Time To Die

So, here we are – stuck in the same 140 SPX handles trading range for eleven months now. Yes, it’s hard to believe, but go and take a look at your daily chart – it’s been one year of nothing but gyrations without any progress. The bears are worn out – the bulls are worn out – fund managers and retail traders are leaving en masse.

I can’t blame them really – it’s been a tough year and although I think that I have been making pretty good calls lately even your resident evil market megalomaniac sometimes feels the burn. But instead of throwing in the towel I took the past year as an opportunity to step up my game and develop tools and measures that kept the tape from pulling a fast one on us. If life hands you lemons – make lemonade!

As you know I have been also holding long term black swan insurance as I have been expecting a pretty considerable drop the downside. I have been biting my time, reloading some theta after months of sideways tape, and of course counting waves and looking at my momos. But we now have come to a point where there is really not much leeway left in terms of fake outs, second wave sub-divisions, or wave count changes that merely postpone the inevitability of a meaningful drop. We have reached the end of the line and it’s time for equities to die:

But when I say ‘it’s time to die’ that does not mean equities have no choice but to oblige. Everything is where it’s supposed to be – this tape is coiled up tight and ready for a bearish plucking. Time is running out however and if it doesn’t happen by the end of this month then the odds of it happening will evaporate rapidly. The next two weeks will be key:

According to the wave count we are in a pretty bearish medium term pattern. We are currently counting a Minor 2 correction as a running flat – which means that gravity is pulling quite strongly and that corrective forces had difficulty producing a regular zigzag or expanding flat, indicating bullish sentiment was resurgent.

Neverthless 1129.24 is where the buck most likely stops for the bears. The setup is almost ideal – after all ending diagonals as part of a flat correction is what bearish dreams are made of. Should the bulls manage to push beyond that point then the entire wave count as presented is in question. I know this flies in the face of all the long term bearish charts I have presented this weekend. Nevertheless – the bears had many chances in the past year and were unable to close the deal. This is as good a setup one can hope for when betting to the downside. The bulls stomp on this one and the dynamics of the game may irrevocably change – at least for the medium term.

So, set your clocks ladies and leeches – for the line in the sand must not be breached. As long as we don’t the bears enjoy a golden setup. But that’s all it is – a setup – a proclivity toward the downside. You can never mistake ‘setups’ with a ‘sure thing’ – the former is an opportunity and the latter a pipe dream.

Have I lost my bearish mojo? Well, quite frankly – I don’t care which way the tape swings at this point – as long as we finally get out of that trading range which has tormented us for almost a year now. If we breach last week’s highs then the bears wasted another good setup and chances are we’ll see a lot of follow through.

A breach of 1069.49 is a good start for the bears – 1040 is where things get interesting. After all – at some point we’ll have to breach that line, or the shorts will find themselves in a never ending Peanuts episode playing ball with Lucy. Many somehow have found themselves in ‘next month purgatory’ – having followed the usual pundits it seems that for some reason the current month is never a good time for a big drop – it’s always supposed to happen next month. Well, I for one must draw the line right here. The seasonal cycles strongly suggest that now is the time for the grizzlies to cease the moment – carpe diem. If we push into the middle of September without a very meaningful drop (not this chicken shit I’ve seen in the past month) then it may be time to start looking at the long side.

So, those are the two lines to keep an eye on right now – 1040 for the bears and 1130 for the bulls – everything in between is just market making noise and OPX gotcha games.

Before I go I just want to make sure you guys don’t mistake my call for caution and awareness for anything but. Yes, the time is ripe and this is a wonderful setup for the bears. It’s a great time to be short equities. But if we rush beyond 1130 or stay in this current range beyond the middle of September the games changes – that’s the meat of the message. Hope that’s clear and nobody thinks I’m throwing in the towel here. I’m just making sure we all don’t wind up waiting for Godot.

Cheers,

Mole