Dead Man’s Party

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I am doing this post on my Macintosh, so the charts aren't going to have giant symbols slapped on them like they normally do. Also, this is the kind of post I'd usually do in a video, but I'm just doing it with text and still images, so I can already tell it's going to be Big Enough To Be Seen From Space ™.

Although eleven charts follow, the general theme is the same: that is, a prospectively terrific shorting opportunity with the caveat that a surprise announcement from Big Nose, Blubber Butt, or Uncle Ben could shatter the Spring 2008/Autumn 2011 analog into a million pieces.

We start with the ES, which escaped the confines of its eleven-week-long trading range just yesterday. We are rushing headlong into the underbelly of that trendline, which would put us at about 1265 to 1270. If that line is broken as definitely as the recent trading range, well, God help us – – we could be on our way to 1300 or even 1330 in the coming weeks.

Picture 1

The NASDAQ Composite not only have shoved its price deep into the overhead supply from earlier this year, it has even penetrated above its former resistance level, shown in red. The small caps have been emphatically stronger lately. Today, for instance, the Russell was up about three times as much as the S&P 500.

Picture 2

I continue to draw comfort from the $HUI (or GDX, if you prefer) chart. Below, I have eliminated the price bars. The 50/100/200 day moving averages, as well as the drawn objects, are all that remain. It's sort of the Cheshire Cat of equity charts. Anyway, the current configuration puts us at about May 2008 (analogously speaking), which means maybe another couple of months of churning around before all holy hell breaks loose.

Picture 3

More than one person has noticed that the big indexes are all within spitting distance of their 200-day moving averages. It's mildly interesting to me, but nowhere in the Bible is it written that prices aren't permitted to cross such levels. Resistance levels have been falling left and right lately, and – drawn objects and moving averages be damned – equity prices are now entering Week #4 of Moving Higher Without Much Of a Reason.

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The Russell 2000 has skyrocketed nearly 20% from its low early this month. The question at this point is whether it poops out at today's high or, should it inch past that yellow trendline, make the next logical move to around 770, a major zone of former support.

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Here's a close-up of the same index to show what I mean:

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The S&P 500 index is also getting close to its 200-day moving average as well. 1230 had been a very mild resistance level; that was shoved aside with full force. 1260 is somewhat stronger, although it won't take much strength on Tuesday to shove that aside as well.

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One particular market that interests me – – and I know friend-of-Slope Serge Ferra is a fan of this trade – – is a GLD short. Considering the Euro's breaktaking strength this month, GLD has barely done anything. The first sign of Euro weakness, I think, will send GLD hurtling downward. This is one of my few even medium-sized shorts.

Picture 9

But it all depends on the Euro. If we fall away from that red line, well, we're in business. If we cross above it, then the charts are going to get even more mucked-up than they are already.

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One other chart to watch is TLT. If the pattern below is simply shoring up support above 111 to rocket higher, then equity bears can rejoice. On the other hand, if TLT breaks that horizontal purple line I've drawn, it's a free-fall for bonds, and thus equity bulls are going to be dancing in the streets.

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The dangerous thing about shorting is that you can be totally right about the market and still go broke. Look no further than Whitney Tilson's famous Netflix short. He correctly surmised that the company was headed for trouble, and he took on a huge short position. He finally cried "Uncle!" in February of this year.

For a few months, that seemed like the right move. He covered at about $230 or so, and the stock climbed to over $300. One need look no farther than tonight's after-hours quote, however, to see the stock trading in the $80s. Mr. Tilson could have valiantly hung on, taking on another $70+/share in losses, never knowing if the stock would peak at $400, $500, or $1000.

I remain lightly – perhaps all-too-lightly – positioned with a mix of (mostly) shorts and longs. You may not believe it, but the hallowed day will come at some point that Blubber Butt will finally announce The Plan. I, for one, will breathe a sigh of relief once that is behind us.

Good Night, and Good Luck.