The Changeling

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Although markets are up again today, I don't think this is the start of a multi-year bull market that people might be thinking. On the contrary, I think we've got a nice bull trap in play, and just about every index chart is showing the same neckline that's acting as a magnet for prices.

Here is the Russell 2000:


To the bulls' credit, the green trendline has been supporting the rally for the entirety of June. Note the two horizontal lines – the red one was the neckline for the inverted head and shoulders that the permabulls were so excited about, since they thought it would send the market exploding higher. It didn't; it started to, but it failed, and that failure speaks volumes.

We could easily push through the green tinted zone. It's the teal zone that is more of a challenge.

That black line at the top of the teal zone marks a more important threshold. If prices get above that, the odds of a more meaningful push higher go way up. Such a push would, I think, be compelled by some kind of sea-change in the Euro-Crisis.

As I am typing this, there are a mere 15 trading hours left in this quarter, and I am continuing to take it very mellow. I am only 37.5% committed – all in pee-wee short positions – with the rest in cash. If the market happens to take a tumble, fine, that'll pad my profits, but otherwise, I'm playing it safe.