Playing the Ponzi's  Instablog

The Emerging Markets ETF (EEM) is nearing the end of a pennant pattern that originated a year ago. It has consistently turned back at the falling trendline, but has also formed a shorter term uptrend since bottoming last October. It is sitting close to support now and will likely break out - one direction or the other - very soon. Even if you don't own EEM, it's a good risk gauge and well worth keeping an eye on.

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As an interesting outlier read on the EEM chart, it's conceivable that there is actually a massive (4 year) Head-and-Shoulders pattern nearing conclusion. I'd be surprised to see that be the case, but it seems to me like a possible read of the chart (if it breaks down from the current pennant).

have a foot in each (Bear/Bull) camp at the moment... on one hand, the S&P clearly broke down from a rising (bearish) wedge earlier this month. Pronounced relative weakness from emerging markets, junk bond markets and commodities leads me to believe that U.S. equities are pricing in a very optimistic reality relative to those other markets. I suspect that U.S. equities are mis-priced and will have to adjust downward in the coming months. But if 2012 follows the pattern of the previous two years, we may have one more new high yet to come. So what comes next? A run to new highs or a realization of deflationary pressures?

There appears to be a fairly delineated range we can establish from over the last couple months. We are testing the top end of the range today. It's possible (likely?) that a break above recent highs can propel the market to re-test its old highs or even establish new ones before more pronounced weakness emerges in the summer. Hourly ES (e-Mini S&P Futures) chart below:

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It was a matter of time… and it appears that the time is now upon us. AAPL has officially broken its steep 2012 uptrend. I'm not sure how fall it falls from here, but it appears - especially with (now) three straight days of significant underperformance - that AAPL's epic 2012 run is at an end. My own feeling is that it can fall further than most expect, but we'll see. I may see with some puts in hand.

***UPDATE: Rather than purchase puts, I just got old-fashioned short north of $600. Test of 50 SMA coming up around $665 or so. 200 SMA is in the mid-400′s. AAPL continues its streak of under-performing the larger market. Hot money in, hot money out… - I'm last copying this to S.A., but had posted this on my blog Friday.

Disclosure: I am short AAPL.