regarding my TLT scenario, i was dead wrong so far as prices gapped below that 4 hour support zone today and haven’t looked back.  my scenario has not played out but i will point out that with treasury prices down big again today for the second day in a row, the usual effect on stock prices (inverse to bond prices) is all but non-existent as the SPX is basically flat both days.  since all the QE and other fed shenanigans began, the market would gyrate between rips & dips in stock prices and nearly every time stocks fell, bonds rose as a “flight to safety” trade (money from stocks to bonds & vice versa).  i can’t say how long this will take but i believe that unless the current downtrend in bond prices (uptrend in rates) reverses soon, you will begin to hear about how rising interest rates are a risk to the stock market, which has historically been the case throughout the history of the stock market (not so much since ben’s recent printing party).

anywho, moving on to why i remain bearish in spite of a market that just doesn’t want to seem to go down for anything.  primarily, my intermediate & longer-term bearish outlook is based largely off my analysis of the longer-term charts, which i’ve covered ad naseum lately.  shorter-term, i’ve mentioned the extreme investor/trader complacency as measured by the $VIX and record low short interest ratios.  you might recall that shortly before the current CMG short entry which triggered on april 20th, i raised several concerns about the very unnatural price action in CMG (which can be viewed here and here) and sure enough, in just over 1 week (july 23rd – august 1st), CMG literally wiped out over 1 year of gains.  my comments from one of those previous posts above, back on 3/22 were:

“not saying that will or will not happen with CMG but it’s is setting up for one big ol’ collapsing of the bids and i can see a bearish engulfing candlestick that mauls weeks, if not months of gains in one fell swoop.  this stock has had a high short interest ratio for a long time and maybe it’s run out of natural buyers and this auto-pilot move up is just steady end of day forced short-cover due to margin calls as anyone short CMG is likely short other things as well and would likely be getting squeezed nearly every day this year”

now, i know that we all make predictions, some of which come true, many of which don’t.  my point here is not to boast about that call on CMG but more of a segue into this uncanny similarity that i’ve noticed between CMG and QQQ.  as you can see from the charts below, both CMG and QQQ had two very similar “unnatural” rallies in the last two years.  those rallies are marked on the charts below.  my apologies for not adding the volume to these charts but if you look at these rallies on your own charts, you will see that the volume on each was clearly well below average.  as you can also see from the short interest charts that i’ve inserted, there was a huge drop in short interest during each of those unnatural looking rallies (very low volume, very little volatility/daily price ranges, almost no counter-trend moves…just day after day of steady gains a la programmed trading & the HFT machines).

had there been an increase in volume during these rallies, then one might conclude that the large drop in short interest was a combination of short covering and natural buying.  however, that was clearly not the case as the volume was well below average, telling us that those rallies were largely fueled by short-covering.  finally, on a comparison of the CMG & QQQ short interest charts side-by-side, their patterns almost mirror each other except the fact that the QQQ has yet to experience a sharp drop following the recent record low in short interest.  for CMG, the catalyst for that plunge was an earnings disappointment.  so far, the gov’t has managed to manipulated the economic data, such as with the unusually high seasonal adjustment to the retail sales figures yesterday.

in summary, the QQQ chart may or may not play out like CMG.  however, given the proper catalyst, it seems that all the ingredients are in place for a sudden and powerful decline in the market.  therefore, i continue to believe the R/R does not currently favor being aggressively long, regardless of the current uptrend.