Hump Day Hop Scotch
Enjoy the Hump!
Elmer, one foot in a sandal and the other on a banana peel, stopped packing and raised rates before heading to Del Boca Vista. The nudgement was widely expected although his words, while "measured," weren't as soothing as they once were. For the first time since early '02, policy directive is no longer "accommodative," which basically means that the fate of future Fed meetings will be a judgment call by the powers that be. That's a fine line for the interpretive crowd but apropos for an economy that's walking a tightrope between perceived economic growth and debt-induced largess.
Current Fed Future markets are pricing in a 90% chance of another nudge in January and a 60% shot of a March hike. Be that as it may, the Matador Crowd embraced the news, figuring that every day is one day closer to the end of the rate-hike cycle. There is little doubt that the Fed will take its foot off the pedal--the question we must wrestle with is "why?" Hoofy will offer that it's a sign of strength and self-sustained stability. Boo will counter that Boom Boom will soon find himself stuck between a rock (inflation) and a hard place (deflation).
The initial reaction to the 'more hawkish than some would think' statement was a smart rally to the upside, causing many in the mainstream media to scratch their collective keppe. Gaming or explaining the nuances is often a lesson in frustration but I will offer that year-end agendas and predisposed game plans played a big part in the price action. Regardless, the late afternoon lift spurred the herd to S&P 1270 which, as we know, is a rather important level. Boo was itchin' and twitchin' as we tickled that technical zone, pacing furiously and mumbling something about laggy internals, defined risk and the first move (after the FOMC) being the false move.
I didn't bite on the short-side entry and only time will tell if I missed a juicy opportunity. With psychology percolating and three witches awaiting Friday's expiration and rebalancing, unforeseen crosscurrents will shape the tape. We often say "when in doubt, sit it out" and "the ability not to trade is as important as trading ability." I reminded myself of these Minyanisms as I manicured my risk profile and patiently shaped my existing positions. Trading is an evolution, of course, and I'm quite sure that we'll pick up this conversation on today's Buzz.
The metals markets have been all the rage as the precious ones flip wildly about. While we shouldn't be shocked at the pullback (given the action on the back nine of '05), I'll remind Minyans that the most vicious pullbacks always occur in the context of a bull market. With gold off ten bananas this morning, it would be wise to remember that we're still nicely above previous resistance (and initial support) at $500/oz.
Pharma was perky yesterday as the drugs hugged each other on the upside. I've been noodlin' the prospects of this complex with those in the know and I've gotten mixed messages. The pipeline problems are well known and the yields, in many cases, are attractive. I don't claim to be a doctor, doctor, but the trader in me senses relative jig on the horizon. That may or may not be '05 business but I wanna keep a close eye on this group next year.
The VXO (volatility index) is 56 ticks away from single digit midget territory. This isn't a downside causation for equities but it's worthy of a mention as we ready to hike up the Hump. Whenever we've gotten close to these levels, the Minx has struggled to maintain her gains. That might be moot with 12--count 'em!--sessions left in the year but it's risky business regardless. Compression, as we've learned through the years, is a two-sided monster.
And Finally, the Important Stuff
Our all-star guitar auction is in full swing as we edge towards Friday's 5:00 finale. The current bid is $40,100 and we're hopeful that upside remains. I know it's been a tough year and money isn't as easy as "accommodative" as it once. Still, we're more fortunate than most and this is our way of banding together to give something back. Please remember that the meat of this nut is tax-deductible (all but roughly $750) so if you can--and if you want--take your shot at this one-of-a-kind item. Something tells me that it'll be worth a LOT of money down the road.
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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