The Technical Case For "Defense", Even After A Big Sell-Off

Ray Hanson

The Technical Analysis case in support of a highly "defensive" stance toward equities over the months immediately ahead is, in our view, unusually compelling.

Our argument can be summarized in point form as follows:

• The May 8th market highs were the tipping point into an approximate six-month end-of- cycle correction;

• Widespread and now-broken "rising wedge" and "parabolic curve" price patterns reinforce the case for a substantial and swift decline;

• Commercial bond traders' large net long positions argue strongly for a rise in bond prices in the weeks ahead; such a bond rally would likely reflect a "flight to quality" as equity prices continue to erode; and,

• Intra-market relative strength patterns appear consistent with a transition from "cyclical bull" to "cyclical bear."

This is all consistent with what I wrote to you all on May 14:

(WIR #19 May 14) This weekend, I'm here to tell you that within days I believe you are going to become frightened. I just hope that ‘in extremis' doesn't prevent you from taking action.

You see, as well as 2000-2002, I remember 1969, 1974, 1981, 1987, 1990, and 1994.

To me, 1974 was the worst because it dragged on so long, and 2000 was bad too. The most traumatic " 1987 " thankfully was over quickly.

I can't really say of course, not having been there, but, if I ever have to face an executioner, I'd want a swift ending.

In Spain, it is called 'estacada'. The Death of the Bull. I think we're going through that process now. Pray that the Bear is ruthless and fast.

But then you do know I am going to get the news to you ahead of RBC Capital Markets (my alma mater). :-)