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Feel Like A Minyan


Perception is reality in the financial markets but the chasm between the two remains an eye-popping disconnect.


Well the music's thunderin', restless and hot
You keep firin' me glances across the room
And I can't stop wonderin' just what you got
Get the feeling I'm going to find out real soon

(Grateful Dead)

Good morning and welcome back to the turnaround shack. It's been a tense time in the markets of late as the critters decide the collective tape fate. As we pranced into the FOMC mind meld last week, the conventional wisdom was that new all-time highs were simply a matter of time. When the fearless Fed failed to signal an end to the rate-hike cycle, either as a function of the parabolic frolic in commodity land or back-channel pressure from foreign holders of our debt, stocks got rocked with a back-to-back smack. Equities steadied yesterday, which was a battle in and of itself, but the bloodbath in commodity land was more than enough to keep our veins pumping.

Given Hoofy's stubborn stickiness in the face of Black Monday chatter and, perhaps more importantly, the fact that it is Turnaround Tuesday, the bulls may try their hand at some traction today. Indeed, Professor Jason Goepfert, the proprietor of the always excellent, offered the following snippet on yesterdays Buzz:

Last week, we saw the S&P 500 suffer back-to-back days of losing 1% of its value, when it had set a new 52-week high just a few days prior. As you might suspect, this is relatively unusual - it's happened 17 other times in the past 56 years. Typically, what we saw was a short-term bounce (the index was higher 3 days later about 78% of the time), then more weakness. If you had waited three days, then shorted the S&P and held for a month, you would have had 14 winners out of the 17 trades, for an average gain of 2.5%.

It's certainly possible, given the oversold nature of the NDX and SOX stochastics, but the market doesn't always trade in a neat little box. We've got expiration on Friday, which could exacerbate volatility in the sessions leading up to the always fun premium funerals, and macro crosscurrents that would make a pirate blush. I've always viewed the dew through four primary metrics--fundamentals, technicals, structural and psychology--and I would offer that, at present, psychology is top dog, followed closely by the structural influences.

Why do I bring this up? Perception is reality in the financial markets but the chasm between the two remains an eye-popping disconnect. That clearly doesn't mean that the ursine will come home to roost, it simply means that we should remain ever-conscious of the potential that they will. In a services rich, finance-based economy dependent on foreign capital, the ties that bind can quickly morph into a constricting dynamic. This has been masked, to a degree, by the slippage in the dollar (-30% since 2002), but therein lies the irony. It is the slippage in the dollar that has created increased friction with our trading partners around the World.

Those are big picture thoughts, of course, and in the interest of time--and with the hope of shared learning--I'll also offer some granular noodles:

  • After prematurely evacuating my metal equity shorts on Friday, and conscious that the sharpest corrections occur in the context of a bull market, I dipped a toe in Pan American Silver yesterday via defined risk paper. I'm unsure if the group has further to correct (I think it does) but, given the oversold condition in PAAS (relative to its peers), I deemed the risk/reward worth the effort.

  • In other trading tidbits, I also pared a chunk of United Healthcare calls as that was, in my view, the "easy trade." I'm not smart enough to know if the smoke has cleared for this once proud stock but I'll ride out the rest of my position with trailing stops and let it be. Given my paper was "front month," (this was a pure trade), you can color me gone by the time the Friday bell tolls.

  • Finally, after paring most of my piggy puts into the Friday drain, I started accumulating out-of-the-money autumn paper anew. Why? I think that, given the field position and the potential pricks to the tape, this complex is vulnerable. In the interest of full disclosure, I've felt this way for a long time--and gotten my eyeballs squeezed as they ripped to all-time highs--but my risk is defined and they're against a spate of situational longs.

  • I'm not sure what I can say about the US-Mexico initative without sounding trite. Suffice to say that, in my view, a "North American Society," utilizing cheaper Mexican labor and tapping the richer Canadian resources, is perhaps our best chance at competing with the European, Asian and Middle Eastern communities. But hey, that's just me.

  • I don't think you have to pick a camp in the deflation vs. hyper-inflation debate. I simply think we need to remain aware that they're both "out there" and we'll likely toggle between the two.

  • The VXO (fear proxy) was up 30% this month before slipping back to a 19% monthly gain. And just like that, we're again pre-teen (VXO 12.87).

  • Do you Peru? Conventional wisdom is that Humala would have been "bad" for the miners and drillers. Perhaps this will set the stage for a relief rally?

  • Martha Logan and Aaron Pierce? Sorry--I can't comment as European Minyans have yet to see the latest Bauerthon.

  • Good luck today, Minyans, and I'll see you on the Buzz.


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Position in PAAS, UNH, financials
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