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Random Thoughts


There's color from the Street that the institutional flow is notably quiet although sentiment is beginning to "adjust" to two-sided trading opportunties.


Man, I sure know how to pick 'em! It stands to reason the Minx decides to get frisky on the same day that I attempt to set a personal mindmeld record. Alas, as I strap myself back on track, I'll humbly offer the following (albeit brief with less snark than usual) top line vibes…

  • We all see the crimson tide swallowing the broader ride. But what are the standout elements to moi? The breakage in the banks (this shoulda been on ye radar all day) and the dip flippage in Google ($513 remains a very important level from both a technical and psychological standpoint).

  • We touched lightbulbs for the moth yesterday and noodled S&P 1500 and, through there, S&P 1460. They remain in play by my pencil.

  • The VXO (volatility index) is up a quiet 20%. Crazy, eh? I'm getting color from the Street that the institutional flow is notably quiet although sentiment is beginning to "adjust" to two-sided trading opportunities.

  • If Boo wants to lean short into the close, I told him that S&P 1500-1505 is an intuitive backstop.

  • A lil' perspective, Minyans--S&P 1460 would be a mere 5% correction.

  • Oscar was a sportswriter--this we know--but what the heck did Felix do for a living?

  • All major hedge fund bummers have been preceded by volatility spikes. It's the "other side of compression" after folks have been conditioned to increase the size of their bets to make up for a lack of movement. We've got movement now and, trust me, it's catching some folks flat footed and mispositioned.

  • Market breadth was THE tell (yesterday and today). Where is it now? NYSE internals are finding 10 red for each stock ahead. Oy vey is meir.

  • "When I posted in Mid-July that the 1987 analog had been triggered, many investors thought that was bearish. However, the pattern actually suggested a melt up first. Few agreed with that conclusion. Now that the market has turned, I find that previously ardent bears have become so defensive and hypnotized that they think there must be more on the upside. Congratulations Mr. Market, you have done it again. No one likes to change their mind. Market change is psychological, not fundamental." Professor Woody Dorsey on today's Buzz

  • In Flow's Diner this morning, we've seen a buyer of 20,000 QCOM June 45 calls and a massive accumulation (100,000) of Eurodollar Dec 95 calls (betting that the Fed lowers rates).

  • The following Buzz took place between 1:00 PM and 2:00 PM

    I return from my crosstown mindmeld to find red screens, alotta fish and my close friend Snoop Tony Dwyer awaiting. I asked Snoop for some time line vibes as the S&P nestles in at our aforementioned first resting spot.

    You've been white hot in your broad market calls. Whataya think here?

    Snoop: Each meaningful correction since the '03 low has begun with interest rate fears and each correction low was preceded by a short-term peak in rates. I expect long yields to peak this week so stocks should work through this correction in the coming weeks.

    Toddo: Leaving alone the obvious thought that we haven't had a 10% correction in the S&P since 2003 and following your logic, how can you be bullish with global bonds breaking down?

    Snoop: Most importantly, the direction of stocks correlates directly with the direction of earnings. Therefore, to become negative on equities here, you would have to expect bond yields to go high enough to generate negative economic growth and negative year over year earnings...

    Toddo: OK, but how do you reconcile these two thoughts. That fundies are but one of four primary metrics (particularly in the context of globalized correlation) and perhaps more importantly, isn't news always best at a top?

    Snoop: So would the news being best include Prudential shutting down their institutional business, outflows in equity mutual funds or housing busted? (Sarcasm)

    Toddo: I would offer that those are pimples on a much bigger elephant given the interest rate break. To my earlier question, however, you're saying rates are gonna retreat. Why do you feel that given the mounting evidence to the contrary?

    Snoop: 1) Anytime the weekly stochastic (10-year note yield) has been this overbought, it has marked a near-term inflection point. 2) Corporate spreads remain historically tight, suggesting higher rates have yet to impact corporate lending. 3) Core inflation has re-entered the Fed range and trending toward the middle of it.

    Toddo: OK, I gotta ask. Do you agree that there is inflation in things we "need' such as energy, education and healthcare and deflation in things we want such as cell phones, laptops and plasmas. If so, can't an argument be made that government statistics don't accurately reflect current economic realities?

    The markets don't correlate to theory, they correlate to core inflation. Until this metric stops working, I see no reason to reinvent the wheel. Taking that thought further, if you did wanna use the overall rate (which includes all measures of inflation), the FOMC would be aggressively lowering rates because the real Fed Funds rate a few months ago reached over 4%, which has only taken place when the Fed has been too tight.

    Toddo: What would you say to my thought that the FOMC decision making process is being "shaped" (cough cough) by foreign holders of our debt (
    ) who are unhappy with the slippage in the greenback (which affects dollar denominated holdings)?

    Snoop: If that were true, the FOMC would not have cut rates in July of 1995 when the dollar was within 1% of the historic low. Growth should trump currency fluctuations every time.

    Toddo: A'ight Snoop--know you gotta run. It's great seeing you. Thanks, as always, for being my brother.
No positions in stocks mentioned.

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

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