Let the Games Begin!
Good luck,my friends, and play like a Minyan!
Good morning and welcome to March Madness. The preliminary gamesmanship is over and it's time to lace 'em and leave it all on the court. After weeks of practicing the diplomatic fundamentals and taking their best shot at uniformity, the United Nations must now find a play that satiates the world's leaders as they prepare for the big dance. Will the defined "certainty" of the ultimatum bode well for the bulls or is the sober reality of war a boon for the bears? We won't have to wait long to find out, sports fans, for it's Monday in Minyanville and the games are about to begin!
The great debate on the state of the tape continues to rage as traders actively attempt to assign a method to the madness. While Thursday's vicious rally only recouped previous losses (stateside and abroad), the action planted green seeds in the minds of the portfolio managers who are anxiously eyeing quarter end. The bulls wasted no time in declaring victory and performance anxiety, after a long hiatus, has once again emerged on the street. The bears, meanwhile, contend that we've seen this movie before and wonder how many times the bovine will fall for the Hoofy head fake. What's a critter to do?
One of my concerns--and I've had many--is the ability of the October lows to provide a suitable foundation for a sustained lift. Granted, I had similar vibes the last time we were at these levels and, on cue, an upside feeding frenzy ate the bears lunch. This juncture, however, is unique in a few ways. In October, the fear of losing was palpable and Snoop Tone's ducks were quacking for attention. Now, the intermediate indicators aren't confirming the upside and it seems as if any course of action has bullish connotations. There's been incessant talk of a "quick war" and traders have tried to game the upside prospects when the first bomb is dropped. When Dubya took a softer stance on Wednesday and the "war avoidance" chatter got loud, the sentiment shift ignited a moon shot. If it's "bullish" if we go to war and "bullish" if we avoid war, what does that tell us about the level of hope in the market?
While it's true that the news is dire at a tradable low, we must ask ourselves if the current despair has reached zaggable levels. I've yet to see the downside disconnect (in the price action) or a discernable improvement (in our trading metrics) that typically precedes a bullish phase. The fundamentals are still cloudy (at best), there are resistance levels above, the structural landscape is dicey and hope seems imbedded in the collective psyche. That, of course, doesn't mean we can't rally--it just means I've yet to identify an "edge" in playing it that way.
Perhaps I'm over thinking this (shocker) and perception will morph into a self-fulfilling reality. Traders are surely reactive and if enough people believe the market is poised to go, they're not going to wait long to hop on board. That's why I always attempt to view the big picture as a series of little pictures. It's entirely alright to have a view, but we must defer to discipline over conviction and not fall into a "hope trap" of our own. There has been some constructive elements in play (particularly in tech) and while we must respect that, we can never defer to it. An uber-thin line exists between using prices to our advantage and fighting the tape--our goal is to walk that line.
We often talk of critical junctures but it seems that these levels give new meaning to the phrase. The S&P and BKX are tickling the trend lines from January and the QQQ has rallied right to the trend line that began during December's Razor Burn. To add spice to the Minx, the grindy action of the last month has set up a potential triple top breakout at S&P 855 (if and when) which, of course, would put it on a collision course with granddaddy resistance at S&P 870. Do technicals matter with so many geopolitical balls in the air? There's two sides to that debate but suffice to say that, as the most tangible metric, I'll continue to assimilate them as we attempt to navigate the Minx.
These are treacherous times, my friends, and the stock market continues to be a thermometer of public opinion. As such, emotions factor into the process and we must respect the fragility of the collective psyche. The next few days promise to be some of the wilder gyrations we'll experience and lucidity remains a necessity when making our financial decisions. Think before you act, allow for a margin of error in your approach and attempt to define a strategic course of action before you step onto the court. After all, it's March Madness and the last thing we want to experience is the agony of defeat.
Last but certainly not least--and on behalf of the Menagerie--I would like to wish a VERY happy Minyan birthday to the lovely and talented Casey. Mucho Bricco to you on this special day, Case--you're absolutely fantastic!
Good luck today.
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