Freaky Friday Potpourri: Pressure Pervades the Market
One element does not a market make as the financial machination is multi-linear and ever-changing.
"If Mr. McMurphy doesn't want to take his medication orally, I'm sure we can arrange that he can have it some other way. But I don't think that he would like it." --Nurse Ratched
Good morning and welcome back to the twisty track. After a crazy day at the races on Wednesday, the bipolar stroller took a hard right turn into Red Dye yesterday. The fingered cause was fresh credit concerns and, indeed, continued pressure as measured by the ABX indices would support that.
One element does not a market make, however, as the financial machination is multi-linear and ever-changing. Ergo, we could point to a number of noodles as it pertains to the sudden and stern gut check:
The double top with a lower high (on weaker volume) technical pattern, which is now giving Boo a context with which to define risk.
Higher lows in the VXO. Volatility is the opposite of liquidity in addition to being a proxy for angst.
Fresh Lows in the banks. BKX 101.50 now becomes fresh resistance while next support resides around BKX 92ish (levels established between 2000-2003).
Narrowed leadership in tech. When three stocks make up 50% of the yearly gains, that's a flag.
There are clearly more "there's" there, such as multi-year lows in the greenback (as it relates to foreign patience on their dollar-denominated holdings), the behind-the-scenes agendas and, perhaps most importantly, the collective psychology surrounding governance and credibility.
Many of these themes aren't new, per se, as much as they're a cumulative manifestation of what's been in play. That's a blessing and a curse for both sides of the critter ride.
The bulls will ride the tide until it subsides while the bears will argue that excess breeds excess. In many ways, Hoofy and Boo have both been right and timing will dictate their future memories of our current juncture.
I'll share one final thought before we break for the Buzz. At dinner last week, I was debating with a buddy the notion that "News is always best at the top and worst at the bottom but we're now seeing the worst news at a market top." It's a thought we should continue to monitor, particularly as we keep our ears peeled for more write-downs (which I believe will be plentiful).
These thoughts and this column have nothing to do with the next percent move. The time to address risk is when the markets are up and gains are made. The time to shift the lens to reward is when the tape is in the hole and bids are scarce. It's been quite a while since that latter matter has been in vogue but the more things change, the more they'll stay the same.
So to sum it up, it's just a matter of time.
Some other random thoughts:
Super Granny Goldman Sachs (GS) has been the definition of buff since the summer. When it's flown south, it's done so begrudgingly... until today. It led us lower out of the gate and is dragging down the rest of the financials which, if adages mean anything anymore, should weigh on the fray. GS $234 and $225 are the next levels of sore, er, lore.
After a day like yesterday, a probe lower (at the very least) is likely the "easy" trade of the day.
Reasons for concern include credit issues (as evidenced by the ABX indices), the technical set-up in the S&P, higher lows in the VXO, fresh lows in the banks and narrowed leadership in tech.
The WSJ is reporting that $754 billion of acquisition offers have been pulled in 2007, according to Thompson Financial, which is the most since Y2k.
This whole off-balance sheet shtick with the banks has the potential to get very hairy. Subjective "marks" on illiquid securities have been going on for many years. This, I know.
Big Ben, Parliament, Big Ben, Parliament!
Minyan Peter has been "all ova" the importance of the European banks. Along those lines, keep UBS (UBS), Deutsche Bank (DB) and Barclay's (BCS) on your radar as two of the three are hitting fresh lows.
There is (unconfirmed) chatter that Barclay's is keeping the BOE very close (after saying that things were and are getting better) so keep that in mind. Saying something vs. doing something is very different indeed.
For instance... hmm... let's see... the FOMC could "say" that credit situation is getting better but the fact that the Treasury is still pushing for an emergency $100 billion bailout fund "speaks" louder than words.
I'll be back, Minyans----TGIF!
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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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