That's used by me when I'm not heard
I just go through life with my glasses blurred
It's like that, and that's the way it is
Good morning and welcome back to the earnings track. Fundies are coming out fast and furious as traders wait with mindsets so curious. They're looking for clues hid within the muck with hopes that their bets will trigger some luck. "The charts all seem poised to rip to new highs," said Hoofy the bull in his minxy reprise, "I think the tape is ready to rise and a run up the gut shouldn't be a surprise." Can the bulls hit the hole and continue to roll or can Boo's motley crew make a stand and control? The game is now set and we're sure gonna thrill so dig in those heels for a sprint through the 'Ville.
Whenever you put A.D.D traders in a sensory overload environment, the flickering ticks tend to tick a bit quicker. This earnings season is no different as we play fungo with the fundies and field a ton of information. General Electric? Solid, but not enough to push it through resistance. Citigroup? Not so hot, despite the recent acne in the bank index. Bank of America? Good stuff, but alas there's Arb supply waiting in the wings. IBM? Strong, but then again, does anyone really trust the accounting at Big Blue?
Minyans know that I've long approached trading as an assimilation of four primary metrics-technicals, fundamentals, structural and psychology. At different junctures, each of these inputs will assume a distinct weighting in the equity exposure mix. As a rule of thumb, when all four legs are stable under the table, an advantageous risk/reward emerges. The trick, for us, is determining the relative and collective value of these disciplines and applying them with a cohesive methodology.
I've been of the opinion that the fundamentals have, by and large, sat at the bottom of the trading totem pole for some time. With structural influences (liquidity, debt markets, allocation) pushing equities around in monolithic movements-and technicals and psychology reacting to the price action-the state of the union has been more of a sidebar than an opening argument. That typically shifts a bit during these reporting periods but, for my part, I'm more interested in watching the reactions to earnings than earnings themselves.
While this next thought clearly isn't today's business, I believe it'll eventually come home to roost. There are a TON of corporate agendas in play and I.R (investor relation) departments are starting to feel more and more like publicists, protecting their clients and managing the release of information. Forget, for a moment, that "interpretive accounting" leaves a lot to guesswork or that the expensing of options will jack the multiples of most large (particularly tech) companies. There is a more disturbing dynamic evolving, one that is typically lost in the media oligopoly that reports financial news.
We recently posted an article on the 'Ville regarding some "under the hood" issues at a large multinational company. While the analysis was spot on and quite insightful, the company took exception to the fact that we would dare challenge the composition of earnings when the "headline" met estimates. I was surprised by the reaction although, perhaps, I shouldn't be. We're walking a fine line between perception, reality, confidence and complacency. And there are a lot of motivated suits who would prefer that these questions are never asked.
I could continue with this thought thread but Mama Minx is calling and it's time to make the doughnuts. With Big Blue in her back pocket, I would expect the Minx to try and gain a higher foothold and put this resistance business behind her once and for all. I will simply ask ye faithful to define their risk (rolling stops for me) and respect the compression that remains in place. With sentiment skewing the lopsided lean (and momentum can gain steam), the specter of trap doors and unpleasant surprises likely has a higher probability than most bulls believe.
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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