Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
On Monday, we flagged A Signal That Bears Watching
; the vaunted Morgan Stanley
, which indicated that much of the hot-popper through the top-end of the trend channel was short covering rather than real buying. The last three times that happened was April 2010 (the S&P
(INDEXSP:.INX) fell 13% in eight days), July 2011 (S&P fell 19% in 23 days), and Oct. 2011 (S&P then fell 10.5% in 20 days). That's a small sample set, but an interesting one nonetheless.
Yesterday, as the S&P romped higher in the early goings, I was feeling some pain in my shorts (my positions, not pants)—it's tough to "trade around" a bias when the price action is decidedly one-sided. I vented that frustration, while noting that The Chasm Between Commodities and Stocks continued to Widen
. That ‘revision to the mean’ has begun—the S&P is indicated down a percent as gold is trading 2% higher—and I've included an updated chart below for purposes of perspective (it has a ways to go).
On May 1—the day after my operation, which is sorta nuts—I wrote a Buzz that said
, "I have not looked at the tape today but for what it's worth, I have a good buddy in the paper industry who tells me his business activity in China recently fell off a cliff and has not picked up
. He shared a similar tale prior to the last sizable correction so I sat up (slowly) and took notice." The S&P rallied 6% from the low that day to yesterday's high but the anecdotal data point evidently had some teeth to it.
Overnight, we learned that China manufacturing contracted in May for the first time in seven months. That, coupled with the mere specter of Big Ben pulling back the punch bowl "in the next few meetings" (if the Fed believes the economy can self-sustain) punk’d Japanese equities 7.3% in one quick pffft!
Of course, the tricky Nikkei
(INDEXNIKKEI:NI225) had rallied 84% since November (pause to let that sink in) so that too, requires perspective.
Should the crimson tide ride through the close, today will be the second straight Debbie Downer. If by chance Freaky Friday follows suit, it will put an end the longest streak of consecutive sessions in the Dow Jones Industrial Average
(INDEXDJX:.DJI) without a three-day decline since 1900. That's a long time ago; I think Neal Glassman was still in high school!
Late yesterday on the Buzz & Banter
, I offered the following vibes:
Whispering "Even a broken clock is right twice a day," and understanding that the S&P (-18) is now back to where the market closed last Thursday, I am not
covering my short-side exposure into the close.
Lack of discipline? Off the reservation? Good money after bad? Maybe, but given where we've come from—and where I perceive we're going over the next month or so
—I'm gonna give the downside some room.
Famous last words, right? Right!
I'm not jumping on any bandwagons—or jumping on anything for that matter, a soapbox or otherwise—but for what it's worth, my sense is that S&P 1600
may prove to be the "easy trade" with the benefit of hindsight, and S&P 1500
is a legitimate downside target that could arrive before the meat of football season. And, it will be interesting to gauge the feedback on this contrarian observation relative to the venom following The Gold Scold
, which was written when the yellow metal was trading at $1900.
Of course, I will trade around my short-side bias—hit-it-to-quit-it and make-it-to-take-it—in an attempt to check all of the boxes in My Ten Trading Commandments
(note: I was missing three yesterday
). I haven't exactly been...hmm, what's the word...good
since my hip surgery, but a funny thing has started to happen as I taper off the remaining pain meds; there are glimmers of lucidity and moments of clarity. Imagine that!
I'm not gonna jinx myself (again), so suffice to say we'll take this journey one step at a time as we together find our way, in real-time, over on the Buzz & Banter (click here for a free two-week trial!).
The American Association of Individual Investors Weekly Equity Investor Sentiment Index is out—and boy is that a mouthful! Bulls rose to 48.97% (from 38.49% last week and bears fell to 21.58% (from 29.34% last week). (Source: Bloomberg)
The last three covers of the The Economist are uncanny—if not downright spooky!
Follow the leaders as forward tells; this includes Goldman (NYSE:GS) and JPMorgan (NYSE:JPM) as stateside money-centers, Deustche Bank (NYSE:DB) as an overseas financial proxy, Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), market breadth, commodities (for whiffs of deflation), and the dollar.
And think positive, friend; profitability begins within!
Position in SPY.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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