Watch the dollar--if it reverses higher, it'll apply a plier!
Good morning and welcome back to the stock attack. As we power up our pommel horse, it's dripping red in every bourse. Indeed, the overseas breeze is blowing south and hardcore selling is the word of mouth. Will the crimson tide ride stateside or will Boo cover up to run and hide? It's a new week of flickering ticks so come with me as we get our fix!
If we are to categorize every trading move into three phases--denial, migration & panic--this year fits nicely into a Minxy tri-mester. As the bombs fell on Baghdad, the investment community was conditioned to sell rallies and, by and large, viewed the initial jump as an opportunity to lighten up. As the lift began to drift, the sea change morphed the red dwells into green swells. Finally, as we cast our eyes to the "clear blue skies," the chasers reached hand over fist for the move they missed.
To be sure, the tangible metrics lined up as market chimed up and all through this year's upside climb, the bulls found reason for every rhyme. Almost all of society, from portfolio managers to media outlets, have a vested interest in higher prices and after three years of tears, they embraced each positive data point. The overt negatives were obsolete as the bears, we know, were in retreat. Absent an exogenous shock, there was little to stand in the way of the bovine play. That begs the obvious question: What could possibly derail the sail?
We've spoken about the importance of the greenback for quite some time. I mentioned it on CNBC a month ago, Succo and Fleck have touched on it repeatedly and Scotto wrote a fine and detailed piece on Friday. After the G-7 member nations essentially backed less foreign exchange intervention (this weekend), the global community is clearly eyeballing the dollar squalor. Yes, we're still firmly above the summer lows and (shocker) global strategists are already putting a positive spin on this. Still, the market is vulnerable and, as such, we must remain ever vigilant in our efforts to identify a potential fly. Few questions will be asked as long as the screens are green...but if the red spreads, the radar will become a bit more sensitive and the blame game will begin.
Are we in the midst of a transition from the "panic" leg of a bull phase into the "denial" portion of a bear trade? Perhaps, the plethora of bubbles (psychology, debt, housing, derivatives) make "it" a distinct possibility at any time. Just as a balloon can inflate beyond normal capacity before popping, however, so may the bubble trouble that continues to build. As such, the possibility exists that "it" doesn't happen until late in this year or early next.
With that said, the Jinx is gettin' hammered for 4%, Europe is Clifford red and dealers likely have a fair amount of residual exposure (as a function of the post-expiration hangover). Today is shaping up as an important session as there are clearly a lot of trigger happy traders in our midst. Watch the dollar (rallied modestly off the lows), the breadth (single best tell), the financials (BKX 900 remains an inflection point), big cap tech (most extended) and our levels (S&P 1020 (1000)/NDX 1365 support and Friday's highs are resistance). And think positive--it all starts within.
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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