I am starting a personal crusade to expunge the notion of “10% is a correction and 20% is a bear market” from our collective lexicon. It is among the most meaningless, useless, and untrue statements out there.
The reason I dislike it so much is that it offers no insights about what a trader or investor should do. If you find the market down some percentage, and conclude that, okay, it is a “correction”, then so what? What does one do next?
Ever since the market cracked, NFTRH has been illustrating and updating a road map for subscribers. Well, target #1 is in the books with SPX hitting 1975 today and the map is 100% right on so far. Target #2 at the next resistance level can be seen on the chart in this post.
In Stock Market Genius school they tell you to take profits in a volatile market when you have done the work of being brave (buying) while most were scared. So rather than getting into the hedging game (the above target corresponds with a 50% Fib retrace) I am taking profits today and standing aside, except for a couple of positions.  added a bull stock on the afternoon sag, but still generally fading the market. No shorts yet, as I am a better bear when I can feel I am catching an extreme.
As we have been noting in NFTRH, cash is the default position and that is what I am defaulting to. This is a market in motion now after somebody pulled the plug on that bloated balloon that was just floating around up there a couple weeks ago. The media is blaring, Fed Jawbones are flapping (to a moderate degree, anyway) and finally the market is predictable (as it ever gets).
I covered short positions early but profitably, shorted the VIX right at the market’s bottom, took ‘bounce’ longs and with SPX at the first target I am fading sidelines and going to have a trading mentality. I’ll let perma-bulls and perma-bears fight it out. I now like comfort and a non-locked position with every bright new day being met by a bright and sunny attitude by Mr. Sometimes Gloomy Gus blogger here.
NFTRH has a road map, completely illustrated for subscribers, that includes clear views of the S&P 500 and the VIX. I ‘think’ the bounce is going to go higher before a new shorting opportunity, but the combo of those two items will tell the story of what actually happens. Regardless, I am staying really nimble now that big boy and big girl time is over and all the momo’s are coming out.
As for the precious metals, I am mostly not playing because while the fundamentals are improving, the technicals are undefinable to bearish. I am seeing the regular stock market much better, technically. Sort of like being able to see the spin on a curve. The precious metals are a knuckle ball and who the hell can make sense of that?
Here are a few different charts we have used in NFTRH in order to keep a view of the US Stock Market’s big picture in mind even as we managed the shorter-term picture, which culminated in the daily SPX breaking down out of the nose of the 50 and 200 day moving averages per the chart in this post.
The point I was trying to make even last year as the MACD rolled over, was that the market was coming due for a correction and that while the MACD looked like a bull ender, similar conditions in 1998 and 2006 were not. They were bull refreshers as momentum refueled for the ultimate drive to the top. The EMA 20 (green) was seen as the bounds of a ‘normal’ correction and as of now, in-month, SPX is well below that MA.
Another message of the chart is that SPX can correct all the way back to 1550 and SPX would be in a cyclical bear within its big bull market breakout. Click for a monster sized view.
I created this chart after reading some cycle work by Peter Eliades, by way of one of Robert Prechter’s EW Theorists. This further defined the time window for the correction. Boink, good job Peter.
This chart shows the ‘higher low’ that SPX needs to make to avoid doing what some other indexes have done in making lower lows to October. Generally, SPX and other US markets need to not close August below that level or a cyclical bear is likely.
People talk about how the US market has not yet accelerated upward and indeed, there is a chance that the manic up phase is still out ahead after this fright fest cleans the market’s pipes. But the slope of the post-2012 bull phase looks similar enough to the post-1998 bull phase. There is no implicit need for further acceleration to end the bull.
It is really interesting though that China/Asia are being blamed for everything right now. The similarity to the late 90’s ‘Asian Contagion’ is clear. That thing ended up being an accelerant to mania. What will this thing end up being? If SPX does not get back above the EMA 20 soon it will look different than the 2 previous downside whipsaws.
I have to go sit with a group other people hoping not to get picked for a jury this morning. Meanwhile, click the graphic below for the pre-market view of what is fomenting (right on cue) with China’s Central Planning front and center as the Bailout Olympics begin…
 I shorted the VIX on the open and Fidelity is all screwed up as its servers get pounded by millions of casino patrons fleeing the margin man, so I don’t know how/if it filled. Thanks guys. Got to love asymmetrical markets. [edit 2] Check that, it filled right near the hysterical highs at the open. [edit 3] Covered, ha ha ha… 15% in nanoseconds. Better ways to be a bull if applicable (VIX was a would-be “circus act” as noted in an NFTRH update this morning).
Now I know why I didn’t buy anything on Friday after covering my short positions. I hovered over the buy button, I thought ‘hey, I love buying peoples’ fear’ but then I thought that it felt amateurish to be doing something like that so soon.
