The inevitable crash…

Finally, the long anticipated crash has arrived and stands ready to start inflicting some serious whoop-a_s on those peeps silly enough to believe that equities remain posed still to take on their all-time highs. Such a notion is pure madness…just look at the action over the past couple weeks—speaks for itself!

Hmmm, color me “not soooo much.” Although the pundits are calling the recent highs a top, with some going so far as to suggest we could see a 40 percent retracement (yikesss…that just don’t seem plausible), I’m far from convinced.

Don’t get me wrong…I won’t be surprised if we were to see some major retrenchment as there are some serious headwinds here and abroad that point to slowing growth from already anemic levels. But that’s not something that the major indices failed to factor when they were heading to multi-year highs just last month.

As for the dour prospects for this earning season—again, nothing new on that front. As we enter the current earnings reporting cycle, the net result of the overall backdrop is that companies are reflecting serious headwinds across the board in their performance numbers. Safe to say most traders are wary and believe we could be looking at a glut of companies disappointing over the next several weeks.

That said, you gotta consider that consensus expectations have been taken down (again) and we’ve been prepped to expect the very worst in terms of what companies will collectively report. Why is this important? Well, it’s fair and prudent to recognize that the street is teeing up (in classic style) a “better than expected” scenario in terms of how this earnings season will be viewed (spun) and play out.

An old game, to be sure, but this is the game in which we play. Yet another case of Wall Street playing Lucy and “pulling the ball back” on Charlie Brown…a strategy that has been proven to work, time and again. To not recognize the street has long engaged and is damn good at such shenanigans…and more importantly has a vested interest in doing so…well, that’s naïve.

Given the games and the backdrop, where does that leave us?

Dunno… Rather than guess and drawing on experience that’s taught me to be prepared for the unexpected, but to always play percentages and probabilities regardless, I choose to let price action provide the “tell” on where the markets are heading:

A quick gander tells me that not much has changed recently, despite the swoon that set in after the rally in response to the QE3 announcement. Looking back at the charts we created a week ago (INDU and SPX), fact is we are bouncing just shy of key resistance levels previously detailed… Both indices could easily see upside resistance tests in short order, but an easy case can be made that we’ve put a lid in place and the recent downturn is in fact the start of something more ominous.

But to guess either way is just not prudent. The mistake too often made is to jump the gun and ass-u- me…never a smart thing, given what it makes you and me…

For now there remains a distinct long-term trend and until we get something much more definitive telling us otherwise, that trend is intact and to fade it or flat out ignore it could prove quite costly.

On the flipside, I wouldn’t be adding to long bets, given we are in mid-October in an election year and things stand very much up in the air…which translates to huge uncertainly on many front —something Wall Street and the markets don’t dig at all.

Bottom line, the charts are in tweener territory…not an area I place bets on either side… I prefer to hold my positions and wait for price action to truly resolve either for or against me…and at that point react accordingly. Doing so remains true to my trading style and plan…and allows it to play out, which is critical to success in trading over the long run!


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