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Monday Morning Quarterback: Pop Tart

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Is this the week the rally will sour?

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"Back, caught you looking for the same thing, it's a new thing check out this I bring." --Public Enemy

One of the mainstay Minyanville mantras is that price is the ultimate arbiter of variant financial views. As we edge into the midst of May, that push may soon come to shove.

When we positioned for a sharp rally at the end of February, we offered there would be ample after-the-fact affirmation for the upside. The market is a forward-looking discounting mechanism, we know, and the action is always obvious with the benefit of hindsight.

While recently discussing the "widow's peak" of 2009, we posited that the tape had room to S&P 950, where it will run into a confluence of resistance. As we reach towards that level, conventional wisdom embraced the notion that the worst is now behind us.

There is most certainly an upside case to be made, one that looks a bit like this:

  • Due to the very real risk of a systemic collapse at the beginning of the year, the market overshot to the downside.

  • The first leg of this rally simply corrected that imbalance as we edge back into a normalized environment.

  • The S&P is still off 40% since October 2007.

  • They'll have to pry the monetary musket from the policymakers' cold, dead fingers.

  • If the dollar breaks DXY 83, is would be an incremental element of "jumping the shark" in Our Wishbone World.


I sincerely share your hope that brighter days await but have learned the hard way that hope isn't a viable investment strategy. No matter how hard I try to peer through rose-colored glasses for anything more than a trade, I can't reconcile the unavoidable fact that debt destruction is the only feasible remedy for what ails us and we're currently swimming in the wrong direction.

The profitable position is rarely the popular one. Time and time again, whether it was a bearish stance into all-time highs or Crude $135 or the Armageddon purchases in March, the pushback was palpable. Old school Minyans will tell you I'm often early and they would be dead on balls accurate so please keep that in mind.

Some Random Thoughts:

  • As discussed Friday, I've revisited some downside exposure with an eye towards our upcoming level and a loose grips on my handlebars.

  • I'll note it again because it's important: the dollar index is dancing near major support at DXY 83 and should it break, it could open the door to further asset class reflation. A lower dollar is no guarantor of higher asset classes but it's a necessary precursor to them.

  • The question then becomes how much patience (already frustrated) holders of dollar denominated assets have left and how this dynamic might manifest, including potential scenarios such as a seismic currency readjustment or geopolitical strife.

  • "Discipline over conviction," "financial staying power" and "risk management over reward chasing" are important constructs regardless of one's directional bias.

  • For what it's worth and so it's said, our peeps on the Street informed us on Friday that they saw "real money buyers" in the financials. Conversely, it felt like tech had one foot on a banana peel the entire session.

  • Bank America (BAC) has emerged as a fairly reliable tape tell, as have the master beta complex, including Apple (AAPL), Amazon (AMZN), Research in Motion (RIMM) and Google (GOOG). Goldman (GS) gets a nod as well, if for no other reason than so many traders are keying off it.

  • Minyan Dougie Kass-a driving force behind the MV All-Star Guitar-tosses his hat in the ring by offering that banks stocks are "priced to perfection".

  • I informed Boo that his downside plans may have to wait until Turnaround Tuesday which, while nonsensical, tends to serve as a counter-trend session each week.

  • Is Stevie Winwood the most underrated rocker of all-time?


R.P.

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