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The Glue Trap


These earnings are like a game of pong!


Good morning and welcome back to Elmer's zoo. With July's option stickiness no longer puckering up the buttercup, the Minx resumed the slippy drip from last week's trip. It was a far cry from the recent high and it's piqued the curiosity of critters and Minyans alike. Is this the much awaited pause that refreshes or will Boo finally unleash the paw that impresses? It's a new day in the minxy fray, so let's jump in and get this party started right!

We've discussed the psychological metric and it's influence on the market dynamic. After a meaningful sell-off, there's a tendency among traders to opine "let them lift and I'll put 'em out" (read: short 'em). Conversely, after the spring sprang, the summer bummer among professionals was a widespread performance anxiety. Underperformance is a powerful motivation--particularly after three horrid years--and it's helped shape the scope of the latest lift.

Our task at hand is to identify the disconnect between perception and reality. If trading moves are characterized by three phases (denial, migration & panic), we must ascertain where we are along that curve. Hoofy will argue that we're smack dab in the middle of the bullish migration while Boo believes we're in a bearish denial (following the bovine panic). They're two completely different views and each one dictates a separate course of action.

The earnings thus far have emboldened both camps as there's been a little something for everyone. Certain bellwethers impressed while others were a complete mess. However, the two biggest wildcards-end demand and visibility--remain very much in question as we wade through this second half "recovery." The Minx has (thus far) been given the benefit of the doubt that a turn is at hand. If traders begin doubting the benefits (or pace) of that turn, a crimson tide will wash away some of those gains.

Structurally, the fixed income market has gotten thumped ever since Elmer climbed the hill. With rates backing up and offering investors (gasp!) another investment alternative, equities (which have been the only game in town) have had to share the spotlight. Psychologically, bad news is no longer being brushed aside (see Nokia (NOK:NYSE), Lexmark (LXK:NYSE), Merck (MRK:NYSE), International Business Machines (IBM:NYSE), ect) and that's a subtle yet important shift. Finally, while the NDX uptrend channel (thus far) remains intact, there seem to be some dents in the S&P foundation.

As if we didn't have enough on our plate, the geopolitical card is face down on the poker table. With continued tension (not to mention our troops) in Iraq, tough talk regarding Iran and Syria (introducing the prospect for further conflict), a ballooning budget deficit and elements of unrest unfolding (Liberia), these issues are far from over. It's difficult to ascertain when they'll matter but the media will certainly point to them if the tape takes a turn for the worse.

We power up our ponies today to find a slew of upgrades in semi-land, a tape that's no longer overbought, technical support within earshot, structural crosscurrents galore and electoral agendas in full force. You know my big picture bearish bent but today's tape is dicier than Mandalay Bay. Don't trade just to trade--patience will bring price and discipline must always trump conviction.

Good luck today.
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No positions in stocks mentioned.

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

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