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Stress Test

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Watch it Toddo!

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Good morning and welcome back to the city shack. With lingering thoughts still fresh from Ojai, the critters walked into a spate of supply. The bulls held their ground for most of the day but couldn't avert the minxy decay. "They wanted to run all the way to the sun," said Hoofy the bull of the earlier fun, "but it can't be done if the banks weigh a ton and hold to our head the proverbial gun!" Will the bummer of summer continue to weigh or can Hoofy now host a bovine soiree? We'll know soon enough as we kick off our shoes and ready to board the Minyanville cruise!

With the mountains slowly shrinking in our rear view mirror, all eyes turn to the tape as we juggle the struggles that are the flickering ticks. Before we hopped to the hills, and back when Leo the Lion was dancing on our calendars, I offered that August could be a bovine bummer for the Matador Crowd. That's played out, thus far, and judging from the Trader's Almanac, odds are that it'll stay that way into September.

The question I'm wrestling with is whether this is "the" turn or yet another in a frustrating series of pops, drops, blips and dips. The motivation to frolic in the fur was predicated on a few dynamics, including the Fibonacci resistance (near S&P 1250), lofty (overbought) stochastics and lethargic action in the financials. As two of those three ingredients remain (the stochastics are starting to get twisty the other way), the onus is on Hoofy to reclaim his throne and set a new tone.

I've been a bit behind since returning to the big city (my apologies) but I wanna quickly touch on something I said during my Ojai shpiel that was sparked by a conversation with Pepe Depew:

"The problem that comes from engaging in high risk behavior for which the consequences are absent, even if only temporarily, is that such high risk behavior begins to appear normal, and the entire scale of risk gets adjusted and pushed out."

I was reminded of this particular vibe last night when I watched Moody's dump on General Motors (GM) and Ford (F). Folks have pretty much leapfrogged the risk portion of the risk-reward curve as, well, we've seen this movie before and it had a happy ending. This type of learned behavior is the genesis of the disconnect between perception and reality and while it may not "matter," it certainly adds a straw on the back of a very frustrated camel.

I'll be watching the financials again as they'll offer a snapshot of the camel's knees. If they start to buckle, there's a good chance that the double hump will grind and bump. BKX 100 has been Boo's backstop and as long as we're below that level, my sense is that he'll remain in control. There's a lot more to the tape than one sector-and I'll be watching for rotations and allocations-but as far as broad strokes go, they're painting a pretty wide swatch.

Good luck today.


R.P.
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