The dollar is wetting the bed again!
Sometimes I feel like I don't have a partner
Sometimes I feel like my only friend
Is the city I live in, the city of critters
Lonely as I am, together we try
(Red Hot Chilli Peppers)
An Indian Summer arrived in Minyanville yesterday and the critters and I took the opportunity to get out and enjoy the weather. As the late afternoon sun danced through the spring foliage, we enjoyed a leisurely jog through the park before settling on a large rock overlooking a little league baseball game. We sat in silence for a long time -- soaking in the moment -- before a friendly conversation took hold. It went a little something like this:
Daisy: I'm so delighted that old man winter has hibernated for the summer. Spring has sprung, the birds are chirping and, best of all, I'm freshly manicured (winks at Hoofs). I'm feelin' fresh as a Daisy!
Hoofy: Oh behave, Baby! You keep this up and I'm gonna take you to Brazil for Carnival!
Boo: Will you guys please get a room? What makes you think any of us have in interest in your shaving habits, Daisy? You're a COW, for Pete's sake, get over yourself!
Hoofy: HEY! Just because you can't trade your way out of a paper bag doesn't mean you have to get nasty! You've only got yourself to blame. Here, take my rose colored glasses -- maybe you'll finally see the writing on the wall!
Boo: You mean the American Graffiti? I see it -- high volume breakouts, an eventual and "inevitable" economic upturn, a benign geopolitical environment. It's the same 'ol shtick, Hoofy, and while hope springs eternal, the proof better be in the puddin' when the second half rolls around.
Snapper: Oh, you're a strategist now? What happened to being a trader, Boo? It didn't work out the way you'd like so you're post-rationalizing your time horizon to a longer frame? Remember, irrationality will outlast solvency -- we learned that during the bubble -- and if you don't start practicing discipline over conviction, you're gonna be a seat cover by the time you get your reversal!
Sammy: He's got a point, buddy. Perception is reality in the marketplace and as long as people want to believe -- as long as there's an upside agenda -- money will get sucked into the vacuum. I understand your "sell hope, buy despair" argument and, chances are, you'll ultimately be proven correct. The goal is to juxtapose your time horizon against your risk profile such that you're there if it happens and alive if it doesn't.
Daisy: Yeah, Boo, denial isn't just a river in Egypt! We all see the widespread complacency, overt optimism, historically rich valuations and twisty stochastics. Do yourself a favor, though. Take a look at five year charts of all the major indices. If these were monthly or even daily charts, this latest rally would be considered a simple oversold bounce. Taken in that context, this is par for the course. I'm not saying we can't see a pullback but it will likely be viewed as healthy.
Boo: That's what frightens me, cowgirl. EVERYONE, even my bearish brethren, is conditioned to buy the dip. I was talking with one of my buddies last night and he was hoping for a pullback to S&P 900ish so he can get long. That's a recipe for meltage if I've ever seen one and after the eventual first, second and third dip is bought, what happens to the forth, fifth and sixth dip? All those peeps who are buying the market because it acts fantastic will have lost their catalyst.
Hoofy: Dude -- you're so busy looking for cracks in the sidewalk you've forgotten to enjoy the walk. If you're dead set on buying your June out-of-the-money puts, which I agree are very cheap here, you can day-trade to the long side with very tight stops. It's not a style for every Minyan but, if you're an active trader, it's something to think about.
Snapper: Yeah bear -- and maybe you'll stop being such a bitter critter. Remember, there IS blow-off potential here and next week's expiry will likely exacerbate the volatility. Be smart, baby, and stay sharp. It's a long year and there will be plenty of days to make some hay. Give Hoofy some respect though -- he's surely earned it.
Sammy: Yes, he has, but Boo has a point that a lot of positives are priced into this market. If there wasn't a bull case, stocks wouldn't be where they are. I understand that he's searching for the disconnect between perception and reality and I can't really blame him -- it's been a money trade for the life of the bear. His risk is that we're in a new bull market and his "excess breeds excess" thesis (coming out of a bubble) is flawed. Time will tell, I suppose, but in the meantime, let's please enjoy the day. It's fabu!
The Menagerie turned their attention to towards the game and they watched the children play without a care in the world. Life was simpler back then, they thought, but with age comes decisions and those choices shape our unique path. Silence fell over the clan as they settled back and took a load off. They knew they'd have the rest of the week to stress but, in the meantime, they wanted to enjoy the fruits of their labor. They've sure earned it.
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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