Let me precede this post with a few caveats, just so that we are clear. First up, I’m not really bearish here. As a matter of fact the Zero signal suggests that we’ll see more upside today and we could easily blast higher way above the ES 2000 mark. Second, what I am proposing here is nothing but downside insurance – meaning we are not attempting to nail a top and make fortunes riding the tape to the downside.
Over the past few months a potent emotional cocktail of fear and confusion has been seeping into the consciousness of market participants. It’s not just that equities are steadily heading lower whilst producing more and more bearish context above to be overcome sometime in the future. What’s worse is that there appear to be very few places remaining to sit out the storm. The exception of course being the two usual suspects – bonds and gold.
Alright settle down children – it’s story telling time! I’m sure you all are familiar with the aphorism of the boiled frog. Anyone? Well, they say that if you put a frog into a pot of boiling water, it will leap out right away to escape the danger.
But, if you put a frog in a kettle that is filled with water that is cool and pleasant, and then you gradually heat the kettle until it starts boiling, then the frog will not become aware of the threat until it is too late and slowly boil to death.
Moral of the story. The frog’s survival instincts are geared towards detecting sudden changes but it ignores slow gradual changes at its detriment. [...]
That was a pretty spectacular failure over in equities during today’s highs. This really should have caught on and exploded higher but it seems like we’re just seeing more distribution at each bounce. Ergo I’m selling every new spike higher at this point and here’s why:
Check out the zero signal – it’s measly and there’s no participation. The hourly Zero is starting to point down and downer but for right now we’re stuck in limbo.
So this is what we’re going to do – accumulate short positions right below that 100-hour SMA – NOT down here at 2098. I want to at least see a bounce toward 2100 [...]