All of a sudden, I'm the most popular critter in class!
Good morning and welcome back to the trippy track. Yesterday's whip gripped, slipped and then skipped before ending what was a most minxy trip. At the end of the ride we were left starry eyed as the critters all searched to find their own stride. "I thought I was in and had 'em for sure," said the once wealthy Boo who has gotten quite poor, "but those bulls are real smooth as they've learned to endure and they're feelin' quite frisky, well kept and secure." Is it a facade, this brave bovine squad or will the bears soon find gains like two peas in a pod? It's Hump Day anew in the city of critters so settle in crew and let's shake off those jitters.
Elmer let sleeping dogs lie yesterday and pet the debt with nary a sweat. I can't sum up the big picture any better than Professor Succo did yesterday afternoon as he hit the proverbial nail on the head. To add injury to the eventual insult, the US economy is creating fewer jobs at this stage of the expansion than any recovery since World War II. And when the "lagging" explanation for lack of creation ran stale, the "productivity paradigm" sticker was firmly affixed to the landscape. That was fine when the liquidity driven rally was forging ahead (isn't everything?) but it'll come under increasing scrutiny if and as the tape waffles.
Quite ironically, the blind optimism that allows most investors to sleep at night is the very reason for concern. Much like Fannie Mae (FNM:NYSE) has the "implied" backing of the government due to its massive size (and implications associated with failure), an implicit faith has been imbedded in this market. "We still have good economic growth...plenty of capacity to expand and inflation is nowhere to be seen--all that means the Fed can keep its foot on the gas petal" opined H. Robert Heller, who served on the Federal Reserve Board from '86 to '89. That pretty much sums up the collective sentiment and while I'm not sure how he's factoring in the soaring commodity prices into his equation (PP-what?), that view will perpetuate as long as stocks remain firm.
That's the big picture battle and the stakes are perhaps higher than they've ever been. We've either gotta borrow our way out of debt, as fakakta as that sounds, or the musical chairs won't have a leg to stand on. On a more intermediate level, the trends that have been friendly for Hoofy have collectively taken a turn for the worse. The NASDAQ could rally 3% and still be firmly entrenched in a rather obvious downtrend. The same can be said for the industrials, which have room to DOW 10-4 before the underbelly of former support is tickled. And, by and large, most sub-sectors are navigating unfamiliar ground under their 50-day moving average supports.
The last bastion of hope for Hoofy's heroes is the short-term measures that have seemingly lined up. The stochastics are constructive across the board, a bevy of indicators have started to stand out and (squint and you'll see 'em) double bottoms ("w's") have formed in the major sub-sectors. To add a little spice to the bovine mix, the NDX held support exactly two standard deviations below its one year trend. That's typically a level that's been associated with bounces in the past.
I nibbled ever so gently on some front month (uber-defined) upside exposure yesterday against some puts that I have on my sheets. It's small potatoes, as far as potatoes go, but the thought process is mapped out above. The big picture scares the sprinkles out of me--not just as a trader, but as an eventual father and grandfather--and the intermediate stuff has shown some cracks in the foundation. And while we must remain vigilant in our respect for meltage at any time, a disciplined Snapper can try his hand as long as he's disciplined.
I'm well aware that there are alotta terrapin fans out there today and that fact isn't lost on Boo. Most serious declines occur from an oversold state and while the short-term stuff is clearly in that camp, the weekly indicators have quite a ways to go. S&P 1100ish and NDX 1395ish are obvious 'stop loss' levels but with a zillion hedge funds watching the same charts, you may wanna give yourself some wiggle room (if that's your chosen style). And think positive, my friends, we're about to mount the Hump and hit the back nine.
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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