While the Midcaps have previously been virutally unshortable, the last few weeks they have started to underperform everything else in their class. On this bounce they are drastically underperforming which is a VERY bad sign for any BTFD strategy. Midcaps must outform the 500 in a healthy advance.
Financials, have NOT broken out…they have ramped on NO volume for months and are simply at resistance in the apex of a triangle. On an fundamental level, bank balance sheets are now more misrepresented and precarious than most would believe.
While EVERYONE and their brother sees any selling from this over believed, overhyped, over-marketed and extremely over-leveraged rally will lead to new highs…it is important to understand that overshoots in big rallies are nearly always terminal and represent the end of a move. Looking at the dollar pattern that I posted previously, I will not be looking for new recovery highs once this overshoot has been confirmed - and it has not been confirmed yet. We may still have more blowing off remaining. However, once confirmed, I will be looking for a persistent downtrend.
As a reminder, the chief bubble blower, Ben BURNanke and his predecessor are totally responsible for papering over reality, the results of which can clearly be seen in the charts I’ve posted over the last few days. Ofcourse, at some point Ben, in an apparent after thought, will be trying to figure out what to do with the vast amount of leverage and currently precariously perched assets that he has procured, endorsed or blown into buubbles.
And to demonstrate symbolism of this overshoot, not to be left out, Bloomberg needs their own 16 year old now:
While I was expecting the market to move to about 1515 for the last 9 months or so and subsequently to overthrow a bit to between 1525 and 1538, today’s enthusiasm was still on target yet intriguing due to the fact that my expectation was to see a pop today in the morning to complete a stop run that was setting up on Friday and then a reversal…though that pattern is still likely to soon be the result possibly tomorrow- today was not its day. To be sure, the High Yield corporate bonds are not endorsing bullish sentiment (which further increased today) and moreover, sport volume patterns that look pretty unsympathetic too. So, it looks likely that market optimism may want a little more upside and then the expected rejection…more or less what I was looking for today…but did not happen.
Everyone sees dollar head and shoulder patterns and a breakdown in treasuries…with all this consensus, should we not have a sneaking suspicion that new highs in Treasuries will come before they actually breakdown. In addition, everyone sees higher prices for equities. In fact, 70% of people see this week up as a sure thing and even more people see next month up as a sure thing.
However, more importantly than any of this, the dollar has broken out AND retested a huge A-H pattern. This pattern projects in a way that does not allow for resumptions of the commodities up trends - which by the way, everyone is expecting also. As you can see from the chart below, equities have clearly come into their own but will likely soon need to acknowledge the excessive leverage, bullishness and ridiculously low volume not to mention argue with the dollar. This argument can be seen in the chart below…dollar is in green.
It seems to me that the minute a reasonably large block of shares in the financials index are offered at market - or there is even a sneeze - already scarce buyers will simply disappear all together…with the possible exception of one BURNanke…and this week is a slow for Fed liquidity operations...
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