleansing the system, is being held hostage;

+ As long as it is held hostage, rises will be grinding and excruciating, and drops will be extraordinarily fast and largely unpredictable (in other words, if you aren't in place with your positions, you're not going to profit much);

+ The market seems transfixed that Autumn 2011 will simply be a sequel of Autumn 2010, thanks to Bernanke. That is, the kick-off to a substantial, sustained rally.

I confess to feeling quite ripped-off yesterday morning. For months, the world has awaited Bernanke's "announcement", and after all the speculation, editorializing, and hypothesizing, all that happened is that Bernanke said he wasn't announcing anything. Based on that, the already-weak market started falling hard (thus causing your humble narrator to feel delight) but then, out of the clear blue sky, the 5-minute plunge reversed in a "V" and exploded higher. At least I can take heart that most of my portfolio was in cash, having trimmed back positions prior to the annoucement.

Of course, the reason for the excitement is that Bernanke announced the Fed's meeting would be two days instead of one (just pause a moment here, step back, and think about that……..the market exploded higher because a government get-together was made longer than before. Just think about that. OK, good. Now you know we're all insane).

The supposition, it would seem, is that we have Yet Another Damned Date To Wring Our Hands About – in this case, September 21 – at which time Something Will Be Announced. Who knows, maybe he'll come out September 21 and announce a three day meeting will be held in October. This could go on forever.

Below shows August's ridiculous grind, with the range getting progressively tighter. I've circled the morning fake-out, which was a doozy. I had thought the bounce would stop at the thick horizontal line, but the market simply flipped off the chart and pushed ever-higher.


I remain confident that, before October, we're going to see prices beneath the lows of August. How we get there remains to be seen. One possibility would be a weakening here, which is a scenario I have less faith in based on Friday's madness.


And another would be a nauseating push as high as about 1270, after which we'd get the fall. Given how "stretched" a variety of indicators remain, I think this scenario is more likely (although I wish it weren't so!)


All the indexes have huge topping patterns, but the question is how far they'll continue pushing higher until they reverse. I've placed arrows below on likely reversal points for the NASDAQ…..


……the Russell 2000 (in this case, the ETF for the same)……..


……and the S&P 500…….


As I've said before, individual equities still fall into two camps: (a) gorgeous shorts right now and (b) shorts that would be gorgeous given a very substantial rise higher. This is discomfiting, since it implies that a meaningful number of stocks, particularly small caps, have a lot of room to run higher before shorting opportunities emerge again.

So it's a frustrating situation. It's a hell of a lot more fun to ride markets that are whooshing down than it is to wonder how long Bernanke is going to hold a revolver to the bear's head and not let it go. I remain quite lightly committed – about 35% right now – and, if I felt the need to go long, I think I would restrict myself to ETFs, such as the Dow Transports IYT or the Russell 2000 IWM, instead of individual equities. This market should not be trusted, and drops will be fast, furious, and will take almost everyone by surprise.