The New Phone Books are Here!
I don't wanna puke!
"I don't care about losing all the money. It's losing all the stuff."
--Marie Kimble Johnson, The Jerk
The Minx enjoyed a faux three day weekend as the S&P slithered through a six handle range and most sectors finished within a kitten's whisker of Friday's close. The action was "S's over N's" but you had to squint hard to notice the relative outperformance. Of note, at least to me, was the traction in the brokers on the heels of merger mania and in the context of the reverse dandruff. I continue to believe that there are a litany of reasons not to own financials (structural smoke, flattish yield curve, S&P weighting migration, rate-dependence, overcapacity) but, from a pure 'eyes' standpoint, I'm using them as one of our primary trading tells.
What's our fortune, Cookie?
Speaking of yield curves, our fearless Fed leader had a China chat last night and offered that the "unusual" decline in long-term U.S. Treasury yields still can't be fully explained. Further, in what can only be described as proactive rationalization, he opined that a situation in which short-term yields exceed long-term returns may not signal an economic slowdown as it has in the past. "I cannot tell you whether in fact we will see an inverted yield curve," he said while enjoying some chicken chow mein, "But we would not automatically assume that it would mean what it meant in the past."
When pressed to guess on the cause of the conundrum, the bespeckled bond maestro noted a shift in the global flow of funds and the migration of foreign buyers to U.S. based assets. When asked if there would be any change to this dynamic anytime soon, he smiled slightly and said "I would think not." It is unclear, at this point, whether he let his mind wander to the sandy beaches of the Caribbean and the bikinis that awaited his return.
Meanwhile, at Shampoo U...
Keep an eye on the DJIA as the mainstream proxy tested the 200-day and dutifully bounced in yesterday's dull tape. While technicals are but one of four primary metrics, they tend to assume added weight when it's otherwise quiet (and as thousands of hedge funds scramble for an edge). I leaned to trade through a technical (and derivative) lens and firmly believe that patterns are simply a framework rather than a bible. With that said, a tick at DJIA 10,600 will confirm "no more tears" while at the same time triggering a spread triple top breakout. Other notable sectors include the homies (the HGX is flirting with an all-time high) along with the banks (BKX) and cyclicals (CYC), both of which remain stuck in the muck under their 200-day moving average.
Pulling muscles from a shell...
Performance anxiety is sweeping the Street and the angst will increase as we edge through the rest of the first quarter. This hasn't been a banner stretch for most funds and Darwin dictates that the strong will do whatever they need to survive and thrive. While we must appreciate the power of the collective agenda, we should never defer to blind bets or invisible catalysts when managing risk. Please understand that opportunities are made up easier than losses and the goal, when trading, is to identify an advantageous risk/reward.
Casting an eye to the trading sky, Texas Instruments (TXN) will serve up a mid-quarter update this afternoon, Xilinx (XLNX) will offer a similar spew tomorrow and the Mother Chip (INTC), National Semi (NSM) and Lattice Semi (LSCC) will take the ball on Thursday. Elmer will also play the back nine of The Jawbone Open on Thursday as he testifies to congress on the state of the economy. Treasury auctions will bookend that effort (5's on Wednesday and 10's on Friday) before we steady our gaze on the requisite respite and the Belmont Stakes.
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 email@example.com.
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