The market now appears fixated upon roasting longs ahead of Apple earnings this afternoon and an FOMC rate decision tomorrow.

Transports are on a nose dive. Oil stocks are back in the furnace. The NASDAQ is flat and entirely hinged on Apple. The Russell is probing the low end of its range.  Breadth is in the toilet.

My book is completely lit aflame and I am reminded why I should not pick stocks but instead GARP on dips by pressing one stupid button like a drunken chimp.

The largest holdings in my book are doing okay but one will report tonight and could effortlessly castrate me three ways to Sunday. The bird, a company ran by vultures. Meanwhile diversified plays like GEM and CNCR are holding up. I may just rotate into these hip new ETFs and focus entirely on picking off NASDAQ levels for less handles and more size.

It never feels like too many moving parts until they are turn against you. With unknown forces just beyond the horizon I am raising some cash to deploy elsewhere. Before doing anything, I think I will enjoy a hot beverage and some crisp autumn air.

You guys ask me all the time what I think about oil and I usually lack any clarity on the commodity.  I do not like oil as an instrument because it is a fundamental product.  That means its action is predominantly driven by macro events.  It also means anyone hip to those macro events will have an edge over me.

However, there is a technical setup going on here that I have become intimately familiar with–the old falling wedge.  This pattern is a vicious bastard, one that many times severed my head until I threw out the book that stated it was a bullish pattern and looked at it as an auction.

What happens in a descending wedge?

a. price goes lower

b. volatility compresses

c. higher highs, higher lows

d. lower highs, lower lows

I will answer that one in a while, after you’ve had the chance.

Here’s what I expect oil to do over the next week or so.  First, a big fast and nasty flush lower out of the descending wedge.  It will likely test below $43 and maybe even $42.  It is very likely to be a gut wrench.  Then, over the course of several weeks a return to the wedge and blast higher up through it.

I am not providing a chart.  You all have charts, yes?  Pull it up.  We have tested above this major consolidation and found responsive sellers.  They are walking price lower.  What’s next?  We test the other side of this well-established consolidation.

The special kicker is it comes on the heels of a descending wedge.  Hide your pets.  This move will crave pets and brains.

Last week was an impressive showing from the bulls. The strength in the energy patch trumped any softness seen elsewhere. Biotech even managed to spit out a concentration of 41 big winners (+10% or more on the week). And despite being wrong last week with my bear call, I am back on it heading into option expiration week.

There are these models I build. They are part of my weekend research. Lots of index data is put onto a spreadsheet and graded. Then I add a layer of Exodus which factors in fundamentals. It’s all pretty simple but at the same time comprehensive and that’s why I like it. Right or wrong, I know I did my homework, utilized the resources I’m fortunate to have, and used them to form an objective bias—no one’s master, no one’s slave.

Option expiration week sees a rally lately. The past several months have seen a rally up into OPEX Thursday then a dump shit month-end. Something feels different about this month. Change is afoot. And what better way to end the month with a catapult-style rally then to suck in a fresh batch of shorts during option expiration week?

That was a ferocious 8-day rally. It likely served to flush out the weak shorts. The market cannot sell off with weak shorts in place.

So while I am bullish on the month of October, and positioned to benefit from more strength, I have a short bias this week. I will look to lean harder into my NASDAQ shorts this week and potentially add to my BIS position.

Exodus members, the Weekly Strategy Session has been published.

This is my formal declaration that the Russell 2000 Small Cap Index has undergone a major breakout, and I am of the opinion it goes much, much higher.

My reasons are technical so here’s a chart:

WSS subs, I will provide more color on this topic to you tomorrow.