And soon-to-be-broke, it would appear.
One particular clown decided to try to "deconstruct" the last point in my attack on Dennis Kneale, who I called flatly full of used dog-food. His "logo" includes the title of this entry as the "grab line", and (rather humorously, given the accuracy of his call) includes a picture of a carny fortune teller, complete with booth.
There were several problems with his attack, chief among them the "curve-fitting" he did by adding conditions that were never at issue originally, then claiming "success" trading the inverse of a signal that was never put forward as a signal by myself!
The problem with removing an argument from its context is that you reach bad conclusions, and relying on technical analysis alone is like trying to determine which direction you should walk from a windsock - its giving you a piece of information, but only one piece, and must be interpreted in context (like, for example, "which way is north"?)
What was the primary point in my Kneale hit-piece? This:
Recessions cannot end until the conditions that caused the recession are removed from the economy. This is elementary logic and obvious to anyone with an IQ larger than their shoe size.
For an inventory recession growth returns when enough capacity is destroyed through layoffs and inventory selloffs to bring capacity and demand back into balance. Employers then hire new workers and the economy recovers.
For a credit recession, however, there is a much larger problem: The reason real interest rates went negative is that debt has a carrying cost and consumes free cash flow; so long as the debt taken on in the credit binge remains the cash flow impact also remains.
Default and bankruptcy clears excessive credit (debt) from the system - if it is allowed to occur. But if it is not, then the bad debt remains on the balance sheets somewhere and the cash flow impact remains in the economy. Employment remains weak, capital spending restart attempts falter as demand fails to return and credit quality continues to remain insufficient to support new credit demand.
Now here's the problem - the "windsock" provided by technical analysis is always right, but only in context.
Ever notice how patterns sometimes mean the opposite of what they look like to those who blindly look no further than the pattern itself?
Technical analysis calls this a "pattern failure."
Nonsense.
The pattern didn't fail - you read it wrong because you failed to properly consider the context.
The most stubborn of "analysts" will not only refuse to look at the context of an argument and pattern, they will stubbornly increase positions into a bad chart, thereby deepening (perhaps by a LOT!) their losses.
Woodshedder has done exactly that. On June 30th, when I made my argument, the SPX closed at 919. It has since lost nearly fifty handles, or five percent, and I have been short for the entirety of it.
Why? Because I look at the context of a pattern, not just the pattern itself. And the context of the rise in the market since mid-March has told me that there is no way that advance was sustainable, it was not the end of the recession and it was not the end of the Bear Market.
How do I know this? Among other things I know it because the NYSE credit and margin debt table continues to show that during the advance margin balances have increased while credit balances have decreased. This is backward, and tells me how the advance has been powered.
See, if I buy 1,000 shares of some stock on margin and it goes up in price, my credit balance increases and my margin debt decreases. Why? Because my equity improves in the position as the price goes up, and thus my margin debt goes down while the liquidation value rises.
This is the normal circumstance in any advancing market. Yet it is exactly the opposite of what happened.
Why?
This advance has been powered by people doubling into the advance in a furious (and futile) attempt to regain losses from last fall, increasing their leverage as the market rose! This means they not only poured their "winnings" back into larger positions but in fact increased their debt load to "double down" at an even more-furious rate!
This is not bull market behavior. It is the mark of irrational and extremely dangerous gambling. If you've ever seen a guy at the blackjack table in Vegas who triples his bet every time he wins (that is, he stacks the winnings back on the button and adds more to it) you've seen this behavior in a casino, and in virtually every instance a gambler who does this will go broke.
So where does this lead us to today?
We have invalidated the "alleged buy" from the so-called "Golden Cross", having closed the SPX under the 200MA. Worse, we're now solidly below the "entry" propounded by that so-called "Golden Cross"; I hope you had a stop and got stopped out without (much) loss. The question now is, "which way Mr. Magoo?"
That's simple: This was a bear market rally, and there is a high probability it is over. The Bulls will not give up without an attempt at a fight, however, and nothing goes in a straight line.
I expect the market to trend generally downward until somewhere around the 14th (to perhaps a week later), making a short-to-intermediate bottom in the area of 844, 811, or in the extreme case, in the high 700s around 770.
Why those levels? They're Fibonacci levels from the rally off 666, the time relationships from the top around 955 are right, and they also are areas with strong volumetric chart support. It would also not surprise me if we try to "kiss back" the broken neckline in the Head and Shoulders pattern that was confirmed the other day before the full extent of that downward move expresses itself. Finally, this move could come faster than anyone would imagine, as that NYSE Margin Debt can easily turn into a MARGIN CALL, and cascading margin calls is how you get the sort of damage we had last autumn.
COULD we stop here? Yes. It is possible, and if I see signs of short-term stabilization or reversal I will pocket my short-side profit and saunter off on my way. But this is not the odds-on play.
This move down has already sucked in a lot of people and will probably continue to - those who will bet on a break of 666 - here and now. A big part of why I got moderately short is that I recognize the potential for the unwind of that margin debt to get very disorderly, and if it does, I don't want to be out, as there will be little opportunity for an entry.
Beyond that, I do expect one more good thrust higher; unfortunately for The Bulls I do not expect the 950 level to fall. Those who bought up there are going to be grasping for that "get me out even" one last time as the real ugly comes back this fall when it becomes apparent that the entire so-called 'green shoots' game was nothing other than smoke and mirrors, and the stock market's advance was driven by nothing more than a tawdry attempt to play with leverage once again.
This, my friends, is why those who worship at the unbridled altar of technical analysis without looking behind the patterns on the chart will often find themselves on the wrong side of the trade, and if they're stubborn about it, ruinously so.
As for Dennis Kneale, he's still incapable of admitting he was full of it, and yet nightly tries to attack those in the "alternative media". He still hasn't responded to my rebuttal, nor do I expect him to respond to this one - putting me on the air opposite him would force his lack of intelligence and analysis out into the open where it would be instantly visible to all. That just won't do when your job is to bamboozle the public into hitching their capital to a losing proposition.
I publish my thoughts daily (well, most days) while the market is open over on Tickerforum, with limited free access to all and full access available to Gold Donors, as well as putting together a nightly recap video. Come on over, sign up, enjoy the free areas (the majority of the forum) and see the FAQ if you're interested in donating to the operation of the system (and the enhanced access it offers.)
Disclosure: Short the broad market (still), ~20% position
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