The Dance Prance
By Todd Harrison May 07, 2004 8:12 am
Trade smart--in a few short hours, we'll be slithering into the weekend!
Good morning and welcome back to the jobs attack. The waiting is over and it's now time to see if the critters have been on a hiring spree. If the number is soft and the payrolls are light, there could be some serious fixed income flight. If the data is strong and the payrolls are high, we could see the Minx overwhelmed with supply. It's confusing for most and a tad foggy still, so let's take a stroll with our pals through the 'Ville!
Last night, after the slippy drip and late day grip, the fab five gathered at the Birdland for some low carb schnitzel and a round of ice teas. As Snapper wailed on his Sax, the rest of the menagerie sat at their favorite booth and bantered about the state of affairs. It's been dicey, they agreed to the breed, but they had decidedly different outlooks as we cast a wary eye ahead. The conversation went a bit like this:
Boo: (scanning the club for a suitable mate) I've gotta find me some soft fur-- 'cause when the schvitz hits the fan, I just wanna make sure I have a gun, some butter and a nice honey to keep me warm. (looks at his watch.) Sheesh, it's getting late, too--I'd better hurry!
Daisy: (Sipping a cosmo) You've been single for as long as I've known you--why do you think that is? 'Cause you're a sour puss, Boo, and it's starting to kill my buzz. Every time the Minx dips, you stand on your soap box and proclaim the end of the world. Well guess what--this rate debate may be a bear trap and if you're not careful, you're gonna lose a leg. Look at an S&P chart from last August--if you pull out a ruler, you'll see that we're sitting on a trendline. Further, if you draw a straight line from the March top, you could make that case that we've been forming a flag pattern (in the context of an intermediate uptrend).
Hoofy: (wearing an eye patch) I didn't see that Daisy--nice spot. Plus, the NDX and BKX are both hugging their 200-day moving averages and the stochastics are constructive across all the major sub-sectors. I understand that they could pretzel twist--they're not timing tools--but there are certainly some quacks coming together on the long side.
Sammy: Perhaps, but doesn't the collective psychology seem a bit different these days? Last year the liquidity drowned out the bad news whereas it seems the opposite dynamic is now in motion. How else can you explain the simultaneous slippage across most asset classes? The scary part is that if this is, in fact, what's going on, we're clearly still in the early denial stage (before migration and panic). (Turns to Hoofy.) You, my friend, must take the baton if there's good news and step forward.
Boo: (shaking his head) I've been saying that bull markets don't begin when everyone is bullish and nobody cared as long as the screens were green. When the tables turn and the losses begin to mount, however, folks are gonna get a lot more ornery and they won't be as forgiving. And I'm only talking about the stateside psychology--I'm not even gonna mention the growing rift between America and the rest of the world. Alienation leads to migration and that has the potential to be a nasty sequence of events.
Sammy: Gaming sentiment--or structural shifts, for that matter--is a dangerous game. That's why I've elongated my time frame and taken some of the pressure off. I love the long-term energy vs. financials pairs trade (long vs. short) as I agree with Toddo that the former will regain top weighting in the S&P and the latter encompasses all the potential issues in the system (especially with tighter money). It may not be a "right here" trade (both have made a decent move) but it's prolly something that can be legged into if you're looking to remove the timing element.
Hoofy: That's great Sammy but I can wipe my nose with that thought in the near-term. I'm more concerned with the journey and not the destination. For instance, what's the short base like? It feels kinda pressy--particularly in the semis--and that's been a precursor to Snappage whenever it's presented itself.
Boo: In a liquidity driven rally, ANYTHING has been a precursor to a Snapper. You seem to forget that the sentiment and volatility remain near opposite ends of their respective skew. So while you may have some pressy (and nervous) hedgies out there, the broader tape remains fairly sanguine as they stay the course.
Daisy got up and grabbed Hoofy by the collar. "Let it be Hoofs," she smiled as she led the bull to the dance floor, "there's nothing that you can do about it until we see what kind of number there is. Besides, with every set of global eyeballs on Mr. Beeks, it's gonna be mighty loud and crowded in the morning. Don't be too reactive or emotionally chase exposure either way--we've seen catalysts like this before and the beauty is that there are always more tomorrows to trade. Now let's dance!"
Good luck today.
position in qqq
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