Cruisin' for a Bruisin'
By Todd Harrison Jan 22, 2004 9:25 am
I can see you
Your brown skin shinin' in the sun
You got that hair slicked back
And those Wayfarers on, baby
Good morning and welcome back to the critter attack. With yesterday's fun and late day gun, the bulls took another run in the sun. The bovine and groundhogs, now best friends, were cruising the 'Ville in Hoofy's new Benz. "It's no M5, this car I drive, but make no mistake that I have arrived!" Does the trip they are taking mean new bubbles are making? Or will their ride overheat and break down from the shaking? The journey begins with a single one step so please settle in as we ready and prep!
1996. TWA flight 800 crashed of the coast of Long Island, Bubba took (and gave) second helpings in the Oval Office, Tupac Shakur was gunned down and the Macarena--annoying as it was--dominated the airwaves. It was a time of change during a period of innocence and we were about to embark on the wildest stretch in stock market history. It was also the last time that the VIX--the stock market's way to measure fear via volatility--was this low. Eight years. That's a whole heckuva lotta hair follicles!
Whereas the great debate in '03 was whether the rally was sustainable, current discussions are focused on how elastic the new balloon can become. Earnings, by and large, are coming in rock solid (relative to expectations), the technical backdrop is sugary sweet (hence the acne), psychology is giddy city and the structural underpinnings (including the tight corporate spreads) are just fine, thank you. While the ice may be the thinnest it's been since early '00, traders figure they'd skate until the cracks start to appear. Or so they hope.
You'd have to be on planet Pluto not to see the Pavarotti tenor and firm tone. In fact, most participants have already laced up their blades and joined the fray, ignoring the pleas of what Boo has to say. Much like the proverbial pond, however, the market can only support so many cocky, er, hockey players before giving into the gravity of the situation. Young Boo may be the frosty critter, for metaphorical purposes, but he'd rather chill there than sleep with dem frozen fishes.
As frigid as the implications are, the action each day is getting hotter and hotter. Yesterday's tour de force was a continued rotation into financials, pharma (big cap and biotech), industrials and energy. The short end of the stick belonged to the semiconductors (and tech in general) but when the dust settled, Hoofy was lookin' for another hat trick. If we're not yet at the point where there is nobody left to fight and no wills left to break, we're getting awfully close.
As simple as it sounds, the financials (and breadth) should tell most of what we need to know (think ice and cracks). They've acted better than Martin on a chaperoned date and settled at BKX 1000ish. That level is more psychological than technical but it's worth watching in my view. Also, for a little perspective, the bank group relative p/e has been between 40-90% of spx multiple--90 at M&A mania peak and 40 when banks got no love in the tech boom. It's currently around 73% , for those of you who like to monitor that sorta thing.
Finally, put this in the "I saw it but I still can't believe it" file. Yesterday afternoon, a friend of mine was on television talking about all of the bullish elements currently in play. When he got to "Mutual fund cash levels are at all-time lows," he opined that this, too, was bullish (as it shows that money is being put to work). Listen, there are a lot of things the bulls can point to explain the rippage but, please, that is NOT one of them. Last time I checked, low cash levels lead to tighter purse strings.
As always, just one trader's humble opinion. Good luck today.
No positions in stocks mentioned.
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