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Twisted Sister

By

This NASDAQ trendline is my best shot at squeezing the newbie shorts!

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Good morning and welcome back to the days of our Minx. When we last left you, the flickering ticks were bickering quick on their way through the '04 abyss. Straw after straw, the camels in Minyanville were complaining of back pain as pressures were mounting on the sell side. Jobs data...blah earnings...support...big cap kickers Cisco (CSCO:NASD) and Hewlett (HPQ:NYSE)...it seems so easy on the sell side that most bears still don't believe it!

The internals have told the story as most lifts were light volume and lesser heart. And while the semis are finally feeling the diaper effect (bullish), the rest of the tape seemingly wants to play ketchup. Scary indeed, considering the Olympics are upon us and the electoral uncertainty will offer cause for paws. Toss in the specter of back-end loaded September tech quarters and our field position suddenly seems less oversold.

The bulls have a few things going for them. An ever-optimistic Dell (DELL:NASD) almost giggled on their conference call last night. They almost mocked the bears by saying that they "never saw the slowdown" and were "surprised by the comments by other tech companies." Couple that with some newbie cubs and a NASDAQ Comp that's sitting on the trendline from the cycle low (October 2002) and you have a recipe for major snappage.

That's apropos in many ways as the broader tape (S&P) has traded just good enough to plant the seed of hope. When you think of how many times the dip shtick sticked (say that ten times fast), there is a recipe for a lot of higher inventory. There is an inflection point when the average cost of the aggregate market flips, and that has profound effects on the collective psychology. For the broader cycle, that level is much higher in many cases. During the 2003 punch (bowl) drunk love, a lot more money was sucked back into the fray.

The final straw, in my opinion, will come when the mindset of the masses settles on the fact that Elmer's great experiment isn't going to work. Negative real interest rates and historic stimuli are a Band-Aid on a broken bone. The stakes are much higher these days as the dependence on home equity and the leverage (at all levels) are potentially toxic risks. All of this against the backdrop of a weak and weaker greenback that has a date with devaluation. I don't claim to have an answer--I don't know that there is one--but it ain't gonna be pretty.

What to do? Remain prudent and patient. We're in the midst of a prolonged and painful weed out, and advantageous opportunities are fewer and farther between. Just remember that 8000 hedgies, multitudes of mutual funds and countless cowboys are standing in a circle shooting at each other. Sometimes it's better to leave the gun on the table and wait for the smoke to clear. It may take a while, but perseverance and consistence will prove to be our greatest allies.

Good luck today.


R.P.
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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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