So being a non-astute bear trader, I covered my shorts but at have a ton of cash. Positions are mostly in quality gold miners, but there also, protective shorts were covered on Friday, so there may be some pain on that front, although positioning is very light.
NFTRH 357 was all about opportunity and a road map toward that opportunity. With this morning’s global crash it appears the road map is going to be happening on a much more compacted scale than I thought. We noted this weekend that the margin man was likely to come calling and so there could be another shoe to drop on Monday. Well, he’s on the phone bright and early and he’s got a lot of margin to call in after all these years of speculation as instigated by easy money policy.
The good news is that it appears there will be no delay in the big test that is going to decide whether this is a massive shakeout prior to a coming bull mania blow off or a new bear market. The test is very generally the October lows in the US.
We will have an update over at NFTRH.com to refine the map and strategy as it is big boy and big girl time now and the only way to manage it is to continually balance short and longer-term perspectives and parameters. Keep your heads about you and enjoy the festivities. It is getting off the hook, in double time.
 Also covered (sold) is the 3x Gold Miner bear fund DUST that I have used off and on against gold stock positions. All in all, a good, but solidly unspectacular week (unless put in ratio to overall markets, in which case it was a rocket blast). We have waited so long for movement and it finally came. The next few months are going to get interesting from both bear and bull sides. Money will be made… and lost as the herd is well, herded.
Since I am by no means an accomplished bear trader I have covered the short on the leveraged NDX bull fund (TQQQ) and the long-held short on SPY. The latter thing took a lot of patience, but the fact that it was a straight, un-leveraged position made it easier to hold.
Support is down below, but I am not going to be greedy. Who knows what the Jawbones might cook up over the weekend to manage the stock market?
The consolidation pattern is looking none too good so far today. At some point this could play into our overall Macrocosmic plan as the Microcosm Expands incrementally. Of course those running the machines in the fantasy factory may start to concoct a ‘Fed’s not gonna hike!’ bull story at any point. But right now, this thing is going bearish.
Hello, I am the S&P 500 and I am here to annoy the hell out you whether you are a bull or a bear.
Just look at how perfectly this robot stopped at the SMA 200 on this morning’s little jittery squiggle.
Call it a Triangle (continuation, implication upward but nearly as often it seems, they go the other way) or a Diamond (often seen as a reversal pattern, but nearly as often seems to continue a trend).
What it actually is is a consolidation in preparation for something… which should arrive shortly.
 I have been short SPY straight out with no leverage for a few months now. So that is a hint about the direction I think it’s going and also about the limited conviction behind it until the consolidation breaks.
Last Friday it was Hammer Time, Part 1 as the indexes Hammered to close the day, setting up Monday’s bounce. Then came the jawbone, the pump, the failure and now… (would-be) Hammer Time, Part 2. Isn’t this market fun?
However, NFTRH.com posted a chart this morning, while the market was near its lows, of a support level that is really key. The market was going to bounce at this level. It always does at points where you, I and the chart jockey down the street all see the same thing. So too do the algos, black boxes, casino gamblers, substance abusers and day traders.
Adding to the ‘had to bounce’ scenario is MarketWatch dutifully playing the role I had assigned to them last week and had a laugh about this morning.
Yes, everyone seems to be playing their proper roles and nothing is resolved.
 This is an opportune time to mention again that markets do not go down because China is in the news… or Greece was in the news… or Apple is in the news. Markets go down because they go down and they go up because they go up. News flashpoints (and Fed Jawbones) only serve to roil things for short periods. The market is on its own plan and will either break down for real or up for real soon enough.
SOX-SPX is still down below the channel. While the book-to-bill data have been firm (through June), the Semi index is starting to act like it would like to be in line with 2013 bullish running mate PALL-Gold, which is now bearish.
As for former leader RUT, it is just too erratic now (vs. SPX) to do much good as a short-term indicator.
With reference to the first chart above, here’s it’s pal PALL-Gold on its ‘economic down’ signal. Again, we recall that it was quite some time before PALL-Gold seemed to mean anything to the majority of participants when it triggered up early in 2013. So what about the recent signal? Should we not have the same kind of patience, in reverse, as back then?
After all, mainstream financial professionals were cashed up and braced against the ‘Fiscal Cliff’ disaster in Q4 2012 and did not begin to recognize a new market phase until well into 2013. I know this for a fact, since I interacted with one who spoke for the ‘best and brightest’ fund managers back then. We also know our friends at the MSM were in full bear mode back then.
Maybe PALL-Gold means nothing this time and maybe the Semi divergence is going to repair itself. Then again, maybe not, which is why I think patience is kind of a big thing now.