Check your emotion at the door, please.
Good morning and welcome back to the scorning. The most recent dip loosened the grip of the bountiful bovine's most excellent trip. While the action was sour during yesterday's shower, the bulls will maintain that it lacked proper power. Is this Hoofy's chance to embrace an advance or will Boo finally make a discernable stance? It's a new day of prancing and minxy romancing so saddle up strong and let's get to dancin'!
The question at hand, if making a stand, is whether there is robust end demand. If perception is truly reality, that is ample support for the "things are getting better crowd." Corporate America, on the aggregate, played the numbers game and beat the street. That's what you'll hear from the teletubbies (as long as the market is higher) and, despite obvious efforts, there's still a fair amount of cheerleading from Wall Street. What is that saying about old dogs and new tricks?
Despite the "impressive earnings growth," the bearish bb's have started to ding the bovine battleship. Lukewarm commentary from stalwarts General Electric (GE:NYSE), IBM (IBM:NYSE), Caterpillar (CAT:NYSE), Merck (MRK:NYSE), JP Morgan (JPM:NYSE) and KLA-Tencor (KLAC:NASD) has planted seeds of doubt. Heck, the CFO of 3M (MMM:NYSE) opined on Monday that, despite beating the street, there are "no signs of an economic recovery." If this is the best we can do on the heels of historic stimulus and an equity friendly macro backdrop, what will happen when we get our palms red?
Let's assume for a moment that we removed the currency gains, government spending and cost-cutting measures (that have aided these results). I have my opinion on the dollar (ultimately heading much lower) and, while the drippy slip is considered bullish in the throws of a psychology (and liquidity and debt and derivative and housing...) bubble, there's something about a dissolving currency in a service-based economy that doesn't sit right.
Still, Elmer seems intent on satiating the beast by encouraging even more debt and urging increased leverage. As we learned in 1999, these type of things can last longer (and suck in more believers) than we ever thought imaginable. The caveat is that bubbles are not standards by which to measure success--expectations are too high, greed is too prevalent and there is too much capacity per unit end demand. Something is gonna give, eventually, but the higher prices (and talking heads) have conditioned people to believe that these stories always have a happy ending.
My biggest fear for young Boo is that it's dangerous to underestimate the power of an electoral agenda. There's seemingly too much at stake for the hand stand to fall on its face. Can the juggle snuggle continue for another year? While there was a time in my life that I would have once said no way, you're talking to (or, at least, reading) a guy who watched the Yahoo's (YHOO:NASD) and Micro Strategies (MSTR:NASD) of the world rally hundreds of points...in a week!
There is no way to measure how much liquidity is left in the gas tank (read: air in the bubbles). I have no doubt--yes, zero--that we're wading our way through historic times and our grandchildren will study our erroneous ways. It has nothing to do with the potential nightmare that is the Middle East (despite the fact that it may be used to deflect the focus from the underlying issues at home). The structural foundation of the financial system was shaken by the greatest bubble in history. War or no war, that's not going to fade away just because we're pretending it doesn't exist.
Sorry for the rant--it's just that we've seen this movie before and, now that Elmer has effectively squeezed everyone back into the market (via low rates), the individual is once again holding the bag. Today's business? Maybe...maybe not. Asia was down a finski (yes, folks, that's 5%) and that may be an ominous precursor. Then again, if recent history is any guide, Boo will need to keep his right paw up as he seeks his honey.
The 50-day moving average supports are at S&P 1020, NDX 1353 and Dow 9516 (trendlines are in place at S&P 1015ish and NDX 1360ish). Watch these zones as potential gathering spots for bulls and turtles as they try to dig in their heels. Over the last week or so, we've spoken about the Burned Razor thesis and its dependency on fear and dip failures. Yesterday was the first time in a long while that the dip buyers weren't rewarded. On the heels of Asia's action (and with longs lugging massive inventory), this session is shaping up as mission critical for both camps.
Good luck, my friends, and hit 'em hard.
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 firstname.lastname@example.org.
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