Mr. Market Is About To Screw Permabears

August 18, 2015

Mr. Market has been making it extremely painful for bears to stay short. The reason for this is that nearly everyone we know is bearish right now; and, for the first time in more than six years, it would appear that they are finally going to be right. The market is in a major topping process as far as we can tell, but there’s no way all of us permabears are going to make a big score when stocks collapse. Mr. Market simply doesn’t work that way, although the precise manner in which he will screw bears out of the payoff they’ve awaited for years is maddeningly unpredictable.

My own favorite scenario begins with a devastating short-squeeze rally on a Friday, followed by some geopolitical or financial disaster over the weekend that causes stocks in Asia and Europe to collapse Sunday night. By the time U.S. traders awaken on Monday morning, most of the damage will already have been done. U.S. stocks will open on a breathtaking, unshortable gap lower, leaving the algos and high-frequency traders to beat each other to death. (Even the darkest cloud has a silver lining.)

More immediately, and based on a 2096.50 rally target that served us well yesterday for purposes of picking a short-term top, the futures’ subsequent push past it implies they are bound for the 2134.50 target shown. It is tradable from either side of the market, bull or bear, but you should be prepared for a stall — also possibly tradable — at p2=2112.50. That pivot can serve as out minimum upside target for the very near term, but it may be of value only to night owls. 


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