Rubber, Meet Road

I recently wrote that I felt the timing was right to get short.  Since then, we have seen a bit of a sell-off.  Nothing severe in the U.S. markets, but enough to have those shorts in the green.  If you are squeamish, I think now is the time to take profits or at least get even.  The S&P has pulled back to the shallow support line that has held since early 2013.

2014-09-30-SPY_CHARTS

The Russell 2000 (IWM) is near the bottom of channel support.  You can read it as having broken the tight support or still having some room before it hits looser support.  Either way, it’s near support.

2014-09-30-IWM_CHARTS

Both of those charts would suggest it’s a good time to cover shorts and go flat.

However, there remain good reasons to stay short.  In addition to the long term rising wedge that still lurks as the ultimate challenge for the S&P, there is also the matter of weakening peripherals.  XIV, an inverse VIX fund that has served as a decent indicator, may be starting a more serious breakdown.

2014-09-30-IWM-XIV_CHARTS

More more disturbing is the Vanguard All-World Equity fund, VEU, which has clearly been rejected at resistance and meaningfully declined in recent weeks.

2014-09-30-VEU_CHARTS

Emerging markets have been crushed in the last week, as has much of Europe, not to mention commodities (have a look at DBC!).  With Nasdaq still hovering near all-time highs, one has to wonder how long the U.S. can hold out as global markets weaken?

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