Nobody likes a sick critter!
Lady finger, dipped in moonlight,
Writing "What for?" across the morning sky.
Sunlight splatters, dawn with answer,
Darkness shrugs and bids the day goodbye.
Good morning and welcome back to the crimson slack. Yesterday's dive skinned the bovine alive and left them in need of a Snapper high-five. The bulls all ate crow when he pulled a no-show and the bears seemed to feel that it was quid pro quo. "He hammered us all through last year's hard rip," said Boo to his crew as he tightened his grip, "but look at them now that the tables have flipped and they're walking the plank of my southbound cruise ship!" Will we plunge deep into the crimson abyss or will Hoofy return to his days of green bliss? It's a spankin' new day in the Minyanville fray so let's take a sniff of this Minxy bouquet!
We've been talking about the structural elements in play and how they're trumping conventional investing methodologies. We saw it last year--ok, we swallowed it last year--and the very same dynamic seems to have emerged in reverse. What's interesting and, more likely than not, contributing to the impact is that the constructive psychology has been incessant. It's human nature, I suppose, and one of the primary reasons that tops are typically processes while bottoms are usually points (in time and price).
There is a reason that sentiment is regarded as a contrary indicator despite its brief banishment to "obsolete land." If you recall, insider sales, volatility indices (VXO, VXN), stochastics and a host of other "trusty" measures were mocked last year as we entered the "new bull market." That type of mood--cheered by the lion's share of teletubbies--shifts from upside (and self-fulfilling) momentum to denial (and trapped) rationalization once the bloom is off the rose.
That is why I've been so very focused on Carrie and her therapy (psychology) as we trudge through the muck. With the world a decidedly harsher reality these days, the mindset of the masses can quickly shift once the bottom line turns red. Just take a peek at the global pullback from the highs--Argentina is down 35%, Brazil down 23%, Hang Seng down 21%, India down 25%, Japan (yes Japan) down 12%, Korea down 22% and Taiwan down 23%. Couple that with double digit declines in fixed income, precious metals and most tech stocks and, well, 7% doesn't seem so bad for the S&P.
Past performance is no guarantee of future results--either way-- and we must be careful if extrapolating the most recent contagion. But for those who aren't familiar with what a "Thai Bhat" is, let me assure you that a sneeze on the other side of the world can cause a stateside cold. That is the nature of an intricate global economy and precisely the reason last year's rising tide washed every asset class green. It is also the reason that we must pay extremely close attention for shifts in the dynamic.
The question that has lingered in my crowded keppe since we first addressed it a few months back is the widespread acceptance of the 'election put.' Conventional wisdom dictated that we would be "fine" until November as the electoral agenda propped up the slop. We introduced the notion that everyone was on board and that set the stage for a class action boot. Indeed, with the specter of terror and the uncertainty in Washington, the exact opposite could ultimately play out. Jittery critters until the election and then a nice pop from lower levels? It is the 'other side' of what folks expected and, as such, could very well provide the path of maximum frustration.
We power up this trading pup to find Asia giggling, India sighing relief and Europe, the metals and the dollar all flattish. The stateside futes, for their part, awoke on the right side of bed but that is meaningless for purposes of today's trek. Pay uber-close attention to the March lows in the NDX (1370) and the 200-day/last week's low in the S&P (1076-1079). That's where the closest levels of attention are and in an uncertain world, reactive traders tend to become closet technicians.
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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