Truth or Prayer
I thought the turtles were out of the tourney?
Good morning and welcome to the slippy slack. With Friday's late slide by Hoofs (he was fried), the damage was more than a small dose of pride. When the dust settled down and we took a fresh look, the bovine had swallowed sinker, line and the hook. "It was quiet all day," the bulls they would say, "but we took a late hit when bids snuck away." With the tape on support and the witches now gone, can Snapper give birth to a green bovine dawn? Or is it too late for those who stand long as the fate of the tape is an issue forgone? It's a new critter week so come one and come all as we figure this out and get ready to brawl!
The CRB spiked 3.2% last week, paced by shrewd rude crude (5.2%) and bold 'ol gold (4.2%). This isn't a shocker to the casual observer or, for that matter, any consumer/business with half an eye open. The rose-colored visionaries are making the case that higher basic material prices are bullish as it portends global demand. That might be the case if you look at it from a pure supply/demand standpoint but, with the stimulus game in the late innings, pricing power (or lack thereof) pressuring margins and the debt sweat ever-increasing, the scribbling on the wall paints a forthcoming fall.
I constantly try to police my furry tendencies and remain as open-minded and adaptive as possible. That was hard to do when I read Richard Russell's Barron's interview over the weekend as I agree in lockstep with his big picture assessment. While I'm in the stagflation camp--(imported) inflation coupled with high unemployment and sluggish growth--he had the guts to step up and put the "D" word out there. The well respected 79-year old sage opined that "we're coming into one of the worst bear markets in history...the S&P can shave two-thirds of its value...and sooner or later the bubbles will burst thrusting the US economy into a depression."
I believe that's ultimately where we're headed--excess breeds excess and the brief piper payment was a simple deposit. However, and this is a huge point, the timing of our inevitable destiny remains the ultimate wildcard. Will the Dow theory kick in sooner rather than later (with the trannies severely underperforming and sitting on their 200-day moving average for the third time)? Or maybe Professor Reynolds assessment last year that the ability to roll out the mountain of corporate debt effectively staves off judgment day for another couple of years. If that's the case, my friends, Boo will be through by the time the devil is due.
That seems like a mighty long time to dance between the elephants but to be fair, Hoofy has already broken a lot of historical rules. The caveat created by the rally long dated is that folks have universally accepted the new and improved bull. In the process, historical sentiment indicators are already at bubble levels and our internal measures started to show cracks over a month ago. Will this be a simple correction or have we seen the tops for the year (and perhaps long thereafter?) I would venture to guess that it will be dependent on the sustainability of the psychology bubble--and if, in fact, there is a prick in our midst, it could very well be brought to light in the months preceding the election.
I learned long ago that there are certain things you don't discuss on first dates or in financial columns. That paints a fine line when discussing potential risks in the marketplace that could, in fact, stem from Capitol Hill. With that said--and without voicing an opinion on the matter--I've opined that investor psychology was an accident waiting to happen and the only difference between bullish momentum and blind optimism was the color of your screen. With 60 Minutes and the Wall Street Journal putting the administration in our face, we must pay close attention to shifts in the collective sentiment. And yes, Minyans, that's a bi-partisan observation.
First things first, we've entered a pretty important juncture from a pure technical sense. Aside from the transports and SOX 200-day dances, the NDX and S&P are now trading (pre-open) at or below their recent lows. The word on the Street Friday was that expiration held up the tape so today's hangover will be interesting, particularly with the overnight news. Remember, it usually takes a few hours (on the Monday after expiration) for traders to "square" their risk so take a deep breath and understand that it's gonna be a long week.
I've "put it out there' with regard to my big picture blues--it's been my view since 2000 and while it squeezed the bejezus out of me last year, I continue to sail the USS Boo. With that said and my right hand up, I can't shake the sense that Snapper wants to give the bulls some love and the bears a hug. If he makes a cameo, it'll likely be a "buy to sell" or "cover to re-short" trade (pure opinion) but we'll take that trade one step at a time.
Finally, and sorry to ramble a bit this morning, I will be heading to the left coast tomorrow for some important critter business. I will do my best to post when I can--particularly on the Buzz--but please know that I'll be away from my turret. My fellow professors will have the CON, Mr. Hunter, so fear not as you'll be in good hands, paws and hoofs. Thanks!
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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