Kid In A Candy Store

I am besides myself looking at all these broken charts and emerging bad fundamentals.  I am like a kid in the candy store.  I am adding to my stock shorts with the profit from my index puts.  We are done folks! This is not like October of 2014.  The volatility regime has changed and a techtonic shift has occurred beneath your feet.  Friday August 21st was was the Financial equivalent of 9/11 in the S&P 500.  The world changed that day and the great bear market of 2015 has begun.  The Bulls do not realize that the power has shifted to the bears.  Quite frankly the bears who are left don’t know it either.

I am not going to waste time today describing why the bear market has arrived because I have done so for the last year.  All that I have been writing is coming to pass. Instead I offer you expert advice as a former large cap growth manager.  When bull markets die momentum stocks die with it.  Energy and materials have been pounded into the ground over the last year while tech and health care became the last bastions of this bull market.  Momentum as a factor died last Friday and now we have broken parabolic structures.  Never short a parabolic structure until it breaks.  I picked up quite a few puts today in XBI after a perfect 50% retracement  from Mondays low.  That chart is done, its over…finished.  It is a classic bubble that just burst.  The chart is broken.  Many of the companies in that index have midcap valuations on their way to small cap status or zeros.  I think this is going to happen very quickly.  I see potentially 40% downside over the next three months.  Here is the key in addition to the broken chart:  Momentum stocks need to catch up to energy stocks or what we call a mean reversion.  Notice how oil ripped up 10% today.  People think that is positive for the market.  I am hear to say its just the hedge fund pain trade as the consensus hedge fund is long Momentum and short negative momentum.  Now that the general market has broken the haves will become the have not’s and vice versa. I will add to my position on strength and press should it begin to roll.  But essentially Biotechs are over IMHO.