Buckle your boots, Minyans, the games are set to begin!
I typically begin my morning missives with a thought provoking smile--something smart, sassy and fun to read. I've found that a little levity can go a long way in this business and, often times, letting go can help us hang on. As I sat in front of my keyboard and searched for actionable or applicable information, however, I started to thumb through my old files. The archives brought me back to a time of lost innocence, when we took things for granted until they were viciously taken away.
When I first began writing in July of 2000, the Minx was attempting to shake off the spring scare. The NASDAQ was rebounding nicely from its first trip down slippery lane and the S&P was attempting to burst to new highs. I was just dipping my toe into the literary flow but I remember, quite clearly, the giddy mood on the street. After spending the bubble getting in trouble, few bears dared to challenge the new paradigm. Dips were made to be bought, after all, and that strategy helped leverage Main Street to Wall Street.
As it became painfully apparent that averaging down wasn't a panacea, the migration out of stocks began. The south side journey was littered with false hope and empty promises (and a few incredibly sharp rallies) but supply overwhelmed demand as we broke lower. The pattern continued in lockstep--sell hope, buy despair for the squeeze, sell hope--until that fateful September the following year. I read what I wrote that day--the feelings of numbness, shock, anger and sadness--and I thought about my friend Bill. I also remember how vulnerable we felt and how it truly felt like the end of the world.
While the pain was intense at the time, the emotional extreme proved opportunistic for the lucid and calm investor. I often wonder if being so close and witnessing that horror affected my trading judgment. It impacted us all, to be sure, but watching from our 26th floor perch a few blocks away left an indelible imprint on my soul. Maybe it would be cause for concern if it didn't alter my perspective (how can it not?) but, for purposes of this conversation, the disconnect between perception and reality was the "trade."
The sharp reflex rally eventually failed, of course, and set the stage for new lows and two subsequent retests. The final probe (last March) didn't feel like it would hold as support levels get weaker with each test. It did, of course, and the denial (of a bottom) led to the migration of the masses and, some would say, to the panic of today. It certainly doesn't feel like the market will revisit the state of despair but remember, Minyans, the thought of high flying Hoofy seemed as remote as a brazen Boo does today.
The bulls, pumped on simulative steroids, have proven resilient as bad news is ignored and good news is embraced. Further, as Brian has reminded us throughout the rally, corporates continue to improve to pre-bubble levels (in the face of massive issuance) and rates remain stubbornly low (despite meltage of our once precious currency). It's on borrowed time but as long as we borrow, we'll buy ourselves time. At least that's what the folks in D.C are hoping for.
The point of this particular post isn't to look back. Rather, I hope to provide perspective as we forge ahead. There have been many times over the past years when we've been SURE of the health/demise of the markets only to wish we had been less emotional. As we ready for earning's avalanche, we must now weigh the potential for the panicky melt up (the last phase of the trading maze is always the most vicious) vs. uber-extended levels and frothy optimism. Further, the great debate isn't whether the coming reports will be good or bad--it is only focused on how good they will be. They could vibe (and most likely will for the most part) but always factor field position and crowded camps into your decision making process.
Pay particular attention to the SOX (broke out yesterday) as a leadership tell (in front of tomorrow's Intel (INTC:NASD) report) as we find our way today. Also, remember that S&P 1150--a 50% retracement of the entire bear slide--should act as a relatively staunch resistance (particularly if we spike there). We begin the session with Europe firmly in the green, the dollar giving a bit back and the critters lickin' their chops.
Good luck today.
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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