Equilibrium

What we have been experiencing in the past week is a raging battle between the same hardcore bulls who’s been driving this thing higher for the past few months and a newly (re-)emerged pack of bears with seemingly deep pockets. I also see distinct indications of institutional profit taking. Could it be that the big bears are slowly coming out of their seasonal hibernation?

With the finale of the month of August we are happy to announce that bull hunting season is now officially in session. Thus Evil Speculator recommends that you start picking your victims and also encourages you to blatantly ignore general regulations for rifle, gun, bow, and crossbow hunting as well as bulltart trapping in North America. In other words – payback will be a bitch and then some.

In the near term, and based on the flatline observed on the Zero Lite today, it seems that we’ve got ourselves a Mexican stand off going – his tape needs to pick a direction and it will most likely do so in short order. Tomorrow is September 1st – which (stupidly) is traditionally a bullish day – prepare yourself for a possible cash infusion courtesy of brain dead mutual fund managers. If we pop higher you know what to – treat it as manna from heaven.

As you know medium and long term my money is on the bears – we might not close down this week but most definitely will do so this month. We are extremely overbought and if tomorrow’s POMO auction will be the catalyst of yet another push higher (scenario blue) then it will only postpone the inevitable, which is a large correction to the downside. If my recent observations are correct then large sellers will most likely increase their selling pressure at the 1070 mark should primary dealers use Fed cash to force higher prices and postpone a much needed correction.

This is a chart showing the SPX vs. the NYSE A/D ratio. As you can see the Friday high was followed by a closing A/D ratio of 0.9929 – which in my book supports the definition of a ‘blow off top’. I’m not saying that we cannot see higher prices here in the short term but this rally is running on borrowed time at this point.

I have kept pointing out that the recent gyrations in equities appear to be indicative of large block sells unwinding activity. Now here’s a nice clip that backs up my observations (hat tip to ZeroHedge)- enjoy:

I have posted a Dollar chart earlier today and there’s really not much to add tonight – we are a bit in limbo here and a pop in a Dollar will most likely coincide with a drop in equities. And of course the inverse: should we see some currency games pushing the Dollar below it’s August 5th low (77.43) then we’ll most likely form a new bottom around the 77 – 76 range. Again, upside risk at this point far outweighs downside risk.

We are getting close rats – remain patient and keep your arteries at zero Kelvin (i.e. absolute zero). As I keep repeating over and over again – ignore the intra-day gyrations and use bull raids to increase your short exposure (i.e. short sales of stock, buying of puts, selling of calls, etc.). Your trading horizon at this point is a minimum of 4 months and preferably 6 months plus.

Cheers,

Mole