By Todd Harrison Oct 02, 2003 9:00 am
I'm bearish--and I WANT to see a morning rally!
Good morning and welcome to the morning after. With yesterday's spry fly to the sky, the manic demand dwarfed the feeble supply. It answered all of Hoofy's prayers and served notice to the newfound bears. Will the Minx now rip and follow through or is this the set up for young Boo? It's a new day of Minxy fray so saddle up and let's get paid!
A few issues stood out about this sprout and I want to discuss what they're all about. As the fourth quarter began in 2002, for instance, the S&P popped 4% the first day, dropped more than twice as much the following week (or so) and snapped back three times as fast into Halloween. This is certainly a different tape--we were quite oversold last year vs. sitting on fat gains now--but my point (yes there is one) is that volatility will almost certainly pick up as the leaves change colors.
The bulls will (correctly) argue that gains are gains are gains but, in my bones, yesterday's rally felt somewhat artificial. What do I mean by that? There was a tremendous amount of index buy programs in motion (particularly at the end of the day) and that, coupled with the fresh and pressy shorts, created a "supply vacuum" as the day wore on. Now, there IS a bull case here--the tape got (short-term) oversold and triggered stochastic buy signals (while not suffering too much damage), there is further performance anxiety (many are underperforming) and the liquidity spigot (and electoral agenda) is still in motion.
However, this could very well be the "failing rally" that would prove to be a textbook bull trap. If a short side set-up is "the" play, Hoofy should hit a wall near S&P 1025-1030. That would create some nifty dandruff (at a Fibonacci retracement level) while simultaneously shaking out the fragile fur. My gut favors this scenario and, more likely than not, I'll fade the parade to play the cascade should we get there. As a qualifier, however, I must add that I will follow my tells to detect a smell (discipline). If the breadth is as minty as it was yesterday (or there is overt leadership), I'll likely rethink the strategy.
So, start your engines, ladies and gentleman, and let's brace for the race we all must face. As Minyanville enters the terrible two's, it's shaping up as Hoofy's race to lose. As always, you've gotta do what's right for you as each Minyan has a unique risk profile and time horizon. I'll always give you my honest take (we're at the tag ends of a cyclical bull within a secular bear) but I've been wrong before and I'll be wrong again. What you can count on, however, is that I'll always be honest.
Good luck today.
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