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Let Them Eat Cake


Mon Dieu !


We had contemplated a Q2 rally, and we got it. However, it failed to move the large cap averages to higher reaction highs, and positive seasonality is waning. In the above chart, the S&P 100 index is now below its DMA (displaced moving average channel) in sync with the end of June seasonal pot-hole. The first half of July typically is positive, but the post Bastille Day period (after July 15) marks the peak for the major averages in terms of seasonality.

Short selling intensity is elevated, so there is ample opportunity for further short squeezes going forward. The problem is in a secular bear market, short squeezing is far from as spectacular as can occur in a secular bull cycle (ala 1982-2000.) Our analysis shows that the market has been in a secular bear since the start of this decade. Yesterday the new millennium became exactly 5 ½ years old (well over the typical 4 ½ year market cycle) and the Dow is down 10.63% - not a positive trend on a secular basis.

So, consider us short-term hopeful, but over the next two months as seasonality turns down, we will be looking to take some, if not most, of our long chips off of the table.

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