The Trouble with Breakouts

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Well, my friends, looking at the ES chart below, it's pretty hard to conjure up anything bearish about it – – even if you squint really hard. Breakouts are happening everywhere, and the fact that the S&P 500 made a new five-year high today is all over the media.


The market has been roaring ahead since mid-November. The fiscal cliff event was hardly the market-crushing cataclysm that some (including me) hoped; instead, it paradoxically powered the market ever-higher, and today, on really no discernable news, the market just kept rocketing. Here we see the S&P right at the cusp of breaking above its intermediate-term resistance, shown in blue.


In the midst of all this, of course, the VIX is getting squished to pre-pubescent levels. Face facts, ladies and gentlemen: the financial crisis never happened. It was all just a brief, bad dream.


For myself, I continue to be far more comfortable focusing on a bunch of miniscule equity positions as opposed to one honkin' big position on a single ETF. Although obviously there's going to be some correlation between what my dozens of little shorts do and what the overall market is doing as a whole, I greatly prefer analyzing – – and placing stops on – – independent equities which, in my opinion, have a reasonable technical basis for moving one way or another.

The NASDAQ Composite still holds a dim, flickering candle of hope for the two or three equity bears left in the United States, but we remain dangerously close to that resistance trendline.


In retrospect, one very clear signal that "risk on" was about to burst all over the place was the AUD/JPY cross-rate. This well-formed diamond pattern was completed with a modest breakout, did a tiny retracement back to the trendline (circled below), and then – ZOOM! – skyward it went.


I presently am about 60% committed to a variety of small shorts and have 40% in cash. As I mentioned earlier today, I also have a couple of little options positions (puts, naturally) in CMG and HLF, the latter of which I'm confident will pan out nicely.

That's it for me tonight; it's hard to believe Friday is upon us so soon, but I guess my brain has been in a lot of different places this week. Good night.