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.

0110-ES


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.

0110-SPX

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.

0110-VIX

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.

0110-COMPQ

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.

0110-AUDJPY

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.

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