Trading, in its purest form, is capturing the disconnect between perception and reality.
Rolling down the street
Smoking INDU, sippin' on gin and juice
With my mind on my money and my money on my mind
(Snoop Doggy Dogg)
Good morning and welcome back to the crimson shack. With Thump Day squarely in our rear-view, it's again time to take a deep dive into the flickering ticks. It's a tenuous juncture as we await earnings and allow our minds to think free. With quarter-end in the rear-view, we felt a palpable sigh as July rolled across the top of our calendars. A few days later, with the technical metric breaking down, structural fabrics fraying and psychology contingent on the last tick, tension is again entering the mix. Welcome to the summer hummer, Minyans, and strap yourself in!
Last night, after a fantastic flurry of post-bell meetings, I hosted an ol' fashioned Succofest with John and Jeff Macke. As we sat down to noodle the journey and digest the experience, a brilliant thunderstorm rolled through
Taking a step away from the fray, as I did last week, often breeds a renewed perspective. Fresh eyes and spirit lend to a more lucid process, both as it relates to life and financial assimilation. I haven't slapped on a slew of risk since I've been back (save some autumn puts in the financials with a stop above BKX 108), but that's alright. If I've learned anything over the years, it's the ability to practice proactive patience. It's not exciting, it's not always fun and it's ripe for second guessing. But it's also a manifestation of discipline, a learned process that has saved me cake through all kinds of tapes. Trading, in its purest form, is capturing the disconnect between perception and reality. And in order to effectively do that, we must dutifully monitor the four primary metrics that form the legs under the table of returns.
The current technical picture isn't encouraging. We've broken major levels in the S&P, NDX, XBD and the Russell while failing at resistance in the banks (BKX). Further, after the rather obvious (with-the-benefit-of-the-hindsight) month-end mark-up, we're far from oversold by conventional measures. And fear, as measured by volatility, has dropped 40% from the June highs, a curious dynamic given the bevy of news coming down the pipe. Sentiment measures are moderate, buying power (as measured by Lowry's) is feeble and there's pent up supply on various scales. There are some that are hoping to see a successful retest of the June lows (S&P and INDU) so keep half an eye trained in that direction, if and when.
Structurally, we remain mired in the "dollar devaluation vs. asset class deflation" conundrum, which has morphed into a trading tell (from a big picture thesis) due to its consistency. We've also got strains of isolationism and nationalization rubbing up against geopolitical pressures through various events in
Over on Dr. Melfi's couch, psychology is struggling to grasp onto some good news. We've talked about the societal acrimony and the potential manifestation through risk aversion as that dynamic toggles between perception and reality. One good rally could jump start the mood, we know, as the fear of missing is a powerful toxin. The question remains whether the ducks are lined up for that seismic shift and that, more than anything, is why so many folks are anxiously anticipating the upcoming fundamental diagnosis. My concern, on a broader scale more than a trading basis, is that the fatal flaw of margin contraction will flummox those dependent on "cheap" valuations to spur the herd.
I'm jammy and slammy this morning so let me flip lids and juggle my struggle over to the Buzz. I wanna thank ye faithful for your continued support as I know it's dicey out there and focus is frayed. We're burning the midnight candle as we rapidly approach Minyans in the Mountains III and I would like to toss some snaps to all those at MVHQ--led by Vanessa on the MIM side and the entire editorial crew on the content front--for the tireless effort to make this retreat the snazziest yet. I know there are a slew of Minyans on the fence and I can simply say this---as an investment, in time, money, energy and purpose, you'll be hard pressed to find a better risk/reward!
Good luck today.
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