Exponential Entropy

I have said it before and I’ll say it again – forget about the daily freak show and abide by a strict information diet. Anything you come across on the MSM has zero value and will solely serve to distract you from pursuing your personal interests. I wish I had better news to report but the U.S. is FUBAR and the mess we all find ourselves in (I count myself as I’m a citizen now – despite being an expat) has been a long time coming. It’s just that any system will incur exponential damage over time and we just hit the acceleration curve on the entropy scale. I mean – come on – the land of the brave and the free is but two weeks away from a possible bond market default. What is there to talk about? Is anyone paying attention?

The problem with us humans is that we respond very well to rapid changes but somehow tolerate almost any slow incremental changes – sometimes for the better but often also to our own detriment. Not to reach for trite analogies but some of you may have heard of the tale of the boiling frog. The premise is that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death. It is often used as a metaphor for the inability or unwillingness of people to react to significant changes that occur gradually.

Now combine our human behavior with the laws of entropy. If you have a brand new system a bit of degradation is barely visible. But over time more and more damage accumulates and in turn is starting to cause even more damage. You may attempt to fix the damage but at some point the cost of repair in an exponentially degrading system becomes intolerable. This is exactly where we are heading in the U.S. Decades of bad (short sighted) decisions have caused the country to find itself facing a rapidly increasing amount of existential challenges (e.g. energy, education, economy, monetary, social, political, structural, etc. – the list is long).

I give it to you straight. There is little hope in fixing the current system – it will auto-destruct and it has to in order to allow a reawakening to occur which hopefully may lead to the creation of a new order. Most likely there will be a lot of suffering and death preceding all this and most of us alive today won’t be witnessing this new era ahead – if it will come at all. This is not a doomsday scenario – it is simple math.

Which also implicitly means that all the chatter and horsewash the pundits dish out in the news on a daily basis is completely negligible to your own reality. Your immediate focus should be to attain financial independence and to liberate yourself from an increasingly broken system.

The sheer mentioning of any of the daily kabuki theater suggests that you still may be a victim of the machine. Detach yourself – focus on your own reality – after the all the odds are increasingly stacked against you. The media is not your friend – it is there to manipulate you and to herd you into becoming a serf under a global feudal system. If you paid attention then you may realize that much of it has already been implemented over the past decade and the trend is accelerating.

You have been briefed. Now let me climb off my soap box so we can talk shop:

You surely recall our trusted volume profile chart on the spoos. That good ole’ volume hole at 1665 was touched today and then we bounced back. Now that’s a good thing if you were long this morning (although I told you guys not to but alas) but it doesn’t mean that the bulls are out of the woods just yet. Obviously we are painting lower lows and lower highs on the daily. Also, we breached the prior late September low of 1666.75 which is bad medicine.

Unfortunately my usual daily momo charts (ES and SPX) are not showing me any context right now – neither do I see a good entry. The next support zones are 1661 and 1651 on the cash S&P 500. Since things are turning very emotional I would not use the spoos as your guide as they will most likely overshoot – use the SPX for support if things keep dropping.

However, given the current turmoil things could turn on a dime at a moment’s notice – bad recipe for trading and thus I would recommend that you stay out of equities for now. The risk/benefit ratio is off the charts and if you can’t get in ahead then do yourself a favor and stay out when things turn volatile. Remember if you’re playing poker and look around the room wondering who the sucker is then it’s probably you 😉

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Cheers,