The Physics of Shorting

April 13, 2019

Weekly Market Outlook

By Keith Schneider


US and Global Equities continued to rally, with the NASDQ 100 +.63% for the week. It is just a hair from making new all-time highs, as shown on the chart above

This rally off the Late December lows is a classic V pattern that has taken 6 months to complete. This V pattern, so late in the economic cycle is highly unusual.

Is this the new physics of shorting, where seller’s equity gets sucked into a Black Hole, never to be seen or heard from again? Are we about to melt up?

Are there new market physics at play that suggest fundamentals are meaningless, economic cycles don’t matter, and central bankers can cut rates to negative and keep stocks elevated forever?

We don’t think so and believe a Supernova is in the making, though just not yet. The tricky thing is that when Supernova’s erupt, it is often the consequence of sudden gravitational collapse.

Supernovas were observed by humans over 5000 years ago and although we still don’t know exactly when they will erupt, we can see when they do.

Hence, the key to avoid Black Holes and Supernovas in the financial markets, is to use charts and employ risk control. Trading off murky fundamentals or using a buy and hold strategy is likely to end up sucking your equity into oblivion.

This week’s highlights are:

  • Risk Gauges remain 100% bullish
  • Volume Patterns are postive
  • Mid- Caps (MDY) followed thru from last week’s breakout,
  • Transportation and Semiconductors are` where smart money is flowing
  • Copper and Oil continues to show strength
  • Sentiment has reached “irrational exuberance” levels
  • Bio Tech (IBB) failed to confirm moves over key moving averages

So, while Equities continue to climb, we will not fight the tape. However, we remain vigilant, watching for early signs that that a Supernova has burst and avoid sending our hard-earned equity into a Black Hole. Since momentum often precedes price, check out our Real Motion Indicators that are designed to do just that.

Best Wishes for your Trading

Keith Schneider


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