After reviewing the chart in the extended trade I decided to buy and hold a significant amount over the weekend hoping to catch a 3rd wave gap up. My stops have already been set to just below blue 2 so my risk is fully managed.
I have not changed my view that the DJIA needs to break down below 15300 and if it does I think the lower low will send people to UVXY looking for downside insurance. If you read Mish a lot like I do you will see that the economic indicators are all falling off a cliff. My own company, which is a leader in its field and which has been growing strongly during the boom times, just instituted stricter travel policies. These cost control measures are signs of worry or that forecast numbers are falling apart.
UVXY is the mushroom which feeds on that kind of decay. As Hugh Hendry used to say before he gave up shorting and flipped long right into the final days of the bull, "my rose grows in winter". Hendry was one of the very last holdouts of the short selling camp. Conversely, Bill Fleckenstein, who is not nearly as witty or sharp tongued or quick on his feet in a debate, folded his short fund in early 2009 having clearly seen the bottom in place. He returned all the money to his investors who made huge bank on his herd watching savvy. Earlier in the year, when asked if it was time to short, Fleck essentially said "not yet, but soon". But now Fleck is not mincing words: buy the dippers are going to get hosed, "if this is a bear market, which I think it is, it has just begun and people haven’t yet learned not to buy the dip. While that strategy worked well on the way up, it is obviously a recipe for disaster on the way down."
There you have it. One of the very few who saw the fed's involvement in 2009 as an exit sign for shorts is now essentially saying that the fed is finally out of gas and that people will soon understand that it is just full of hot air. When the air comes out of these markets it should be one for the record books.
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