Feasts and Famine
A higher S&P opening triggers a pretty important DeMark sell signal today.
Good morning and welcome back to the crack or jack. With last week's ride through the great divide, the Minxy fortunes were taken in stride. "Despite the massive tug o' war," said Sammy after slithers galore, "the final tally was a bore and left 'em knocking at the door." Can Hoofy's crew chew through the goo and bid these pesky bears adieu? Or will young Boo tame the bovine shrew and dance anew in the critter zoo? It's a brand new week (you trading freak) so settle in and take a peek!
Mr. Rubber, I would like to introduce you to Ms. Road. That's this week's business, more likely than not, as our dual pennant races are running out of time. The winner of this particular derby will shape the face of the trading race for foreseeable future. It's really quite simple--or, at least it's as simple as can be given the unique environment. Either the upside flag in the S&P (higher lows, constant resistance) will pave the way to giddy days or the downside flag in the Nazz will usher in some ursine jazz.
The supporting cast is impressive on both sides of the field. For the home town bulls, the financials continue to impress as a combination of liquidity, tight corporate spreads, technical acne and simulative agenda spurs the herd. We've long maintained that the banks are a proxy for the broader tape and as long as they're green, the crowd will be keen. On the other paw, the furry blurry of negative divergences, obscene optimism and non-participation (technology) is flashing red for trades ahead. To be sure, one side of the color war is gonna blink and when they do, they're gonna lose their flag.
Who has the upper hand heading into our new five session span? The answer to that is a function of how you view the current psychology metric. Friday's out and out disaster of a payroll report was effectively brushed aside by investors. Not only are jobs not being created (I know, they're "lagging"), but the skeptics can make the case that the real unemployment rate is closer to ten percent (if we include those who've given up or part-timing). Is the Minx screaming for attention by brushing off the bad news (as she's done for almost a year) or is this a textbook example of denial in the face of a flag (and resistance)?
It's quite evident that investors are still mulling around the ballot box on this one. While the ultimate fate of the tape is downright scary, in my view, the big picture blues will take a back seat to the near term muse. The hedge fund bubble has crowded the cusps and is impacting the everyday fray and trading play. There are alotta itchy trigger fingers out there so please, Minyans, factor that into your mix as you ready for battle. The need for risk management/definition has never been more acute.
I, like you, will be watching the hours and days ahead with great interest. It's a tricky juncture, to be sure, as the "health" of the tape is a function of which sector you're looking at. My head, heart and gut tell me that this will not end pretty (my eyes are still looking for the PPI) but little birdies keep whispering "look how tight corporate spreads are" and "bears can't swim (in continued liquidity)." A thing for sure, our technical conundrum will be resolved in a matter of days (if not hours) so clarity, however brief, will soon emerge.
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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