Over the past five sessions, the bulls have run over the bears with absolute impunity. The double bottom on May 25 and June 8 set up the bulls for a charge higher, and the more I reflect on it, the more I realize how WAG – – first predicted on May 25th, in fact – – was correct in the first place. I wish I had listened to myself more.
Let's take a look at my original scribble:
What caused me and many others to doubt that WAG was unfolding was that the market dipped toward the May 25th low again. This depression of prices since May 25th – which I called the Kagan effect – prevented any real breakout until today.
Just for fun, let's take the price movement since May 25th and shift it upward enough so that the retracement stays above the breakout point. What does the graph look like then?
If we compare this "un-Kagan'd" graph to the original one, it looks like we're getting close to realizing WAG's push higher. The hedging I did was very constructive – – longs such as RIG, EEFT, MCO, and others have been very helpful – – but my portfolio remains tipped bearish. I've got 97 short positions, 18 long positions, and 1 ultra-long (if you consider TBT to be so). My two biggest positions are a SPY long and a IWM short.
Energy and the Euro is driving everything at this point, so it'll be interesting to see what President Spock says tonight.
