Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
Today's stock market rally is a function of:
China didn't blow up and Shibor is off its most elevated levels.
Less-than-stellar stateside economic news has investors dreaming of a tapered
Quarter-end is on tap and fund managers are fighting tooth and nail to defend their portfolios.
Traders are conditioned like Pavlov's dogs to buy dips, with or without a trend line.
All of the above.
OK -- pencils down. The correct answer, in my view, is E)
All of the above, in some way, shape, or form.
Next Question: Will it last?
While my crystal ball is in the shop, I'm making a bet that it won't, and if I'm wrong, I'll be wrong for a defined amount of risk (for particulars of my current position, please click here
Market breadth (3:1 positive) is the biggest fly in my current downside try, but I'm attempting to keep loose grips on the handlebars and not over-trade; in this market, proactive patience is a virtue.
S&P (INDEXSP:.INX) 1600
—right here—is initial resistance (the front of the danger zone) and that will be the battleground as we edge through the afternoon. The bulls want desperately to claim this territory; the bears, of course, want to swat them down.
Around and around we go; where we stop, nobody knows.
I will say this: On May 8, I wrote that the "directional certitude" in the stock market
was as high as I've ever
seen it (the S&P was trading at 1625 at the time). The tape continued to rally for another 10 sessions—and sixty
S&P handles—before dropping 127 handles the following 23 sessions, which brought us to S&P 1560
on the low this past Monday.
127 handles—almost 1,000 points in the Dow
(INDEXDJX:.DJI)—is a big number and a reflex rally shouldn't come as a shocker.
I hearken back to September 8, 2011
. Anyone who dared whisper a negative word about gold was taken out back and shot. No joke; I consider myself a pretty moderate guy and I got HATE mail; vicious, nasty, searing words for sharing a bubble comparison chart, with gold
among the asset classes.
Gold, after that article, dropped 20% this quick
, rallied 17%, dropped 15%, rallied 18%, dropped 14% -- went sideways for almost four months -- rallied 14%, and then began the journey lower with a drop of 30%.
My point -- and yes, there is one -- is that markets, be they gold markets, stock markets, or bond markets, tend to pave a path of maximum frustration. That's always been true but these days it's particularly true.
That's why we have to adhere to discipline over conviction
as we together find our way; the destination we arrive at will pale in comparison to the path we take to get there.
As always, I hope this finds you well.
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 email@example.com.
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