The Wizard of Wall Street
Pick up the pace, Hoofs, or you'll be grazing on your own tonight!
"A heart is not judged by how much you love; but by how much you are loved by others."
--The Wizard of Oz
Good morning and welcome to the tornado. Our little bear Boo (and his dog Toto too) beat the cheese out of Hoofs (it was long overdue). While the yellow brick road seemed to turn and explode, the cowardly bears need to stop and reload. "I will not depart," said the bulls with some heart, "we just came too far on the equity chart." I wouldn't go poppin' your upside champagne," Boo countered as if he DID have a brain, "the tables have turned and just fools now remain so do what you want but please don't complain!" Will the Wizard of Oz break the porcelain vase or is this just a pause in the strong upside cause? Step on inside the Minyanville lore cause we're clearly not in Kansas no more!
Let's cut to the chase--will yesterday's shocker undo Elmer's Glue? That's the great debate on the rate spate and will color investor sentiment (and actions) in the sessions ahead. To be sure, the absolute level of interest rates is not what's at stake--the difference between 1% and, say, 1.25% is a pimple on an elephant's ass (can I say that?). In fact, Fed Fund Futures are already pricing in an 80% probability of such a move (by June). The more compelling question, from my perch, is whether the subtle shift in stance will lead to the questioning of authority. Lemme 'splain Lucy.
For...ever, it seems like the Fed Governors have been jawboning this market and complementing their structural agenda with verbal support. I can't recall, exactly, the last time they assured the investment community that they'd do whatever it takes (something about "unconventional policies") but they clearly backpedaled a bit. This may seem like nitpicking to some, but with a legitimate psychology bubble in place, we must be cognizant of Fed credibility and any cracks in the collective mindset. Further, and just so it's out there, I also believe that there's the potential that confidence in the current administration could come under fire at a point.
Speaking to my hedge brethren last night, we bantered about whether the exclusion of "considerable period" was a simple excuse to sell (vis a vis field position) or more ominous paradigm shift. The answer won't be obvious without the benefit of hindsight (and isn't necessarily a function of today's action), but I've long believed that a crisis in confidence could eventually be the prick that ends the parade. My sense is that it'll be something like that or an eventual issue at the House of Faud (Saudi Arabia) and an ensuing oil shock...but that's a conversation for a different time.
Pure eyes? The homies got smoked like a Philly Blunt yesterday (down 5%), the mortgage lenders and cyclicals staged a sharp (downside) reversal, the brokers took a 3% haircut and the piggies got left in the market. I've been carefully monitoring the rate sensitive issues (they've acted unbelievably) and I continue to think that they hold the key to the vault. Moreover, if money rotates out of that complex, we'll need to watch the money flows for signs of a (healthy) rolling rotation (vs. an outright distribution).
With the perception of higher rates, the dollar (in theory) becomes more attractive as an investment vehicle. The greenback, as we know, has been squeezably soft for quite some time. It stands to reason that a decent short base has built and, as such, there may be some trappage in that arena. If the dollar is believed to be a better vehicle (I still think it's dust in the long-term wind), it could pressure the (crowded) gold camp as well. In that vein, if you missed Fleck's Rap on the 'Ville last night, he makes some intriguing observations on the yellow metal. I strongly suggest you check it out.
We power up our puss to find Europe down a percent, gold getting spent ($8), the dollar trying to vent (up .5%) and all eyes on brent (sea crude). The overnight earning's were lackluster as STMicroelectronics (STM:NYSE) (margins) and Veritas Software (VRTS:NASD) (license growth) are the standout names. As for levels, S&P 1140ish and NDX 1515 (both past support) now become first resistance while S&P 1090 (50-day) and NDX 1450 (acne zone)-1455 (50-day) serves as initial support.
I would expect the bulls to try and circle the wagons and make a statement. Whether or not they can is an entirely different story. After closing on the low tick, a downside probe is quite likely, Doc, and I'll be keying off my tells (rate sensitive names, breadth, semis, biotech, networkers, internets) for signs of slippage and traction. There's a lot to digest, Minyans, so don't bite off more than you can chew and stay lucid. The games, as they say, have only just begun.
Good luck today.
Note: Adam Brodsky is away from his office today and unable to post his morning vibes.
Daily Recap Newsletter