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Random Thoughts: Flags Wave on Wall Street


Be careful during a potentially volatile week.

  • If 958 medals didn't whet your appetite, he's 40 more with the benefit of hindsight.

  • Silence speaks volumes? The lack of resolution in Fannie (FNM), Freddie (FRE) and Lehman (LEH) stands out as the primary cause for concern. No news is bad news, particularly with September looming as the "put up or shut down" month for many financials.

  • My concerns regarding the comeuppance of corporate credit continue to resonate. The risk to the short side is massive government intervention. While that would have profoundly disturbing long-term implications, it could usher in a near-term sigh of relief rally.

  • Green beans in the red sea? Baidu (BIDU), Ambac (ABK) and Novellus (NVLS) (the semicaps continue to trade relatively dry).

  • Exxon-Mobil (XOM), if it gets near $85, would set up for a nice and defined short-side try.

  • Remember Minyans, you've got second stringers all over the Street and the last thing they wanna do is give their bosses an excuse to further trim capacity. Expect to see a lot of sidestepping on liquidity which, of course, would exacerbate volatility.

  • My positioning? As discussed on Friday, long powder and short chowder. I've got a small Yahoo (YHOO) position (due to the lack of discernible catalyst) and a smattering of S&P puts.

  • Merrill Lynch's David Rosenberg-who I consider to be one of the best in the sell-side breed-anticipates -0.3% GDP growth next year. If that occurs, it would be the first time since 1991-and only the eighth time since 1950-that annual GDP growth is negative.

  • As it stands, I've yet to find Ethel Rosenberg's opinion on the state of financial markets.

  • Either way, the destination we arrive at pales in comparison to the path that we take to get there. As a trader, that means we must identify advantageous risk-reward set ups and remember that discipline must always trump conviction.

  • The role of the government is case in point, for if they didn't step in as they did, odds are that the dollar would be higher and asset classes as a whole would be lower.

  • Today's tea leaves? Breadth is worse than 2:1 negative, the financials are fluxy (yet above the all important BKX 60 level) and volume is thinner than Kate Moss on Atkins. Trade smaller and understand that it won't take much to move thy tape.

  • Also note the flag pattern in the S&P. These formations typically resolve in the direction of the prevalent trend (which, in this case, is lower). Keep S&P 1270 (the lower band) on your radar please.

  • Isn't it ironic, don't you think? Every time I mention the uptick in societal acrimony, someone gets bent out of shape.

  • "Having not stepped in front of the Democratic National Convention to bail out Freddie (FRE) and Fannie (FNM), I think it is safe to say that the bail out is now on hold until after the Republican Convention." Minyan Peter on today's Buzz & Banter (FREE trial here)

  • I simply can't wait for the inside-out recovery (aka "globalization") to finally arrive. The unfortunate truth is that I'll have to as it's potentially four or five years away.

  • Think about "!" The internet is everything everyone thought it would be but it didn't arrive until after the tech crash. Globalization will play out much the same way after debt is destroyed.

  • When it arrives, Minyanville will be branded Pollyanna the same way it was branded Cassandra in 2005 and 2006. Unfortunately, it simply won't matter "who" saw it coming as people will be too peeved to care.

  • So what to do? Road trip? Orange Whip? Orange mocha Frappacino? Nah, deep breaths, patience, discipline and awareness. If you're not part of the solution, odds are you're part of the problem.

  • As always, I hope this finds you finding your way and enjoying the journey.


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