Good luck this week, Minyans, and may the shwartz be with you!
Good morning and welcome back to the sunny daze. It was a splendid weekend in Minyanville and the critters wasted no time in taking advantage of the seasonally warm weather. As the trees blossomed and the bunnies did their thing, the Menagerie gathered in the Central Park to get some color in their cheeks and enjoy a picnic with their pals. Over a few bellinis and a host of assorted munchies, they settled onto a grassy knoll and took advantage of the down time. The conversation went a little something like this:
Daisy: (sportin' a bikini with her bellini) I just love the warm weather, don't you guys? There's nothing like a little sunshine to put everything in the proper perspective.
Snapper: Yeah chickee, this is pretty awesome... it's gorgeous outside, we're with our friends and, heck, even the Minx is happy these days. What's not to like?
Boo: Do you really want me to answer that question? I can rattle off plenty of reasons to be concerned but you guys don't wanna listen. In fact, you've taken to ignoring me altogether. It's pretty harsh!
Hoofy: Dude, it's only harsh because you perceive it to be that way. If you took the time to see the good things that are happening, you wouldn't always be such a sourpuss. Corporate earnings were solid (relative to expectations), the war went better than most could have hoped and all the major indices look like they've consolidated after the March rally. If you opened your eyes, brother, you'd see that S&P, NDX and Dow are all flirting with triple tops. Don't be stubborn or your recent trip will turn into a fall!
Boo: Let me explain something to you, Hoofs. I'm a bear and, by definition, bears don't believe the upside hype. Secondly, I'm representing a dying breed -- there aren't' many of us around these days and that, in and of itself, should trouble you. Bull markets don't begin when everyone's bullish and, for that matter, they don't begin at these historically lofty levels of valuation. I see the game of Minxy musical chairs going on but, for my part, I'm gonna make sure I have a seat when the music stops.
Sammy: (suckin' down the rest of his peach libation) You're right, Boo, there are warning signs but they won't matter until they do. As long as it's quiet, psychology can feed on itself and drive higher prices. On the fundamental front, valuations aren't cheap but, as we learned in the late nineties, that's difficult to time on a trading basis. Sructurally, I'd offer that as long as the dollar holds firm and crude stays in check, equities should benefit. Finally, and as Hoofy said, the major indices have all been in a tight consolidation since March and they're tickling the upper end of the range.
Boo: (taking off his wayfarers) Listen, you snake, I know what you're trying to do -- you're trying to convert me over to the bull camp. Well, it's too crowded over there and it aint gonna happen. The VIX -- which obviously doesnt matter anymore -- is 30% below it's 200-day moving average (and screaming for attention) while the VXN (Nasdaq VIX) is at levels that, over the past three years, signaled a major correction in the averages. Maybe this time IS different, guys, but doesn't it always feel that way before a good thumpin?
Snapper: But you understand that S&P 900-905 and NDX 1085-1100 are the upper end of the March trading ranges, right? What are you gonna do if they power through? You know that the technical crowd will start getting involved...
Boo: I see it, bro, trust me. I've got two thoughts on that regard. First, be wary of false breakouts -- we've discussed how the Minx likes to travel the path of maximum frustration and sucking in the technicians would be par for the course. Also, understand that, despite the recent jig, the downtrend for the S&P still has plenty of wiggle room before breaking the larger pattern of lower highs.
Sammy: I can see both sides of the coin. On the one hand, Hoofy has the mojo and the path of least resistance seems higher. On the other paw, significant breakouts - -or at least ones that hold -- typically don't occur when the internal measures are extended. The NDX field position remains much more constructive than the old school, though, so if you're looking for themes within a theme, I'd keep an eye on the N's over S's trade we discussed last week.
Boo: (putting his Birkenstocks on) I guess we'll find out soon enough, guys, and I'm sure hindsight will prove to be 20/20. Now, if you'll excuse me, I'm gonna go have a chat with those cuties over there -- I met them a couple of weeks ago during the NCAA tourney and I think one of them digs me. I'm so money and I don't even know it!
Hoofy: Go for it Boo -- just make sure you don't stay out too late, it promises to be another crazy week.
As our resident bear walked off, the rest of the critters dug into the picnic basket and turned their attention to other topics of conversation. It was, after all, Sunday and they knew how important it was to balance and enjoy life. There would be a full week of trading ahead but, before that started, they had the rest of a beautiful weekend to enjoy. And they weren't gonna let it go to waste.
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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