Beneficial Breakdowns

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Have you ever tried to climb on top of a big log that’s floating in a lake? I bet some of you have. I have. It’s difficult.

Because as you are reaching on top of the log, trying to hoist yourself up, it is the log’s natural tendency to spin on its axis. It’s really tough, really frustrating, and there’s no guarantee you’ll be able to finally get on top of that log and stay balanced there.

Trading this so-called market has felt precisely like that for two months now. Today, it finally felt like I got on top of that log, for the first time in way too long. It was refreshing.

One good down day doesn’t mean the financial dictatorship known as the Fed has relinquished their politburo power. Just take a look at this chart: we’ve been stuck in a range for a month now. We must break that horizontal to get some more serious action going.

slopechart COMP

If we step back, however, we can see how exciting such a break would be. We are absolutely poised for glory, boys and girls. This son of a bitch Powell just has to lose his grip a bit. It wouldn’t take much. Then we could snatch up that log and begin bashing him over the head with it.

slopechart COMP

Most indexes today were sporting bearish engulfing patterns. The NASDAQ Composite and NASDAQ 100 were no different. It was heading from its 7th day in a row of more than a 1% gain, which would have been the first time in 20 years. This, however, was denied, as Los Angeles County recognized that things aren’t just going to go back to normal due to wishful thinking on the part of our, umm, President.

slopechart COMPQ
slopechart NDX

My obsession has been small caps, however, and my strong gains today were thanks to general Russell weakness. I have 70 positions at the moment, plus 1 long (QQQ put options).

slopechart RUT

I would also like to point out how weak and vulnerable the Transports look.

slopechart TRAN

Adjunct to all of this, in the world of finance, the broker/dealer index has hit an iron wall of resistance.

slopechart XBD

Looking quite similar in form is the Major Market Index. These are all the same, people: a Himalayan Mountain Range of overhead supply, with a plunge, a bounce, and a stall beneath it.

slopechart XMI

And, speaking of battered, the energy sector enjoyed its insane bounce, but the 200% gains in 4 weeks are behind us now. This thing is as doomed as doomed can be.

slopechart XOI

I think “brown shoots” are starting to become visible, and the prospect of a resumption of the downturn is coming into view. I’m certainly positioned that way. As I’ve said, I’m not aggressively positioned, but at 150%, I’m definitely not cowering in the corner, either.

The sides couldn’t be more plain. On one side are facts, data, science, reality, and historical precedent. On the other side is political horseshit, lies, bromides, feckless aphorisms, and careless bon mots. I suspect you can guess where I reside, and you can further guess which side I hope prevails in the end.