Tuesday's with Story
I'm a cold bear...but I'm a cold bear that's watching the dollar!
Good morning and welcome back to the saddle. Since we last spoke, the equity race picked up in pace and set the stage for a bovine embrace. The bulls are in a groove, the tape is on the move and the bears clearly now have something to prove. Will Hoofy's horse power empower the tower or can young Boo's moxie turn the sweetness sour? It's a new day in the minxy fray so settle in, Minyans, and let's make some hay!
Late Thursday, before I boarded the hugfest express, we discussed the dynamic that was in play for both sides of the fence. The bulls argued that the recent pullback brought the averages back to technically important support zones while, at the same time, triggering stochastic buy signals. The bears, or what's left of them, were eyeballing a scenario that would conceivably set up a "failing rally" by putting in a lower high. Sure enough, Friday's run for the roses spurred a sharp rip higher but, as it stands (don't blink), we've yet take out the September highs.
To be sure, Hoofy seems to have the upper, er, hoof as performance is the measure of last resort (and the averages have popped nicely). The jobs data seemed to alleviate concerns regarding the paucity of the economic recovery and, in holiday thinned trading, the combination of new money and short covering was enough to giddy up the pup. Objectively speaking, the last two sessions exhibited the characteristics the bulls want to see (snazzy internals, financial and tech leadership) but, if the bears want to get technical, the rally wasn't as loud as it could have been (read: low volume).
Yesterday's close, while above the S&P 1030 level we were monitoring, is within spittin' distance of the recent highs. That's gonna be the focus as we trudge forward and you can be sure that the bulls want to put this area in their rear-view mirror. In addition the "last chance resistance" from the September top, S&P 1050-1060 will also offer multiple bottoms from 2001 and 2002.
As a function of this year's stellar gains and the current momentum, October is Hoofy's race to lose. With that said, please remember the oldest adage in the trading bag of tricks. After a benign preannouncement season, players have aggressively bought the rumor (of much better earnings). There is a good chance we get them, cookie, but there is also a legitimate shot that traders sell the news. What's more, the margin for error is razor thin so if corporate America doesn't shine (or the next jobs data doesn't confirm, or the Middle East muck thickens or...), that whirring you hear will likely be the vacuum that is sitting under the tape.
The macro data is pretty quiet this week but, fear not, there will soon be enough catalysts to shake a stick at. The front end of the earning's cycle is upon us (Alcoa (AA:NYSE), Pepsi (PEP:NYSE), Genentech (DNA:NASD), Yahoo! (YHOO:NYSE), Juniper (JNPR:NYSE) and General Electric (GE:NYSE)) and, as such, the fundamental follies will take center stage. Also, we know that the metrics are intertwined to a degree and with sentiment as bubbly as it is, we've gotta keep a close watch for pricks in our midst.
We power up our systems this morning to find the dollar index trading at multiyear lows. The dollar squalor has been brushed off all year but if this drip continues--which, interventions aside, is inevitable in my opinion--it'll start to get loud in trading circles. As my thinking goes, a lower dollar will lead to imported inflation which, when coupled with sluggish growth and high unemployment, points to the dreaded stagflation scenario. I understand the recent labor data pointed to job gains but one report does not a trend make. This may not be actionable (yet) but please, Minyans, toss it on your trading radar as we trudge ahead.
Turning our attention to today's tape, I'll be keeping a keen eye on the financials (both the banks (BKX) and brokers (XBD) are tickling their yearly highs), the breadth (been the best tell), the greenback (signs of stabilization/slippage), the cyclicals (earnings proxy), the retailers (consumer proxy) and Europe (the German DAX is currently down a deuce). Also, please note the gaps that are sitting underneath (as a function of Friday's opening) from S&P 1020-1030 and NDX 1362-1336. If they start to fill in (with bad breadth), it'll likely be a mouthful.
That's about it from my end to start the day and I've gotta say that it's good to be back. There's not many things better than spending a holiday (or any time, for that matter) with the family and enjoying the roots of our labor. Please stay tuned for some Minyanville news in the coming days as big things are afoot in the city of critters. As always, we thank you for your continued support and hope this finds you well.
Good luck today.
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