This Party's Just Getting Going, Bro!
Who's getting the drinks in?
The best parties are those that feel as though they’re never going to end.
The kind where each time the music fades and your heart sinks in your chest, the house lights stay dimmed and another banger drops. Booze flows freely and euphoria grips the room.
Outside, the duds are sneaking out, there’s vomit in the street and rumours of a fight brewing. You don’t care. You’re locked in the moment, invincible. Dumb to the carnage that’s brewing around you.
Deep down you know it won’t last, but those thoughts are supressed.
You grab your girl, line up the shots and take the dancefloor.
One last dance, before the music stops.
“This party’s just getting go, bro!”
Your buddy slurs in your ear.
You look around, perhaps more sober than your peers, noticing the familiar signs of a party nearing exhaustion. You face a choice:
Sneak out the back, down some water and hope that you’ll escape unscathed.
Roll up your sleeves, accept tomorrow’s pain and dance baby, dance.
The Week The House Lights Flickered
Ever since I joined the ‘party’ back in 2022, it’s been one hell of a ride. Only a few years in to my trading journey and I’ve already seen a regional banking crisis, a ‘Yen Carry’ unwind and one hell of a tariff tantrum.
My read on each of these has always felt the same. Fear clouded my judgement, naïve to the fact that the party, even when I doubted it the most, always had more to give.
And yet here I am again, doubting its duration.
What happened last week, whilst not a total shock, felt like a warning.
During this bull market I’ve seen people blow chunks on the dancefloor and lose their keys down the toilet. But up until Friday, I was yet to witness the kind of carnage that ensued following Trump’s now infamous ‘China Post’.
We don’t need to dig into the details, but for those that missed it, here’s a quick recap of what proceeded Trump’s post:
1.6 million crypto traders were liquidated with over $19bn of leveraged positions wiped out.
Individual traders took their own life, with losses rumored to be in excess of $30m.
The US500 plunged +3%, erasing a month’s worth of gains in just a few hours
China stocks were hammered, with KWEB closing down +7%
The Russell 2000 shed 4% of its value
I could go on, but you probably get the picture.
Markets were rocked and people died.
BTFD, Bro!
48hrs later and things look decidedly different.
In a twist that nobody could have ever foreseen, Trump rolled back his comments and told us all ‘not to worry about China’ and that ‘all will be fine.’
Crypto immediately caught bids, uptrends remained in tact and euphoria once again gripped the bull market party.
For context, here’s Ethereum, which closed the week above the 100% fib extension from the Dec-April shakeout, +20% higher than Friday’s low:
So here we are.
Fears of ‘Black Monday’ are swiftly reverting to the ‘melt up’ norm, with the usual ‘BTFD’ crew looking like heroes once again. A repeatable pattern that’s played out time and time again ever since the bear market lows back in October 2022.
But could this time actually be different?
Chug! Chug! Chug!
Despite dwindling numbers (KRE and XLB have left the building) and the lingering stench of vomit (market breadth peaked late summer), partygoers are growing louder by the second. And why wouldn’t they be? The charts look good, right?
Here’s the weekly US500 chart, which captured some of the move which occurred after NYSE market hours on Friday night. Notice how price held above the 1.272 fib level on the linear chart?
Notice also the upward sloping moving averages, the absence of lower lows and the continued uptrend that’s driven bears to the point of despair over the summer rally? No shit. It’s a bull market, baby!
What Happens When the Music Stops
It won’t come as a shock to the few subscribers I have (I appreciate every single one of you, by the way) that last week’s selloff wasn’t a total surprise.
As alluded to above, a number of metrics I use to assess the health of the bull market have been showing signs of fatigue for a number of weeks:
Regional bank weakness (KRE is down 10% from the prior high)
Homebuilders taking a beating (XLB is down 7% from the prior high)
NYSE stocks trading above their 20dma peaked in May and have been making lower highs and lower lows ever since
Stocks trading above their 50dma peaked in July and have been locking in lower lows and lower highs ever since.
Stocks trading above their 200dma peaked in August and failed to make new highs in September whilst SPX reached new all time highs.
And then there’s this little doozy.
This chart compares XLY/XLP (Consumer Discretionary vs Consumer Staples) against the S&P 500 (SPX) — a classic way to gauge risk appetite in the market.
When the XLY/XLP ratio rises, it signals investors are favouring growth and cyclical stocks (risk-on). When it falls, money rotates toward defensives (risk-off).
Right now, we’re seeing a bearish divergence: while the S&P 500 keeps pushing higher, the XLY/XLP ratio’s momentum (RSI) is rolling over — just as it did ahead of prior pullbacks. That loss of strength in consumer leadership suggests risk appetite is waning, even as headline indices remain near highs.
In short: the market’s still partying, but the leaders are starting to leave the dance floor.
This is also evidenced in the relative weakness of the Dow Jones Transportation Average relative to the Dow Jones Industrial Average, which exactly what I mean when I say that ‘Papa Dow is walking with a limp’.
Keep on Dancing or Rush to the Exit?
The great thing about technical analysis is that it allows us to be patient — to stay glued to the dancefloor until the lights come on.
If the bulls keep the party going for another hour, day, or week — I want to make sure I’m getting everything out of it that I can.
But that doesn’t mean I have to be reckless.
Am I going to load up on tequila just as the music fades, hoping for another endless summer of gains? Hell no. But I am going to trade — even if it means doing so with a lighter load, tighter stops, and better entries.
It feels borderline ridiculous to question the obvious — especially as stocks bounce in front of me to the sound of yet another encore — but I can’t quite bring myself to look away from those already calling it a night.
Maybe this party keeps poppin’. Maybe it fizzles and dies. Nobody knows.
But if I’m sticking it out on the dancefloor, I’m doing so with one eye firmly fixed on the exits.
Best,
Al