'The stage before criticality' - might best describe what's going on in markets. During a majority of 2015 we technically described it as distribution, evidenced by lower breadth on most rallies versus declines; bounces led by most-shorted, and earlier by often-broken high-beta momo (momentum) stocks of the era; as at no point was there an attractive investment grade opportunity provided. 

There have been alternating trading opportunities for Bears and Bulls alike; but the point of the sharp rebounds faltering (often in recent months around 2100 of S&P), is that traders had to be nimble, by prefer 'fading' the rallies than 'buying' dips, as a primary focus. If one's investment horizon was no more than days or weeks, then yes some long-side plays were doable, but mostly failed quickly in the case of the 'perceived' safe areas for longs (hence poor fund performances for the entire year by both hedge and many mutual funds). 

Throughout the year we provided charts to emphasize the deteriorating internal market condition, as well as deteriorating prospects for economic recovery. Of course the latter is why we didn't argue negativity for the sake of being bearish; but because it was pretty obvious most institutional and quasi-governmental or 'independent' central bank forecasts were excessively optimistic. We projected they would be ratcheted lower; and inevitably virtually all have been. 

So what does this mean? Primarily that there was no sustainable market rally, nor economic 'traction' generally; hence logic for multiple expansion never did exist, as so many strategists and pundits tried to rationalize the outlook both for late 2015 and early 2016. We went so far as to proclaim fundamentally likely a 'Bear Market' began in July of this year, while 'technically', that a bear market was signaled by bearish divergences in many technical indicators; and much of that was evident early in the year, again in the forecast spring rally as well as the modest move into early July, from which we called for erosion. 

This was not all 'fear-driven', oil-driven, Baltic Dry driven, China-driven, war or geopolitical driven, or FX driven. But we believe each of this were contributors to our view of the 'process' of a deteriorating previously-healthy 'forest' of stock sectors; to recognizing the rotational desperation of analysts to rationalize any and all market moves in bullish ways; rather than integrate the factors pointing in the other direction. 

 The US Fed snugging-up already began; predating any rate hike, which is a superficial expression. You'll recall we noted that the commencement of 'tapering' was coincident with more deterioration is favorable market behavior; and increasing liquidation trends.  

Bottom-line: there is no bullish alternative at this time; rallies notwithstanding; especially when you get sharp opening declines (hence we went long for the bounce this morning for traders, then back to the short-side; both worked well).

Having this kind of behavior in December is rare indeed; but in-line with our call and correct interpretation of everything from consumer sentiment (real patterns of spending not delusional rationalizations of it all shifting to online, which lots is of course; but the gross amounts and pressure on margins too, were factors). It was also evident that more stocks than biotech, commodity or energy-related of course were involved in distribution. We may or may not get to the point of real evacuations triggered by dividend cuts; but if we do that may be close to a low, as those who surrendered principal to chase yield (warned of that all year) may evacuate just about the time fundamentals and technicals will indicate time for an accumulation bias. In most cases time for distribution ended about midyear.

I concur with many market observers that this has been one of the toughest of all years to trade; although it sure helped to view it as one of distribution; of the very reluctant topping process; but one that technical analysis, common sense, and a glance at the fundamentals confirmed as well. If one did that; it wasn't at all an easy year to trade, but it was often very profitable (by selling rallies), and importantly avoiding being overly-long in sectors under distribution (suggested a lightening-up on rallies all year; especially Spring and then early-mid July); so an investor who approached it thusly; is more interested in the coming bargains than fretting what to do with excessive longs. Any investor who concurred also avoided the calamities that have been seen in cratering stocks. 

This leads to a less bearish and perhaps incredibly bullish time; with variables that are wide-ranging; such as 'peace in our time', or a War with seemingly no end (it won't be) especially as leaders of the major powers consolidate action, and stop the ability of barbarians to poison more naively vulnerable wackos. A big help will be when leadership encourages confidence in our people to forge ahead, as did FDR after Pearl Harbor, or Churchill in the Battle of Britain. 

We don't have a higher growth rate; we do have interrelated earnings, China as well as other global issues; including continued competitive devaluations. While a few stocks that are unique may weather the storm; most will emerge at lower levels; and that's especially so for the Index we primarily focus on; the S&P. 

At the same time, we recognize that while 'illiquidity' is present, contributing to rabid market swings, it remains the concentration of ownership in the structures most prevalent today that has helped the market hold at relative high ranges; a characteristic that is at-risk of another 'keyhole exit' event, when key supports do come out (lows visited within the last few months), triggering algorithmic and resulting panic compelled liquidations. That will be both exciting, and eventually lead to opportunity in the other direction. Stay tuned.

Incidentally, thanks to a couple members for sharing my thoughts in forums as we welcome new members, and for the kind words about our energetic work. I might add that we had a great 'long' this morning; and a very good 'short-sale'that followed, at about 2071 in E-mini / Dec. S&P; and it's retained partially as a new overnight effort, as outlined.           

Daily action - very nice session; serious post-China data sell-off; led to a great early shakeout, trapping those who shorted early, and allowing us to go 'long' in a nice (potential 10 handle) upside gain, before reversing to the short-side near or at the Dec. S&P / E-mini 2071 area. 

We'll stick with the break-even fixed mental stop of 2071 for the balance of the 2071 short-sale going into the morning. (It's about 2063 just now.)

We did suggest some further trimming twice; first when the short was ahead by about 10 handles; and then in the pre-close comment suggesting trailing a sort of mental stop in the final minutes, with a portion retained overnight. Futures in fact weakened in those final minutes following an intraday squaring; so all that was about as close-to-the-mark as possible for an advance guideline.