_____________________
This, too, shall pass…but not before the bearish prognostications of one Kyle Bass may come to fruition, regarding massive defaults and restructuring in Europe. Should that happen, though, the interesting thing is that there is no guaranteed reaction that we will see here in the U.S. stock market. Throughout modern history, we have seen other countries go belly-up before, without America completely crashing. Of course, this time may be different, and complacency kills in the market. Thus, I want to talk a bit about how macroeconomic views can possibly jive with technical analysis, since there is usually latent or patent tension between members of the two schools.
For stock traders, listening to what the market is telling us matters most. If you see potential bullish setups fail, it is not because technical analysis has ceased to work properly, it is because the market is telling you it is not healthy enough to sustain breakouts. And you should listen to that. Similarly, if the Kyle Bass scenario plays out in Europe, it would certainly make for dramatic headlines and news flow. However, if your stocks are failing to breakdown out of potentially bearish patterns, then you had better seriously consider covering your shorts, as the market is telling you that it is not going to cooperate with the bearish thesis.
Currently, stocks are threatening a major breakdown from a two-week consolidation in sympathy with the cratering Euro, rendering the Kyle Bass moment relevant for us stock traders. In addition to being the latest financial media star, Mr. Bass is relevant to the market, as per its message through price action. And we are all stuck in this moment with him.
Kyle Bass is Hugh Hendry on roids