Contemplating 2012 Trendlines...And Potential Shorts

You've probably heard the old saying along the lines of "It's not the things you do that you regret; it's the things you don't do." That is especially true of me in 2012's trading. I am far, far more bothered by not taking full advantage of market stumbles than I am by losing money during rallies. When the market is breaking, I need to be bold enough to absolutely slam the pedal to the metal.

My belief is that we are at the threshold of one of those opportunities. The widespread view right now seems very simple, and it goes something like this: "This fiscal cliff thing is going to get solved, and once it is, the market's going to keep zooming higher, just like it has done for the past four years."

I'm not so sure. The trillion dollar QE4 stimulus produced a rally lasting about thirty minutes, and although I think the fiscal cliff problem is going to get "solved", what people seem to completely miss is that the "solution" consists of a mix of (a) higher taxes and (b) lower spending. Period. Find the awesomeness in either of those. Both are bad for the market, and the cold fact of the matter is that no matter what "solution" comes forward, it's going to be a spit in the ocean. The country's financial problems are an inescapable whirlpool, and whatever compromise is worked out for the next decade (yes, decade - - they actually think they can plan that far ahead) will do nothing but fund the government's shortfall for a month or two.

Looking at the index charts, trendlines are shattered left and right, and they are not small trendlines - - - most of them broken ones are the big kahunas going back to the March 2009 bottom.


I also notice the Russell 2000 is configured very similarily to its late summer 2011 state; we all know what happened after that.


And even though I hardly ever mention the Dow Jones Utility index, it has, for the first time in years, breached serious support. As boring as the UTIL is, it was invaluable in calling the 2008 market debacle, and I think it's going to repeat its prescient performance, albeit with different patterns, this time.


Currency markets are a fly in the ointment, however. The AUD/JPY pushed above resistance, which does not help the equity bear case.


More important, the series of lower highs in the EUR/USD was invalidated early on Friday. If we manage to stay above the horizontal line I've drawn, that's just great, but it will take very little additional strength to sweep that line aside as well. The only silver lining here is that equities were weak on Friday in spite of a surprisingly strong euro (and, gee, I never figured Europe was so completely and totally fixed already).

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I have, as usual, a glittering variety of small short positions. Here are a couple of my favorites: