I am seeing divergences that suggest a tradable low. However, longer term we are likely going lower. I will be loading up on shorts as the rally unfolds. I might even take a flyer on an index call on the dump and bounce to fund shorts later. I would not recommend committing a lot of capital on the short side down here in the very near term. The chances of The Top of the Market have increased and we have a better set up now than we did in April but it is two early to call just yet. Cash is a good thing right now. There is a chance that the market falls out of bed from here but I don’t see that happening just yet. The Russell 2000 (IWM) topped on July 3rd and the Dow topped on July 16th. We have had considerable damage already. I don’t expect the rally to be long lived. Futures are dumping on our White House Sock Puppet actually making a decision but at least he made one. Also I expect Putin to invade Ukraine under the auspices of humanitarian relief in September. It is better to invade before the long cold winter sets in. As a gentle reminder QE ends in 59 trading days.
Here are some interesting facts regarding Dow cycles I mentioned to someone in my comments incase you missed them:
| Since 1896 the DJIA has had what is called a four year cycle that averages 48 months from low to low. The average decline into a four year cycle low has been 34.38% since 1896. The longer the advance of the cycle (current advance is 64 months) the sharper the decline. In the secular bull market of the 80′s and 90′s the low of 4 year cycle was higher than the previous low and very shallow. In secular bear markets the four year cycle low is lower than the previous four year cycle low. So if we are still in a secular bear we take out the 2009 low. If we are in a secular bull, we still have a correction and the average correction is 34%. Either way we are due cyclically for a protracted sell off and a great buying opportunity. This is just math not hubris or arrogance but just facts. Do with them what you will. |
how was the cane, or it hasn’t struck yet?
Having a post from you is a good sign – LULU visions dancing in your head this morning?
great post regarding Dow cycles,
thanks Bluestar
Yeah, BlueStar – hope you & yours are hanging in there safely on the island.
Bluestar, are you surprised there isn’t more short covering this morning in LULU?
Juice,
Its here. So far so good.
k_melancon,
Love lulu, love the market for a trade. mostly cash.
unclebucs,
thanks
Noni,
This will be a nice steady slow short covering grind higher. it will accelerate eventually.
wolf,
thanks. most professional money managers have no clue about this stuff. “I don’t time the market! I am a stock picker!” good luck with that.
Is today the broad market rally? Frustration abounds.
J Livermore,
I am expecting a bounce. Short lived but a bounce. It could be a slow grind higher for a week. Or we fail and go lower. My money is on slow grind higher. However, longer term I see lower.
excellent post..
Im sitting mostly cash ..let us know when the time is right to buy
you da man Bluestar! I think there is going to be a general rotation in retail all together but that is just what I am seeing from the Comps the last two months. JCP, PSUN, TLYS are all tops picks of mine in addition to lulu.
nice bull call bluestar from maui
BlueStar, Your the first person that I have Read that brought attention to Machau and Chinese Margin Calls. Actually, with the Port Scandal it’s getting even uglier with even unknown deaths popping up.. Anyway, FWIW I think the market topped out at 1755ish in Dec, even though it’s been moving up..Since then High Yield /Long Term Rates ratio has been drifting down, and heck with BoE, FOMC, BoJ, ECB, RBA, etc getting tapped out and the Chinese Copper (Commodity) Bubble topping (ie the use of loans using commodities instead of acual demand causing a bubble of mining thinking the world is better). Is this all of sign that the big money has been slowly moving out since Dec and this is all one super long topping process??
Trading_Nymph,
Big money has been exiting the building since the beginning of the year. I know of two State pension funds that allocated from equities to bonds. The distribution is evident from light volume on up days and big volume on down days. WE are in the final stages of this bull market IMO.
Bluestar do you think the Nikkei will follow the markets down in your scenario? Given the size and scale of the BOJ QE program im wondering how correlated the Nikkei will be to a Western market decline. Thoughts?
Superpostron,
The Nikkei appears to have already peaked and has failed to go to a new high. I am pretty sure it will follow the US lower.
Bluestar, Thank You!!!..I have been so confused by why anyone would buy this since December. Mr. Partridge pointed out that Market Tops take time, I am just amazed how long all of this takes.
Light volume on up days and big volume on down days has been the norm for the last five years. I don’t see how you can claim that signals a top since it hasn’t worked yet.
Rayray,
Good luck.