Have you Herd?
If EVERYONE is expecting a rally into quarter-end, is that scenario too obvious?
Good morning and welcome back to the Minyanville Def Comedy Jam. After Friday's intraday reversal (and Monday's follow through), Hoofy's heroes toed the line and defended their collective turf. Armed with fresh breadth and an arsenal of high beta ammunition, they've played mind games with portfolio managers anxious for quarter-end performance. Can the gigglefest continue to provide upside levity or will the bears scare the bulls back to earth? Time waits for no critter, my friends, so roll up those sleeves and get this party started right!
We've been discussing the multiple crosscurrents in play and the element of time. Fund managers who are underperforming (and that's most of 'em) have used any and all pullbacks as opportunities to get involved. That has helped morph psychology into supreme confidence (as evidenced by the bull/bear) and conditioned everyone to buy (cover) at the slightest hint of red. It's a feeding frenzy not seen since the play days of the bubble craze and it's consuming both capital and conscious.
There are legitimate reasons for concern but they won't matter until they do (read: prices are lower). As long as equities continue higher, the perception (reality) is that we're climbing a wall of worry. When we do reverse -- and make no mistake, we eventually will -- the issues that didn't matter (record insider sales, derivative concerns, tepid "recovery," manic euphoria, ect.) will be named in the blame game by the media. In all likelihood, it will also seem quite obvious to those who've traveled this path before.
In the meantime, the onus is on us to adapt to the market and respect (not defer to) the action. The failure of the bears to take down the tape during the last few sessions (sellers strike) has exacerbated the anxiety and furthered the "long squeeze." Emotional environments can perpetuate and, as such, we must be aware of that potential. However, before you make any rash decisions, understand the risks and potential (two-way) ramifications of your financial choices.
The technical levels to focus on are Friday's reversal highs as resistance (S&P 1010ish, NDX 1260ish, BKX 890ish, SOX 410ish, BTK 510ish) and S&P 965 (950), NDX 1180 (1150), BKX 850, SOX 360 and BTK 450 as support. Tells today include the financials in general (and brokers in particular), the semis (the Semiconductor Industry Association sliced their growth forecast in half), retail (sales numbers out this morning), breadth (hasn't lied yet), big cap pharma, Microsoft (MSFT:Nasdaq), IBM (IBM:NYSE) (elephant leadership) and the biotechs/homebuilders (sentiment reads).
I enter today's session with a paltry leg in my fur and a game plan in my hands. I've been renting exposure (against my puts) to set up some intraday gamma but, from a metaphorical standpoint, I'm planning on stopping out the bear costume above Friday's reversal highs (if and when). I truly believe that this is gonna end with a mess and I'm genuinely concerned for the retail investor who's buying into the hype (again). However, from a trading standpoint, discipline must trump conviction and the mechanics of the swing are more important than the results of the at-bat.
It's a new day, Minyans, and it's time to get some mojo flowing. This business, like life, is filled with ups, downs, twists and turns. Take it all in stride, keep your head up and above all else, think positive. The goal is to use work as a stepping stone to happiness and not let it be a lead weight around the neck. Only you can differentiate between the two and if you haven't made the distinction, it's not to late to start.
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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