The Bull Market Is Done
Tim Knight | Oct 15, 2014 01:12AM ET
I never thought I’d say this, but I miss September 19th. It was actually on that day I was considering throwing in the towel. But in the days that followed, I was flabbergasted at the shorting opportunities. As I kept saying, I had never seen so many great short setups. I felt like a kid in the candy store. And this strange, quiet confidence came over me – – one that let me short like crazy without fear.
Well, since then, here's what the Dow has looked like:
And, in a way, this is the stage of the market that I hate. Because pretty much all the great setups are gone, and I’m not sure whether to take profits across the board (and risk the market simply plunging further) or just sit tight.
One thing I can say is that the bull market is done. The technical damage is massive, and pretty much all the trendlines dating back to March 9, 2009 (I don’t even have to look up the day anymore) are broken. Here's what the NASDAQ Composite looks like now:
Having said all that, the looming question for me remains: “Bounce or Break?” I, along with most other bears in the free world, have been anticipating a “bounce” for the past few days, and, ummm, it isn’t really sticking. Intraday, it looks like something is going to take hold, but so far, it hasn’t. The bulls seem to be in the same position the bears were for so many years – – – getting a little bit of hope held out to tease them, and then having it yanked away.
The kind of “bounce” I simultaneously crave and fear is something along these lines (this for the NASDAQ 100):
In other words, get a hearty, multi-week recovery to put the bulls back into “BTFD Works!” mode, and then when they least expect it, unleash hell from above.
We may or may not get that, however. I’m trying to keep in mind that, as I said, the market is genuinely broken now, and I’m not sure if even bulls are dim enough to buy back into it. Looking at the Russell 2000, we’ve been through three failures of note: first, in magenta, the double-top; second, in cyan, the break of the long-term (back to 2009) trendline; and, most recently, in green, the completion of the B.A.T. (Big-Ass Top):
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Self-loathing comes naturally to me, and one of the general things I’m peeved at myself about is that the patterns I’ve been following for ages—and never seemed to break—have finally broken. And, in many cases, I wasn’t positioned to enjoy the collapse, because I had given up on them. McDermott International (NYSE:MDR) (mentioned here countless times) is among them:
Simply stated, I am sticking with the shorts I believe are far from “done’ in terms of falling (110 positions) and have acquired a modest number of long positions I think are attractive for a bounce (15 positions). As for my options account, I have trimmed that back to 14 positions, all of them expiring next year. Just about the only sector I think is poised for a potentially hearty bounce is Gold/Silver, which has been thrashed lately:
In precise, scientific terms, I have left a buttload of cash on the table over the past few weeks, but I’ve simultaneously been ecstatic over the change in the fortune of the bears.
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