From Russia with Love
I hate FED days!
Good morning and welcome back to the sack. Yesterday's slither and sexy come hither did little to quell the Minyanville jitters. Despite last week's fright (and subsequent flight), both Hoofy and Boo can't sleep through the night. The problem, it seems, comes down to the dreams of two bitter camps divided in teams. Will the bovine fulfill the dip buyers thrill or slip through the cracks of a crisp autumn chill? It's a spankin' new session of minxy obsession so settle on in and let's ask some questions!
We've discussed the dynamics in play and, after a day of give and take, not much has changed on the horizon. Sure, you can offer that merger mania is back (and that's a sign of better times) but you'd have to allow for the other side of the coin. After the torrid pace of the bovine race, one could argue that CEO's are looking to spend their inflated currencies. Further, if you wanted to be a bitter critter, you could make the case that investor's reaction to the Bank of America (BAC:NYSE) deal was a collective thumbs down.
Around the world in 80 ticks, the Russian markets have recently experienced insane volatility (down over 10% before rallying back). While this is a far cry from than the Ruble crisis that melted the world in the late nineties, it's worth noting nonetheless. Whenever you start to see major global markets (such as Japan or Russia) gapping and slapping, it's something to watch. Despite a handful of domestic (large cap) issues getting clipped at the knees, the Minx has generally shrugged her way through this period. As we know, that's either a sign of resiliency (bullish) or ample warning that the tide may slide.
What's interesting, at least to this observer, is that stateside volatility levels remain conspicuously subdued (in spite of the pickup in global movement). I've been forthright (and early) with my view of the inevitable bubble trouble (psychology, debt, housing, derivatives) but, as we've learned, they'll remain in the dark corners until they're blatantly obvious. In the meantime, the market has validated and emboldened the public to believe that the only risk is not being fully invested. That's what Elmer wanted (via low rates) and that's what he'll have to live with.
Focusing our lens from the big picture to the here and now, it sure seems as if everyone is watching the same levels. We knew that the first test of S&P 1020 wouldn't go down without a fight and additional support lurks underneath at S&P 1015 (summer acne) and the G-Spot. On the upside, S&P 1040 will offer the first hump before uber-important resistance at S&P 1050-1060. The dip buyers and trend friends will correctly opine that this script has played out all year and there's little reason for worry. For the better part of the year, any sell-side interest has been completely unmotivated and shallow. We've seen that dynamic shift for individual names but, as a whole, the broader tape has been insulated.
Why "could" this time be different? Leadership issues (link) have gotten dinged of late and that's brought the second half recovery back to the front burner. If you remember correctly, we've been on pace for a second half recovery for the past three years and once the dust settled, Hoofy was left holding the bag. The flood of stimulus has buried that fact (and most bears) and shifted conventional wisdom from overt pessimism to giddy optimism. That's the virtuous cycle of a grizzly market. Kill the longs, maim the shorts, bury the believers, drown the doubters, offer hope, yank it away. And so it goes.
After Beeks stops by for breakfast, the whole world will await Elmer with baited breath. These sessions generally are a bit more bi-polar than most so understand that the tenor may shift dramatically after 2:15 (either way). Our mainstay tells remain in play, namely the financials, semicaps, cyclicals, retail and the breadth. Europe (thus far) is firm, gold is a somewhat softer (after banging its head at $389 resistance), the dollar has hissed a bit higher (read: dead cat bounce) and tertiary earnings continue to paint the tape. Let's get ready to rumble!
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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