Simply put, stocks like Apple collapse (down ~2% again today) while turd-circling flush jobs like Netflix rise 40% one day and 13% more the next.
The latter is a massive short-squeeze -- far too many useful fools were short it into earnings, and now they're being forced to cover. Volume today thus far on Netflix is running above yesterday's pace, believe it or not.
Let me ask an intemperate question: Does anyone remember 2007 and early 2008?
The same rotation was observed then, and at the time I warned everyone that the game was entering its last few innings, and would soon destroy everyone twice -- first those who shorted those that were the targets of the rotation in too soon (and got wrecked) and then those who reversed or bought into the ramps when those stocks collapsed along with the former leaders.
The very same pattern appeared as we topped in late 1999 and early 2000.
It's happening again.
This can go on for a while, incidentally, so don't think for a minute that I'm calling for everyone to short with a dartboard. No no no -- not unless you have either an iron stomach (and the margin capacity to match) or would like to be one of the buried.
The reason this particular pattern is ultimately destructive and leads to a large decline is that the losses suffered by those on the wrong end of these moves (in both directions) withdraw liquidity from the market. Markets move in total based on the equilibrium imbalance between price and liquidity. When liquidity is withdrawn as price rises the imbalance shifts toward declines and when that imbalance overpowers the advance the decline back to balance is swift.
The outcome here will not be different, just as it wasn't last time.
The macro environment has been deteriorating for the last six months, as I have documented over that time, exactly as it did in 1999 and 2007.
Go back and read the 2007 and 2008 Tickers if you'd like -- they're still online.
The worst of this mess is the bubble nature of fixed income -- there is a hell of a lot of money in those instruments that is going to take a monstrous capital loss. This will not be rotation, it will be value destruction when it hits.
I cannot put an exact time on the "kneepoint"; it could be a month, three, six or even a year into the future, but this sort of rotational pattern has reliably warned you to get protective, set mechanical stops and accept the stop-outs when they come -- or to buy protection while it's very cheap, spending a small part of your portfolio on insurance and accepting that this time it might be different but if it's not, you'll still have your money.
I believe the data, including CAT's 8K, far more than I believe the fools in the mainstream media. They're real good at cheering the rotation as some sort of "good thing" when in fact what it really shows is that money is frantically looking for something that's still going up, as the wider view shows that there are a lot of declining stocks on the board today even as the new high/new low numbers are wildly on the "+" side.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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