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Freaky Friday Potpourri: Was That the Retest?

By

Reaction to morning supply will speak volumes.

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It was captivating and chilling at precisely the same time. The financial markets, snapping fiercely out of the abyss, were suddenly no longer the center of attention. As word spread of a plane crash near midtown Manhattan, the entire world held its breath as details were disseminated.

Photograph: Gary Hershorn/ReutersWe now know that birds were the culprits and the pilots legitimate heroes, navigating the rare water landing of a commercial jetliner. The imagery of passengers standing on the wings of a drowning vessel-one that would inevitably sink-awaiting rescue is the definition of social symmetry.

This morning we awake to find investors waiting on the wings of a bailout, with Bank America (BAC) circled to receive an additional $20 billion infusion, the unveiling of an $825 billion stimulus package and Citigroup (C) being split by the sum of its parts. Yes, there's a ton of news out this morning which, coupled with expiration, will make for a busy day.

When we mapped our ten themes of 2009, we offered that if the transfer of power passed smoothly, we could conceivably see a relief rally until the initial bloom faded on the Rose Garden (read text here, watch video here).

Yesterday, with the markets probing session lows, I asked "While all of my trading tells are pointed lower, why can't I shake the sense that Snapper is, at the very least, gonna try and mount an upside run." I stepped into a meeting and when I emerged, my eight screens were flush with green.

The trillion-dollar question, of course, is whether yesterday's intraday reversal qualifies as a successful retest of the November lows. With the markets closed Monday and the transfer of power Tuesday, the pressure on the bulls to produce positive price action today is immense.

We'll witness a press lower near the opening and the reaction to that supply will speak volumes as we edge towards our requisite respite and the pigskin playoffs.

The Bank Shot

T
he dismantling of the financial stocks is mind-boggling in scope but not entirely unexpected. Remember last year, we discussed the need for culpability to extend throughout the societal spectrum, from borrowers who over-extended on credit to institutions that financially engineered risk to policy makers who were compliant by acceptance.

The fact that many of these names are going to Fannieland (FNM) is perhaps the healthiest possible scenario through the lens of "taking medicine as a function of time and price." It is, however, massively unfortunate for the institutional staffers who simply followed their marching orders.

We're talking livelihoods lost here. Life savings evaporated. Careers ruined.

Therein lies the "other side" of the aforementioned "healthy" scenario: societal and structural implications. We've talked about the former storm so I don't think we need to beat that horse.

On the structural side-and something to keep in mind for those calling for the heads of financial professionals-is the fact that if there isn't incentive for people to fix the system, the system won't get fixed.

Incentive on Wall Street equals money. While the industry will be austere and ripe with humility for the foreseeable future, we must find our way to a healthy supply-demand and a balanced give-and-take.

For if we don't crack the code in short order, we run the risk that our capital market structure will cease to exist altogether.

Random Thoughts

  • During yesterday's red press, we eyed the green sprinkles that were trading dry (Research in Motion (RIMM), Amazon (AMZN), Sears (SHLD), Lowe's (LOW) and the semiconductors). Indeed, if you can learn a lot just by watching, watching the Buzz & Banter would have proven profitable.

  • The market is a story of battles and wars. Hoofy may salvage the former but the latter matter is flying the Red Dye flag. Be that as it may, the destination we arrive at pales in comparison to the path that we take to get there and two-sided opportunities abound.

  • When I awoke this morning and saw the DJIA futures up 150 points, I thought to myself that the first fade (lower) will be the easy trade. I'm light and tight (I've got a small USO position and alotta dry powder) and, as always, we'll digest the stress in real-time on the Buzz & Banter.

  • The most likely script today? Jump, test, run, rest.

  • One of the oldest mantras in Minyanville is "As go the piggies, so goes the poke." As such, it would be myopic to ignore the fresh 14-year lows in the financials. While culpability points to deflated equity in this complex, my concern, as discussed earlier, is motivation to save the system.

  • "My firm is once again increasing exposure in equities from 0% to a near fully invested posture. I fully recognize the bad news that is out in the marketplace, but given Treasuries at 0-2.25%, Mortgage Backed Securities at 3-4%, high quality large cap growth (self financing companies purchased via IVW -- the S&P large cap growth ETF), stocks look attractive to me. We also like health care via PPH (pharma holders), USO (oil ETF), XLV (broader health care ETF) and have a negative bias towards bonds and have taken substantial profits in recent days in the Mortgage Backed Securities space, where government intervention has led to artificially high bids. My firm also added a smallish position in XLF (financials). We believe quality is king and that 'a' low , but not THE low has been reached in stocks." Professor Bennet Sedacca on today's Buzz (positions in IVW, PPH, USO, XLV, XLF).

  • The standout action pre-opening? The dollar, which is off a percent plus. Minyans understand that while a lower dollar is no guarantor of higher asset class prices, it's a necessary precursor of them. Indeed, gold is up $30, crude is 3% higher (don't blink) and optimism abounds, at least until some sellers emerge.

  • The upside to all this anger? Wisdom, experience and rediscovering simple pleasures. Indeed, the list of Things I've Learned grows a little longer each day and for that, I'm thankful. Gratitude is latitude as we find our way.

  • Have a great weekend, Minyans, you've surely earned it.


R.P.

Position in USO

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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