The Royal Flush
Let's be smart Minyans!
There's a reason why there's a price of admission to watch live sports while highlights are carefully chosen by the popular press for public consumption. For every masterful play or superhuman display, ordinary instances and penalty flags litter the landscape and separate the excitement. Nobody wants to revisit moments of indecision and sloppy execution, they want to see the best plays, the final score and the time of the next scheduled game. It's human nature, particularly with the "what have you done for me lately?" mindset that seems to be sweeping the Street.
The recent romp at Madator Stadium is no exception. With wildly excited bulls waving wads of freshly minted money on one side and a sparse dislocation of die-hard bears quietly sitting on the other, the teams are ready to take the field after a two-day timeout. The clock on the scoreboard shows seven weeks left in the fourth quarter and the bovine ahead on all three judges' scorecards. The Vegas line continues to discount a continuation of the recent trend as momentum has been established and embraced.
The bears will argue that the game is fixed, as the bovine are flush with liquidity and supported by popular opinion. "How the heck are we supposed to compete when Elmer, the minxy equivalent of George Steinbrenner, keeps putting fresh bulls on the field?" asked a bruised Boo after the latest loss in a shameful stretch. "It's one thing to have home field advantage but another to line-up against wave after wave of manufactured monsters!"
Semantics are typically the last bastion of reactive rationalization. Boo's crew will argue that there is a massive difference between a strong economy vs. a market juiced with liquidity and debt induced bravado. Hoofy doesn't care if they call it "Red Sox Rubbles" as long as he can drape Daisy in diamonds and sport his own bling bling. "Let's be honest, would you rather be the guy hittin' a double in Google (GOOG:NASD) or the genius explaining why it shouldn't have happened?"
That last question is rhetorical but hits home in a number of ways. For one, as a function of the latest lift, more and more fence sitters have let past performance dictate current perception. "Of course the market is better--look at it!" seems to be a popular response when I choose to play devil's advocate, "and the 'big bad unknown' that was the election is crystal clear, bad earnings have been absorbed, good news is being embraced, crude is behaving and higher prices will find more sellers than buyers. It's a perfect year-end storm."
True dat. With Elmer, Cisco (CSCO:NASD) and Dell (DELL:NASD) out of the way and the Microsoft monopoly money (MSFT:NASD) due to arrive, flows have been strong, technical penalties have been overturned and 'tis the season for happy reasons. But taking a step outside of the utopia that are equities and corporate bonds, the walls have been scribbled with cause for pause. Gold is at sixteen year highs, the dollar is ticklin nine-year lows and the lines of distinction between a liquidity flush and a royal flush are no longer being discussed. It's one thing to have a strong market but quite another when the different markets are painting disparate pictures.
It wasn't long ago that a bevy of technical signs were pointing lower, observed Minyan Michael Santoli in his always enjoyable weekend read. As recently as August, he notes, the number of new lows in the S&P painted a rather gloomy technical picture. The market is up 12% since then and retail investors have since embraced this rally with feverish fervor. That, to me, is the wild card to the year-end equation. If the speculative saliva has just begun, this could last a while. If, on the other hand, we take a giant step back, we remember that the retail investor is always the last in and the first to hold the bag.
We power up this expiration week pup to find Asia screaming wasabi!, Europe mixed (Germany just below '04 highs), the dollar grabbin' a lil' greenback, Gold remaining bold and the stateside futures pinkish. The S&P is pokin' around (slightly through) 2002's triple top while the NDX is probin' January's high. We're extended by virtually every measure but that hasn't stopped this beast from clubbin' the bears in recent sessions. Risk definition, patience and selectivity remain staples of any successfully consistent trading style.
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 firstname.lastname@example.org.
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