I want to begin this piece with the #1 premise of the letter itself. Everything I said could be wrong, the market always has the last say. If technical analysis (chart reading) worked every time, we’d all be traders. And that would be hell on overall productivity. When it does work you sure wish you paid attention. I can’t tell you how many times I walked away with loathing in my heart only to have the pattern finally unfold as I turned off the computer.
The narrow trading ranges of late has led to an extremely short term sell the rally, buy the dip process. If you did not implement that strategy in late summer chances are you are standing still at best performance wise since July. Even a tick up of volatility in early Sept. led to another slender trading range the last 3-4 weeks. Still have not come up with or heard a reasonable reason for this type of action? Oh well…next.
Yesterday we had a collective breakdown in many indices/sectors. Now we will see the extent of the internal vulnerability I have written about the last several weeks. No talking heads could accurately explain the rationale for yesterday’s breakdown. Technical vulnerability is not sell ad space. It is interesting to me how in this type of weak internal environment a reason will miraculously show up. Deutsche Bank metastasizes, the ballooning pension problem re-emerges, election jitter are now real, USA-Russia tensions magnify, etc. If we do fall precipitously I am sure some fundamental basis will unfold. String of poor earnings as the reporting season unfolds could be it? Although equities have been relatively impervious to less than earnings seasons the last few years thanks to Central Banks.
Above are the blatant breakdowns. You are probably tired of the chart on the left, but it is the most important stock index in the world. The break from the triangle finally occurred without a retreat back within (5x in the last three weeks). The very important Housing sector broke its support line, which included its Sept. lows (very important first line of defense for the Bulls), with some oomph. I think everyone takes out the Sept. lows on this move. The real question for me at this time is we will reach the Brexit lows of late June?
I don’t thinks cash is trash,