Don't Lead Me On

While I am certainly no stranger to the variance (volatility) associated with all forms of speculation and gambling, the sheer amount of gaps-up-and-then-fight-to-fade-all-day we have seen in this market rivals anything I have ever seen. 

Over the weekend I went back in time and studied the price action from the 1970s on as many timeframes as I could get my hands. Indeed, there were similar stretches back then, during that period of entrenched inflation in American history (amid geopolitical turmoil with gold and oil outperforming, mind you), where price simply flopped around to no rhyme or reason before eventually topping out in early-1973 and did not put in a final retest bottom until December 1974. 

Along those lines, my base case is still that overvalued and over-owned mega cap tech is much closer to a major top rather than another period of outperformance. As for the popular view that small caps will benefit from rotation, with rates spiking higher again today you can plainly see the IWM struggling and leading lower--I continue to doubt the rotation thesis. 

Overall, markets which gap-up, then fade, then churn for much of the session become exhausting even for bulls to trade. We have NFLX reporting on Thursday evening and a plethora of Fed speakers on this OpEx week, in addition to any number of scenarios for headlines out of the Middle East. I am still looking for a smooth trend break lower rather than being led on with sideways flopping action.