Monday Morning Quarterback
Hoofy has earned the benefit of the doubt but I doubt his benefit checks will last.
Good morning and welcome back to the flickering pack. With the holiday stretch in the rear-view and a sultry summer squarely ahead, we power up our weekly pup to find all-time highs in various indices and rainy gloom in
By now, we know the backdrop that is sprinkled across your screens. The S&P, after a few sessions of whack-a-mole, finally tapped the vacuum that sat on the other side of the ride. We mused on the draw of S&P 1530-1550 last month and, true to form, here we are.
To be sure, there are reasons to be optimistic. They include the private equity put, the potential for the last bastion of liquidity, technical affirmation, a stealth transfer of wealth, mounting psychology (the "panic" phase is always the sharpest) and, well, the action itself (respect, don't defer).
And, of course, there is cause for pause. We're increasingly dependent on China, geopolitical concerns remain (terror, Iran, Russia, Iraq), leadership is narrowing, rates are rising (watch for asset alligators) and pretty much everyone is conditioned to buy the first dip (air pocket potential below).
Minyan Michael Santoli mused in his can't miss-Barron's missive that we've entered "a higher risk phase, one dependent on rally-chasing new money and heavy deal flow" and advised to "stay in the game but watch the clock." That sorta jibes with my best guess on the tape. Hoofy has earned the benefit of the doubt but I doubt his benefit checks will last.
In other News & Views…
China was off roughly 8% (the second biggest loss this decade). Yeah, I know it doesn't matter, as evidenced by last week's swift Snapper, right? That could prove to be a trap door, psychologically, so keep your eyes peeled.
Apple has confirmed that its highly anticipated i-Phone will be available June 29.
There are only $2.3 billion in new deals this week but next week is chock full of supply.
The chances of a rate cut continue to diminish significantly. Back in March, the market was pricing in 75 bips over the next 12 months. Today, the market is pricing in just 16 bips.
And Finally, to bring it all together…
As I was out on Friday, logging some quality time with my brother (and a trippy drummer), the first thing I did upon my return was to chew through Friday's Buzz. There are some pretty sharp cookies in the 'Ville and these particular bullets stood out to these Monday morning eyes:
"I commented recently on a strange phenomenon. Correlation between stocks is unusually high for this low of overall volatility. Essentially, there is massive index buying. Participants such as the central bank of China don't really care about what they are buying or the price they buy it at. They are simply recycling trade dollars back into the U.S. in order to keep their currency cheap relative to the dollar so as to prevent the U.S. importing from them. They buy index futures every day linearly through VWAP programs. This increases correlation as index arbitragers buy all the stocks and sell the futures to them. I see this non-economic buying as a sign of increased risk." Professor
"Jeff Cooper's notion of a blow-off top to conclude the market's rise makes a ton of sense to me. From where I'm sitting, it's too early to short anything but any long money I'm putting to work is strictly of the "fast money (no caps)" variety." Television's JeffMacke
What if bonds hold? What will it be? Secular bear? Secular bull continuation? See the chart here of the price of the continuous 30 year future. Note the channel. It's pretty well defined. So if we bounce off that trend line, which I find highly likely at least for a while, think of the rally. So we need to be on Snapper alert... just in case. In any event, the next big move ought to be a doozy. And with vol so cheap in Treasuries, a straddle right here could be interesting." Professor
"Gold and silver are holding well after testing support areas and the gold/silver ratio has fallen below 50 as silver outperforms. The reality is demand for silver does exceed silver supply. The Silver Institute showed 2006 global production to be 646.1 million ounces which was a minor increase, however they also showed above ground stocks declining to 194.4 from 202.7 million ounces. News of a 9.5% decline in Mexican March silver output also is supportive. The silver ETF (SLV) is a vehicle that one can own and is equivalent to owning 10 ounces of silver." Professor Sally Limantour (Position in gold, silver)
Keep an eye on Wal-Mart (WMT) as it edges nearer a new point and figure buy signal at 50 (see the chart here). I made the case on Nightly Business Report last week and earlier this week in the TD-Ameritrade Market Huddle that I think this is a reasonable contrarian play, both as a defensive stock (think: the go-to low-cost staples source for consumers who are cutting back) and an overhated large cap that hasn't been a viable investment for more than seven years now. " MV Executive
Editor Kevin "Pepe" Depew. (Position in WMT)
Good luck Minyans and lets hit 'em hard this week!
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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