Where We Stand
Animal spirits attempt to force the issue.
I'm working from the comfy confines of Chez Harrison today and I've got a situation with a cat. While I've already fed Phoebe, she's under the impression that the only reason I'm here is to service her. The stage is now set for a battle of the wits and I'm not looking forward to it.
When she's not pawing at the keyboard or typing "qlpzftntblrzmwf" (cat code for "feed me") when I step away to take a call, I'm focusing on the financial crosscurrents with rapt attention. Here's what I'm spying when I'm not secretly enjoying the company:
It's a tale of two tapes, with constructive action in the financials on one side and smelty tech on the other. We call that "S's over N's" in these parts and truth be told, I sorta missed it. Rotation between (and gasp! within) sectors is a throwback to normalcy, when simpler times allowed for an active assimilation of our four primary metrics.
What are they and where do they stand? Glad you asked. In order of perceived importance:
Psychology: The emotional pendulum swung viciously since the March lows, akin almost to a horizontal guillotine. Fund managers wore "CASH" as a badge of honor and are now being pricked by the other side of their prudence. Performance anxiety is palpable, which leads me to believe we're in the last phase of denial, migration and panic. The true test for the tape will arrive once the second quarter letters are penned.
Structural: Let's see, there's WAY too much debt in the system, foreign-holders of dollar denominated assets are diversifying currency risk, we've got an obscene amount of government intervention, a seismic readjustment remains viable and the geopolitical spectrum is fragile. Other than that, not much is going on.
Technicals: We've been talking about the bullish basing above S&P 920 and Mameluke resistance at S&P 950. With so many eyes upon the same two levels--and massive stops set on either side--there is vacuum potential when either is breached, if only for a trade.
My back-of-envelope assimilation is that the potential for a false break-out above S&P 950 exists as quarter-end approaches. That vibe is couched in the context of broader and ever-present risk and is consistent with the "W" we've been talking about, one that could see the market traverse lower into the fall.
As Minyans know, I'm often early so I'm allowing for some wiggle room on my perceived price point and with regard to duration. My stylistic approach--trading with a scalpel rather than a sword and risk definition as a matter of course--will keep me in the game if I'm wrong (as I've been before). Nobody is smarter than the market, we're all just pawns in her game.
In terms of the here and now, a quick sniff of the daily tea leaves finds the critter compass skewed towards Boo. The dollar continues to hold it's bid, breadth is 2:1 negative (S's and N's) and big beta--from Apple (AAPL) to Google (GOOG) to Research in Motion (RIMM) to Amazon (AMZN) to Baidu (BIDU)--is getting smoked like a Philly Blunt. The only overt positive is the relative traction in the financials as they try to win the pennant. As go the piggies, so goes the smoke so see both sides and think positive.
This is a tricky juncture and the next 5% will seem obvious with the benefit of hindsight. The trick to the trade is to remember that the mechanics of your swing trump the results of your at-bat. Discipline over conviction, risk management over reward chasing and proactive patience remain central tenets of any successful strategy regardless of your directional bias.
With that, I'm going flip lids, chew through to-do's and yes, feed the feline one more time. I'll be out this afternoon as I head to the Baltimore burbs to hear the laughter of little kids. Next week is a biggie in the 'Ville, one that includes Memoirs Chapter 2, several high level melds and an off-the-radar 40th Hippiefest that promises to be groovy.
So, from now until then, fare ye well with some heartfelt peace.
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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