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Hold Onto Your Hats!

7/26/2015

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I've been bearish for a little over a year now. I started getting bearish when I wrote this post The Bull Market Could Be Topping Out. At the time unfortunately, I was still very much an amateur to the business and got too-bearish, too-early. I was foolish in attempting to short-sell against a herd of wildly optimistic Bulls. All you need to do is slowly drive past a cow to see just how incredibly slow a bulls reaction time truly is! Now I am older & wiser. I have made mistakes but have learned from them and have became a much better trader because of it. In this business, you are going to make mistakes that is a given, but as long as you learn from them, don't give up, persevere long enough, your luck can change in an instant. I no longer swing trade stocks. The interim swings/ overnight gaps are too unpredictable and deadly. Of course in hindsight, I wish I would have had a little more stubbornness in my ability to hold for the long run because many of my  predictions of individual stocks have ended up coming true YELP, GTAT, KNDI, PLUG, AVP, etc... All of those ended up getting slaughtered. However, the violent short squeezes along the way ended up being too much for me to bear.Now all I do is daytrade futures. All I do is focus on minimizing drawdown. I have a system in place, a set of rules I abide to, a discipline I adhere too. Less discretionary trading, less overthinking: More making $.
Call me a permabear, because despite the repeated thrashings I am now more Bearish than ever. Everything underpinning my macro thesis is slowly playing out. Of course, the crux of my thesis is the USD: Specifically the USD going up. The largest market in the world (forex), is the most powerful & influential. What the dollar (the global reserve currency) does has ramifications that affect every other market on earth. Dollar strength spills over into commodities(oil), equities(earnings), bonds, etc... After a near vertical move, the dollar has  consolidated sideways for half a year, but today we are sitting at a pivotal moment in time.
 We are at a point in history that despite an atrocious global economy with every nation of the world (including China) economically slowing, the Fed Finally wants to raise rates after keeping them at Zero(unprecedented) for seven years(madness). If the Fed were to raise rates at a time where nearly every other nation on earth is debasing their own respective currencies, the dollar will most certainly resume it's northbound trek into the stratosphere!
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Watch those Junk Bonds, watch that collateral, watch those derivatives. The world is now awash in $1.5 Quadrillion of Derviatives according to popular gold bug sources. Who knows the true number of derivatives outstanding but margin debt is at record highs! 
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It's not like the world financial system is going to collapse. The banks are well padded with currency reserves. However, it is very unwise to ignore schools of thought with generations of proven effectiveness such as Dow Theory. In Dow Theory it is a confirmed top when Both Transports & Industrials are below their 200dma.
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Maybe we bounce from here who knows? But in my view, bounces are to be sold into as we could very well be watching this 6month H&S play out.
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Whenever the Bulls try to push to new highs, the volume completely dries up.
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COT reports show Large Speculators are selling to Small Speculators. This is classic distribution action seen at tops.
It is impossible to know for sure what will happen but the market is rapidly weakening underneath the surface. I'm just daytrading futures, but I will continue to trade with a bearish bias as we could very easily be peering over the edge of the cliff into the abyss, or at least some sort of 20% correction, the likes of which has not been seen in years. When it comes, it will be swift. Hold on to your hats & don't get caught flat footed! 
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    R. J. Sullivan IV

    Equity Research
    Portfolio Management
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