The Crouching Polemic

Last Thursday's market close was of interest to me. If we look at the SPX ( but any major index would do) we had an explosive lift off the earlier day falls that had made it look as though the bear army had already won the the battle of 1995 in SPX. But the following move up through 2010 was accompanied by a swift fall in the VIX too which has me thinking that this was the capitulation of the bears that I have been waiting for.

With this, my bull case has lost one of its main drivers. One of the other barometers of market direction has also swung - Fed, BoE and ECB expectations. These now appear firmly in the 'not for a long time' camp whereas a month ago they were in the field of 'tomorrow'. Meanwhile the macro position really hasn't seen any good news over the last month either to substantiate anything much more than this huge positional readjustment. With all this in mind I have trimmed my FTSE longs. I am sure there will be other opportunities to play coming along very soon but I'm not tempted to go actively short just yet. That will depend upon how Monday trades and though my suspicion is for a roll over, my key indictor will be copper.

Finally I'd like to introduce you to a very powerful chart formation - The 'Crouching Polemic'. It was first suggested by a commenter  (LB) but here I formally identify it and can use recent moves in the FTSE to illustrate it. This pattern is usually seen after sharp sell-offs and is a sign of  two phase base.

The initial bottom is just that, a bottom, followed by a rising body of recovery which encounters the falling humerus, which few find humorous, only to be followed by an acceleration higher in the direction of the forearms, technically called the ulna thrust.

The whole pattern is indicative of anyone who has been long through the move - crapping themselves.