Retiring a WAG

This WAG didn't work out with stocks rallying instead of sinking into a bear market. Posting it here in memorium as it will be deleted now.

Russell 2000 Touches January 2020 High

This isn't a key line, but its the first major "bear" line that will be broken after the weakness in the RUssell 2000 today.

Russell 2000 WAG

I never intended this as other than an extremely general idea. Yet it continues to work well.

Russell 2000 Back to Pre-Covid Level

I'm not using my WAG line for anything, but I can't help but be amused.

Crude will be important this week. I have lots of bearish positions. Nothing bearish will be happening in crude (obviously) or the energy sector if it holds above that horizontal.

Russell 2000 Fails Again at Same Spot

This is an important level for the near term. A larger rally has to break it. There's no upside left if this doesn't fall and there could be accelerating short squeeze above.

The Purple Crayon

I amaze myself. These were WAGs, not serious forecasts. I did move the apex on RTY up by a few weeks, to August 19 opex, but otherwise I didn't touch these drawings.

Harold and the Purple Crayon

The protagonist, Harold, is a curious four-year-old[1] boy who, with his purple crayon, has the power to create a world of his own simply by drawing it.

Of the majors I track, NQ, ES and RTY, the reversal in the Russell 2000 looks best to me in terms of signaling a top is in.

Money Making Charts for August

China always dumps bad news in August. The worst performing month for Chinese ETFs and emerging market funds is August. The EPS of the MSCI Emerging Markets Index tracks China's 10-year yield. The PBoC cut interest rates today because the Chinese economy is going down the tubes.

I'm not saying EEM is going to plummet right now, but it has no support. If this is all a bear market rally, the whoosh is coming.

Crude oil and copper are down. The crude ETF USO has busted support from the 2020 low (I moved it to coincide with the top). There's always a risk of a fakeout at this point, but bears should press their luck because the analogs are with them. If crude is going down, it's going down big.

The major indexes are all lower, with Nasdaq outperforming thanks to oil down, bonds up. Nothing significant there with the final leg of the rally still intact until it isn't. Finally, BTC and ETH both look like bear flags to me. They may be helpful signals for a market reversal.

Finally, two things to keep in mind. First, bull and bear patterns fail when they are contrary to the primary trend. Many a bear setup failed from 2009 to 2021. Short-term bullish patterns completed in June and July and delivered nice pops, but larger bullish patterns will not deliver if this is a bear market. If you see a bull setup that gets trashed early, you have an information advantage.

Second, sentiment becomes bearish in a bear market. I remember 2008 well. Many investors thought Bear Stearns was it. They were buying the dips. China was deteriorating with bad news rolling out as soon as the Olympics finished. There was a Barron's cover piece on Fannie and Freddie's troubles in late August 2008 and that's when I knew "the moment of recognition" was upon us. All along, there were bears like myself looking for much more and our numbers were growing. "Everyone" is bearish at the low, but we are a long, long way from the low. As I posted earlier, real selling hasn't kicked in yet. The herd is right most of the time. If the herd is turning bearish...

I believe this is a bear market rally, but the stock market could go higher because crude is down and long-bonds up. My thesis has been that markets will transition from, "Crude down, bonds up! Yay!" to "Why is crude still falling? Why do bonds keep rallying? WTF is going on???? GET ME OUT OF STOCKS NOW!!!" If I'm wrong, but it's a bear market, then a resumption of Jan-Jun 2022 kicks in. Bonds sell-off as inflation goes higher again. If I'm really wrong and there is no bear market, stocks will be the first to tell.

IWM Reversal at 200-Day

I have a slightly different number, but basically the same. This is where a bear rally should fail.

Small Caps Outperform

Assuming a tech-led bear market with large caps such as Apple driving indexes lower, the small caps could be poised for outperformance.

Rolling Into Resistance

Not much to argue for bearishness right here, but resistance lies ahead. If this is a bear market rally, the terminal phase is here. If you hear the faint chanting of "Apple, Apple, Apple," that's me rooting for a gap fill. Unfortunately, the bear retirement line is taking on a dual meaning since it will either be the best spot for a short position (higher is better for profits, but would not have the technical import of a failure at the gap) or it will signal this might not be a bear market at all. Darkest before dawn, yada yada.

Hey, that XLC trade might turn into something after all. I will probably hedge with it or maybe direct calls on Meta if I think there's more possible upside.

Tech Weakens

Energy and commodity stocks are bouncing today with energy, gold and copper higher. Gold (and silver, platinum) aside, I'll be looking at materials and commodities shorts today.

Going Short

I opened up a bunch of small positions on prime targets today. I still leave the possibility of a spike higher because that's what markets do, but between the VIX, candles, bullish percent, resistance levels and so on, it looked like the perfect day to dive back into the bear market.

The Stock Market is Body Positive

We've known for about six weeks that inflation was coming down because crude oil peaked and declined. Yet only this week will the average market participant, including many professionals, be confident in this reality. Go back to the setup for the market in the first half: commodities (most importantly energy) up, inflation up, rates up, stocks collapse. The setup for any sustained reversal was: commodities down, inflation down, rates down, stocks rally. Even though the technicals point to a rally running on its last fumes as I discussed this weekend, the fundamental setup is still positive for stocks. The CPI report this week should be much lower than expected, helping to fuel dovish expectations for interest rates. The CPI might come in a little hotter than expected because disinflationary housing data may not have kicked in yet. That's the key for shifting the core CPI onto a disinflationary path. The real turn in the markets won't hit until that signal triggers.

The Russell 2000 Index has already broken out. the Nasdaq and S&P 500 Index are poised to follow.

A break lower in crude oil will help fuel dovish thinking. I don't argue the details with experts in the natural resource sector, but they sound like they did in 2008 with comments in the spirit of "crude will never trade below $XX in my lifetime." It crystallizes the general thinking about inflation.

Will ZB follow my drawing?

Watching the yen this weak because "the Fed pivot" triggered the prior surge in the yen. This is the type of market where I expect a shocker squeeze could unfold.

Finally, the fact that the market is ralling on information available six weeks ago, combined with the technical signals discussed this weekend, tells me a reversal is as likely as follow through. A drop followed by a final high is one scenario that could drag out for a few days or weeks. If instead stocks go up first, it could be a "relentless" rally that gives bears a perfect short set-up for late summer and early autumn.

Final one for the bulls: Ethereum.

Final Run of the Bulls, You Can Hear the Salmon, Let Gold Be Your Guide and Crude Goes

Yesterday was a macro disaster for stocks. It was a bullish day, but damage in commodities and bonds signal this rally is running out of fuel. Going to run through a lot of charts today, all after the jump. 

For myself, I am always early. I closed out the biotech trade when it got into that consolidation range. I had July puts so it wasn't a bad trade, but then I also closed SMH calls and they've run as well. I've done fine with other positions such as short oil, long treasuries, and long yen, but I say to this to be clear: my WAG targets for the rally initially were 25 percent for Nasdaq and around 2000 on the Russell 2000 as my charts show. They might get there and that is a risk for bears. 

That said, I'm buying puts here for September and October. I have a big "crash" trade on FCX and I'm looking for more trades like that. If Apple fills its gap, I'm really not kidding when I say that's a retirement line. I'm going all in at that point as long as nothing has changed to shake my outlook.

On to the charts.

Hawkish Words from Fed Sinks Rally

The major indexes closed below their long-term support lines from Jan-Feb. The unemployment number for July is tomorrow morning out on Friday.

My trades for today: closed TLT. Closed AAPL and AMZN shots, then reopened AAPL higher in the day. Shorted SPY and IWM with 1 DTE puts midday, closed near close. Have XLE weekly and monthly puts. I don't discuss because they're an afterthought, but still holding all my gold mining calls. I like NEM $55 Nov as a kind of conservative trade. I did a small gamble on SBUX earnings, didn't work out so far. I also bought MPWR puts for September, way out of the money. Ended the day with a lot of cash. I'll post when I think it's all clear to short with reckless abandon, but for now I still expect two-way action in the market.

Pullback or All Done?

I had a good day trading bearishly. I don't think there's a clean read on this market here beyond hours and days. Tactical bulls such as myself are taking profits and trading either short-term or building short positions. I shorted from the market's Friday high on the S&P 500. I held even though I saw RTY clear its resistance line, but that was my last line for the day. Had the other markets followed higher I'd be nearly all cash right now.

Longer-term, bears are still nervous from the rise. Bulls are still shell shocked. The major indexes and TLT (though not ZB, already broken out) are all sitting on major support/resistance lines.