Watch the internals--they've offered the truest guide!
Good morning and welcome to Hurricane Elmer. With the bespectacled Fed chief out of the way, the bountiful bovine danced and played. It was a full fledged jig that partied hard and left the bears both charred and scarred. Once the seas settled after their swell, the critters gathered for a minxy dwell. Over a gaggle of geese that wouldn't cease, they searched in vain for the missing piece. The conversation went a bit like this:
Hoofy: Textbook stuff. The S&P popped out of its summer range after Labor Day, retraced and retested the upper boundary (previous resistance). Give it a couple of days, sprinkle a little fear on the fire and voila!
Daisy: And you were lookin' snazzy there, Mister! I haven't seen moves like that since our weekend in Vermont! (fans herself)
Boo: Hey Daisy, you're not the only one getting...ah, forget it. Nobody listens to me anyway. I'm just gonna sit back and watch the movie again. Remember though, Hoofy--bubble you once, shame on me. Bubble you twice, shame on you.
Snapper: Stop with your bubble gum fun. You saw the evolvement of yesterday's rally--we talked about it! The brokerage stocks broke out (early) above XBD 600, the breadth was 2:1 positive from bell to bell, and there was real leadership from the semiconductors. Heck, there was nothing semi about the chip stocks!
Hoofy: Seriously Boo, I know you were looking for an autumn swoon but there aren't many tangible reasons to bet that way. We're a monkey's nipple away from breaking out to new (yearly) highs, there's broad leadership, the internals are healthy and performance anxiety is sure to kick in as we edge closer to quarter (then year's) end.
Sammy: Everything you're saying is right, Hoofy, but remember--and this is important--there were equally compelling reasons to be short at the bottom. In fact, the environment is almost a mirror image of the March low. That's obviously not a timing mechanism but it certainly warrants discussion. I know Boo has lost credibility as a function of the rally but he does offer a few cause for paws. Insiders are dumping stock, complacency is widespread, the bull camp is crowded, debt is at historic levels, we're diving into a huge deficit, jobs are evavoporating, geopolitical risks remain...regardless of your posture (exposure), these are the facts.
Boo: (finishing off his ice water) Yeah, and lemme offer this little factoid. Price/Earnings multiples are two-sided equations and just because the P's are lower than they were a few years ago, the E's are much lower as well. That makes for an expensive market by historical standards, my friends, and it's pricing itself for a best case scenario. While everything seems to be coming up roses, be wary of those rose-colored glasses. They've proven themselves to be quite fragile in the past.
Hoofy: You've been saying that all year as you cry in your coffee. Me? I've been laughing my way to the bank!
Boo: I know, bro, I know...but I am on record saying that the greatest bubble of all time is not a "three and out" situation. It's gonna take many years to alleviate the excess capacity despite the massive liquidity injected by the global central banks. The only thing they're doing in planting the seeds for another mini-bubble, is not sowing the soil for a new bull market.
Sammy: You may be right, Boo, but that's big picture thinking and doesn't necessarily apply to the day to day action. For those focusing on the journey, the daily tells continue to offer tremendous guides. The financials remain key--we've spoken about the brokerage break-outs but keep an eye on the piggies. The BKX is eyeballing it's 50-day moving average again (881) and that's a level to monitor. The semis, breadth, horsies, recent highs and master betas (biotechs, internets) should also remain on the radar.
Daisy: What about the Critters Choice Awards animated auction--how exciting is that? With two days left, Minyan Neal Greenberg remains in the lead! I sure hope he can act--this is my big chance on the big screen and I need a strong leading man!
The menagerie sat in silence for a moment to let it all sink in. It's been a long year and one that's been quite emotional for critters of all shapes and sizes. This business can be all consuming--in fact, by definition it almost always is. By sitting in front of a computer each and every day, we're apt to miss the beauty of the world and the balance it provides. This fact was not lost on the fab five and as they turned their attention away from the fray. As they knew, time was the one trade that could never be taken off the tape.
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 firstname.lastname@example.org.
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