A little known fact among those who are not conundrum hunters, as well as those in search of a boojum, is that not all conundrums are pretty. Some are downright distressingly ugly. The present conundrum is not only pretty but could have some pretty (or ugly) serious implications for the market.
Lately the SPX has been outrunning the INDU, as have the Qs. It is now nose up against the neckline (conjectured) of what might be a forming Kilroy (H&S) Bottom. More importantly it is getting within range of a Basing Point stop. At major turning and reversal points there is always soul searching and painful analysis. Our analysis says that there is no bottom formation here appropriate to this historic market. Or, on the other hand, maybe a V bottom is appropriate to this neo-conservative inspired disaster. The entire market pattern from October is such a mess that finding appropriate exit points is more challenging than anytime in our experience in the markets. We have been saying for some time that natural hedges should be on and that scaling into longs and out of shorts was the appropriate strategy for this market. The question now is should shorts be abandoned altogether. The answer is no. Or, better put, the answer is that the chart should supply the stop, and the stop should be honored.
For our part we (thinking economically) believe that anyone who thinks the economic damage is complete is smoking something which should be legitimized. There are still millions of houses to be foreclosed on, and multi-millions of jobs to be created and multi-millions of consumers to recover from net worth shock.
Net, net — no bull market this year. But (brightly) buy those lottery tickets and cheap stocks, put a technical stop under them and play for the long term with some of them. We’ll call you if the weather looks stormy.