Boom Boom Room!
One more hump!
It was a cold, dark and dreary Tuesday as Hoofy and Boo convened at Ollie's for an emergency morning mindmeld. I walked through the front door a few minutes later, covered in rain but in surprisingly good spirits for such nosty weather. I spied the critters at their corner table, forcing small talk but clearly pensive and immersed in market related vibes. I walked past the counter, grabbed a hot cup of joe without breaking stride, peeled off several wet layers and pulled up a chair with my metaphorical friends. The conversation went a bit like this:
Toddo: Wasabi fellas? Thanks for schlepping here to meet me. As you both know, Ben "Boom Boom" Bernanke was tapped to succeed Elmer as the most powerful banker in the world and that sent ripples through the global markets yesterday. I entered the session sensing a try to S&P 1200 (a thought that crystallized when we picked up the chatter near the opening bell) and, as I noodled the implications, I opined that my odds for a year-end rally upticked in kind. I wanted to further flesh out this notion with the two of you before we got this party started.
Hoofy: Good idea, Toddo, and lemme give you the consensus take from Matador City. President Bush's choice of Ben Bernanke to succeed Alan Greenspan is the perfect solution to maintaining a path of continued financial prosperity. Since taking the reigns in 1987, Alan Greenspan has maintained a steady hand as Fed Chairman and guided us through economic crises in 1997, 1998 and 2000. The Fed pursuit of sound economic policy (with an eye on controlling inflation) has helped ensure our prosperity and solidify the U.S. dollar as the standard bearer for international trade and exchange. There is little doubt Ben Bernanke will pick right up where Alan Greenspan left off.
Boo: Bovine optimists. Shocker, eh? We have a slightly different take in Red Dye. Ben Bernanke is the perfect solution if the modus operandi is to feed artificial stimuli to a patient that was never allowed to self-recover from the post-bubble blues in the first place. Since taking over as Federal Reserve Chairman in 1987, Alan Greenspan has maintained an unprecedented course of reckless fiscal and monetary policy that is either hell bent on destroying the middle class or reducing the once mighty dollar to a status unworthy of fire kindling. I agree that Ben Bernanke will pick right up where Alan Greenspan left off and accelerate the inevitable arrival at a two-class society.
Toddo: Well, let me be clear on one thing-- I firmly agree with Boo on the big picture ramifications of this appointment. Having read Boom Boom's scribes and vibes over the years, he is clearly someone well versed on the virtues of reflation and seems determined to print as much money as he deems necessary to keep the world's largest thermometer hot to trot. This should further the wedge between the "haves" and the "have nots" but, to be fair, I'm uncertain what would stop that disturbing evolution at this point.
Boo: What about the timing, Toddo? There was horrific news out of Iraq (that the mainstream press conveniently failed to adequately cover), sick birds are migrating throughout Asia, contagion concerns continue to plague the financial complex and some mighty high level politicians coming into the crosshairs. BUT WAIT! Why focus on the negatives when we can celebrate the new sheriff in town, a man who can shape the tape for a great escape?
Toddo: As you know, I approach the tape through a two-pronged process: big picture positioning and active risk. My vibes on the former haven't changed-in fact, if Big Ben acts in a manner consistent with his stated agenda, the metal arena could find a bit more wind at its secular back (as the dollar gets dropped like a bad habit). And, as you know, I'm still believe that energy has room to run (albeit a choppy run) for those with patience and a longer-term horizon.
Hoofy: But you're a bit more constructive on the near-term?
Toddo: The S&P has been churning under resistance (1200) all month and, until proven otherwise, that remains the Hump du Jour. However, the tech tone (NDX and SOX) notably shifted last week when they falsely "broke" under their 200-day moving averages and snapped back nicely. I sensed the liftage to 1200 but wasn't "sold" on the notion of the year-end rally. I believe that yesterday's news increased the odds that the bulls make a run as perception is reality. And, from where I sit, a perception is permeating that the Greenspan Put has been rolled out.
Boo: What changes that view?
Toddo: Price and time. If the Matador Crowd can't embrace this psychology and put S&P 1200 under hoof in short order, the momentum could fade and trap the newbie longs. I'll also be watching the internals (they should be a better "tell" with expiration behind us), the banks and semis (both have been laggy have the most "room" in a rally), and our oft-mentioned technicals (defined risk is massively important regardless of which way you choose to play).
The critters looked at me, at each other, then back at me. They knew we had to boogie if we were gonna get to our turret by the opening and I could already sense the nervous anticipation. "Look guys," I said as I fished out a finski, "the market is ever-changing but our process, while prone to adaptation, must remain constant. The mechanics of the swing have always been more important than the results of the at-bat. That may sound trite at first bite, but it's a lesson I've repeatedly learned in my sixteen years on the Street. Trust me."
They nodded. We left. And the games were officially set to begin.
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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