I have traded for 38 years.
Never have I introduced a theme I considered more important than this one.
The market is in a state of entropy - a scientific term that describes disorder, randomness, and chaos building inside a system until something breaks.
We’re 5 days away from the breaking point.
The degree of randomness right now is at a fever pitch. Stocks beat earnings and get destroyed anyway.
Companies warn and then rally. Downgrades send prices higher while upgrades send them lower.
None of it makes sense because the system has reached maximum disorder.
The Disorder Nobody Wants to See
Entropy comes from thermodynamics. The greater the degree of randomness, the greater the degree of disorder.
When machines kill volatility and lock prices into tight ranges, they create the appearance of stability. That appearance is a lie.
Beneath the surface, rotations flip daily without logic. Tech sells off while defensives run vertical, then the next day reverses completely.
Parabolic movements hit stocks intraday. They run 90 degrees vertical then stop on a dime at overbought levels.
This price action is seriously unhealthy. It tells you a top is forming.
The Five Day Window
We are sitting at the apex of an ascending triangle on the S&P 500.
The MACD slope is completely flat. A flat slope means the market is two-sided and could rip 200 points in either direction within seconds.
Watch two levels. If the MACD breaks through the zero line and the RSI takes out 50 to the downside, the rally is over.
I am making the call right now. When we break, we break hard.
The only forces propping this up are retail call buying and senseless rotations. Fundamentals have become useless and even technicals struggle to provide clarity.
What Entropy Produces
Picture a coiled spring compressed beyond its design limits.
The tighter you wind it, the more violent the release. That release does not happen gradually.
This market wants to resolve in one direction or another. The algorithms have locked us in a range for weeks and will not let it die.
But entropy always wins. The pressure builds until the system cannot contain it.
When it blows, you will not get a warning. The move will gap and leave anyone positioned wrong staring at losses they cannot exit.
How to Position
Do not force trades into entropy. The randomness will destroy your account before the resolution arrives.
I am up 2% today on a flat tape because I own defensive stocks nobody else wants. Colgate Palmolive, Budweiser, Ball Corporation, Cheesecake Factory.
These names move with normal volatility. They go up and down like healthy stocks should.
They are not locked in algorithmic feedback loops that only permit buying.
When the spring releases and tech corrects 10 to 15%, these positions will be the last ones standing.
The Genesis COG System identifies exactly when entropy reaches critical mass and the coiled spring can no longer hold.
The disorder is at fever pitch. Position accordingly.
[See how Genesis COG detects when market entropy finally breaks →]
Professor Jeffrey Bierman
Creator of the Genesis COG System