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The S&P continues to trade within the 200 point candle from Friday October 10th, defined by 6750 on the topside and 6550 on the bottom. From a technical standpoint, until we breakout of that candle one way or the other we’re essentially just treading water. On the one hand, you have to give the bulls the benefit of the doubt because all of these patterns have been resolved to the upside for so long. On the other hand, I am concerned that we are in a bubble that is going to top in the near term. These technical patterns won’t always be resolved to the upside.
 

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Another concern is the decline in breadth. Less than 50% of S&P components are trading above their 50 DMA. As as has been the case for so long, the market continues to be driven higher by the mega cap tech stocks that dominate the market cap weighted indexes.
 

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Further, a couple of those mega caps have been hit on earnings in the last couple days. Netflix (NFLX) got hit Wednesday after reporting earnings Tuesday afternoon and is testing its 200 DMA for the first time in a long time. Tesla (TSLA) looks poised to get hit Thursday for the same reason after earnings Wednesday afternoon. TSLA trades for 250x its earnings over the last 4 quarters. Much of the stocks valuation is a bet on future earnings from autonomous driving and robotics. They say never to bet against Elon Musk but at this valuation a lot of faith is being placed in him.
 

There is an interesting debate going on on Financial Twitter about interest rates. It was inaugurated by a tweet by Economist Jason Furman Monday afternoon expressing surprise that interest rates are going down despite large deficits, debt, threats to Fed independence and persistent inflation. Two respected traders – Mark Dow and Warren Pies – pushed back. Dow said that deficits haven’t mattered for 40 years and Pies listed data showing that inflation is coming down. I am short TLT for the reasons articulated by Furman but am obviously not thrilled at the trade moving strongly against me of late.
 

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Last I wanted to comment on the precious metals crash on Tuesday. The miners GDX GDXJ SIL and SILJ were all down on the order of 10% after spectacular runs and I added to my positions. On Wednesday they all opened lower but found support above their 50 DMAs and rallied back to breakeven or slightly positive. While it was a nasty shakeout – and there’s no guarantee it’s over – I looked at it as a buying opportunity to add to my positions which I’ve been waiting for for quite some time. The miners will simply be minting money with gold and silver prices at current levels and the reasons for these prices show no sign of abating any time soon.

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