On Tuesday evening, I was bemoaning to myself how lamely the month had been going. After six trading days, I was sitting on a loss, and I was really frustrated. I thought to myself, "Well, one really good day would fix that." And then I paused a few moments and thought again, "Yeah, like a day THAT good is going to happen."
And then Wednesday happened, and, voila, it turned the entire month around.
And then Thursday and Friday happened, and I'm back to where I was when I was doing my bemoaning.
This kind of thing is getting really, really old. You may say, "Hey, Tim, why didn't you just cover everything Wednesday before the close?" Well, Captain Obvious, I'm not a day-trader, and that kind of "take the money and run" attitude is precisely what cost me a ton of potential profits during the August/September tumble. I'm not entering these positions to try to scalp 2% profits off them. I'm shorting with an eye toward 20%+ drops.
But in this confounding environment whereby the market completely changes direction every couple of trading sessions, one is prone to losing their mind. I know I am.
Looking at the various index charts, the evidence still seems more strongly to favor the bears than the bulls. I have reluctantly acquired long positions from the most promising charts I could find, but I'm enthusiastic about only a few of them for the long haul. I am – – yet again – – lightly committed at about 45%, with 35% of that in long positions and 65% in short positions.
Of course, if things plunge on Monday, that still stinks for three reasons: (a) I'm not strongly positioned on the short side; (b) I'll suffer losses on my long positions; (c) the market's recent behavior doesn't exactly make chasing a direction sensible, because it's so prone to reversal. Again, and again, and again.
The tug-of-war between the market's natural direction (down) and artificially-induced Euro-bailout direction (up) is shaping up into a very large diamond pattern.
Zooming in somewhat to the right side of that diamond, we can see the ES banging out a series of lower highs and higher lows, culminating in a tightening triangle. This is going to resolve itself soon.
I had hoped – – really, really hoped – – that the EUR/USD had finally given us something solid in the form of a pattern, but that's been cut to ribbons. I've dispensed with the neckline and am again referring to the long-term daily chart. If this analog holds, the red arrows show our respective places in 2009 and the present.
Likewise, the Gold Bugs Index analog is holding true. If this pans out, this will turn out to be one of the best analogs ever. I really like how this one is playing out, although it is doing so at a glacial pace.
If the strength we saw on Thursday and Friday flows into next week, we could see 1300 on the S&P and 12,600 on the Dow without much trouble. That'll put us up against some strong resistance. Whether we get this strength or not, I think we'll be heading south into Thanksgiving.
Somewhat more clear and encouraging is this multi-year chart of the MidCaps. This is not only a sensational failure of a bullish breakout, but it's also got a very nice topping pattern to which it has retraced.
Lastly, although it's not in ProphetCharts, I took a look at the NYSE Summation Index. I think it's pretty clear this thing is looking toppy.
If risk were a non-issue, I'd be 200% short, but in this environment, that seems suicidal. I think that when the sustained fall finally kicks in – – and I'm talking about something that lasts a few months, not just a few days, like the one this summer – – those who are fully positioned at the outset are going to make the most. It'll be nerve-wracking trying to short into that weakness, because we've all been disappointed so many times before, much recently just this week.
And that, my friends, is it for me this weekend. I'll put up any good guest posts that might come up in the meantime. Otherwise, I'll be back Monday morning.
