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Random Thoughts: Bulls Await Second Test


Opportunities may be on horizon.

Editor's Note: The following content was posted in real time on this morning's Buzz & Banter. It is being republished here for the benefit of the Minyanville community. Please click here to see the Buzzes from this afternoon.

Morning Dew - 9:11 am

Good morning. After a weekend in Miami that included a few hits for Fox Business--including a rather detailed discussion with Steve Forbes and a world class wrasslin' toss of Cody Willard (which was captured live on TV) I'm back in the saddle after a morning full of interviews on Yahoo Finance (which will be aired throughout the day). Some top line vibes:
  • If you haven't caught my opening missive on what I believe Bear Stearns (BSC) "means" for the market in general and the financials in particular, please check it out. The conclusion may surprise you.

  • I plan on nibbling on some tech on the opening with the thought that there will be a rotation into that complex as the process of price discovery unfolds in the financials.

  • If you were to hold a water pistol to my head, I would offer that an initial lift--followed by a deeper probe--will take place and the second dip might be the better entry point. As always, this is simply one man's humble opinion.

  • To be clear, I believe we're in the early innings of a multiyear debt unwind. However, it's important to remember that the Depression was an era rather than an event. Just as rallies littered that landscape, we shouldn't be shocked if a similarly sullen stretch, complete with periods of false hope (upside trading opportunities) emerges.

  • Capital preservation, debt reduction and financial intelligence remain the staunchest allies as we fight the good fight.

Bring it! - 9:38 am

With a conscious nod that the second dip might be the better entry point, I dipped a toe in the water and bought Google (GOOG) and Apple (AAPL) calls into the abyss.

I also tried my hand on some JP Morgan (JPM) calls with two thoughts in mind. First, if it opened green in the red mess, there are buyers. Second, Jamie Dimon is nobody's fool. He very well may have bought the deal of the year with an implied put (the Fed).

Please keep in mind that this is NOT trading advice and as a function of the volatility, I'll be In-N-Out of some of my risk faster than a double double with cheese. I'm just sharing my thought process in real time with hopes that it adds value to yours.

Be careful Yo.

Gate Sniffage - 9:48 am

  • See the relative strength in the consumer non-durables and pharma. I nibbled a bit more on some more Schering Plough (SGP) calls (defined risk) with the thought that one of our ten themes may finally find some legs.

  • The biggest risk to EVERYTHING? The dollar. If it begins to lift, my fear is that asset classes will deflate in mass. I've been wrong (early) on that as a function of the proactive socialization by the Federal Reserve. Whether it's a cause or an effect (it will seemingly be the latter) remains to be seen.

  • Wowzers, look at the drillers get drilled. I was trading these pups from the short side last week, offering that the "easy" trade in crude was likely back to par ($100). I flattened my risk into the weakness Thursday, which was good discipline pure and simple. No looking back--opportunities reside ahead.

  • I'm not sure I've ever seen market breadth as bad as it is right now (17:1 negative on the big board). That'll precede a massive melt or it is a capitulatory sign. You know which way I'm betting with the disclaimer that deeper, more pervasive pain may be a necessary precursor to a rally. Buying the first dip (opening) may in fact be too easy. Stay tuned.

Engine Room, More Eyes! - 10:10 am

  • Big Beta, including Google (GOOG) and Apple (AAPL), did not rally with the 10-handle pop in the futures. That's not a good sign.

  • Pharma and consumer non-durables are gaining traction. Keep close eyes on both of these beaten down sectors for signs of continued rotation.

  • Yes, I'm keeping powder dry for the second, more pervasive test. "Straight up" may very well be too easy. It's possible--which is why I nibbled into the muck--but nothing is easy in this market. Except, of course, Fed Policy.

  • I would prefer to see the VXO up more that 5%.

  • JP Morgan (JPM) continues to rip higher, up 10%. This speaks to two things. First, you can learn a lot just by watching (it opened green in a sea of pain). Two, Jamie Dimon is one sharp cookie. You think Citigroup (C) is bumming that it let him slip away from its fold?

  • Please note that, while I believe JP Morgan effectively stole Bear Stearns (BSC), I'm not opposed to making some sales into this lift. Trades, as they say, are made to be taken.

  • I'll be back.

The Whites of Their Eyes - 10:53 am

As Hoofy and Boo play one heckuva game of chicken, my mind is a raging torrent, flooded with rivulets of thought cascading into a waterfall of creative alternatives. In that vein, I offer the following thoughts as they seep through my fingertips:

  • I can only hope that I write like that dude in Cowboy Mouth drums.

  • I completely "get" why folks are short credit. Just as we gotta "sell when we can, not when we have to," they should remember to cover when they can, rather than when everyone else tries to.

  • Drugs and hugs, baby. Drugs and hugs.

  • The genesis of my thought to pick at big beta this morning was to catch the Snapper off the opening. We got the Snapper--one that I participated in through JP Morgan (JPM) and other tertiary positions, but Apple (AAPL) and Google (GOOG) continue to trade punk.

  • Through objective eyes, that speaks to supply. If we continue higher, folks will migrate to that space and they'll participate. If we get the second test, however, they'll take one high and hard. And yes, I'm talking about a fastball.

  • Socialization and Nationalization are the definition of moral hazard and NOT something that is in the long-term best interests of society. That, however, is a different discussion than trading. It's the whole "destination vs. the path that we take to get there" discussion and speaks to the importance of syncing your time horizon and risk profile.

  • On the bright side, I'm spending the three day weekend with my brother Adam and his family, playing super-uncle in Baltimore. I don't know about you but I get a strong sense that by the time our requisite three day respite arrives, we're gonna need it.

  • As always, I hope this finds you well.

The Moment of Truth - 11:35 am

This morning, we spoke of the second, deeper, more pervasive decline as a better potential entry point for Hoofy. Whether or not that arrives remains to be seen although it feels like it's in the works.

When asked that exact question just now during an impromptu interview, my response was that the subsequent probe should happen but there are powerful agendas in play today with the clear motivation to get this market higher and shift psychology. That's a dangerous reason to play--invisible catalysts always are--but we must always respect how vicious a cornered and confused animal can be.

We've been monitoring this evolution for years, including last summer when we wrote "if the wheels fall off the financial wagon, you were warned." The powers that be have been very active and to date, it hasn't helped much (although I shudder to think where we would be if they weren't trying to prop up the slop). And they will continue to act aggressively, for they know the stakes for our finance based economy.

Opportunities are bred from obstacles and that's how I'm approaching this market. Despite the fright--or perhaps because of it--I'm more constructive for a trade than I've been in a long time. What remains to be seen is from where and that, my friends, is why I continue to keep my powder dry.

Deep breaths and open eyes, my friends. Emotion remains the enemy.

Answers I Really Wanna Know... - 12:15 pm

  • Given the negative wealth effect on Wall Street, how long will NYC real estate be immune a decline?

  • Do you see how dry the semiconductors trade?

  • Can you believe that the NY Yankees paid more for A-Rod than JP Morgan (JPM) paid for Bear Stearns (BSC)?

  • While I'm keeping powder dry for lower prices still, can I humbly offer that I'm getting more bullish than I've been in years (purely for a trade)?

  • If Minyanville prides itself on being the financial news you need to know before you know you need it, doesn't it make sense to flip the switch when our roadmap to ruin is embraced by the Street?

  • Why is the VXO only up less than a point?

  • Is it complacency or a function of volatility being the inverse of liquidity as the Fed jams more than a trillion dollars into the machination?

  • What's for lunch?



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Positions in AAPL, GOOG, SGP, JPM
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