Monday Morning Quarterback: The Back-Test of 2009
Given how viciously the pendulum swung from fear to greed, it would almost be cruelly ironic if the guillotine again fell into the holidays.
- Paul McCartney
As I returned last night from a spooky weekend in Baltimore, my mind wandered to this morning's column. After ten years of writing and (almost) twenty years of trading, one would think the process would be institutionalized. While the market writes the script and Minyanville tells the story, the truth is there is nothing regular about the current environment.
A few years ago, with the Dow Jones perched at all-time highs, Minyanville told the tale of risk gone awry. We spoke of the cumulative imbalances, the danger of derivatives, the duality in the dollar and the daunting magnitude of debt. We did so when few wanted to know about the other side of conspicuous consumption; we did so when systemic risks to the system weren't so obvious.
To be sure, there's no looking back as we edge ahead. Back slaps and victory laps have never been our style, nor does anyone "care" who was right and what was wrong. At the end of the day, traders are only as good as your last trade and media companies are only as valuable as the latest content. I remind myself of that dynamic often as the world shifts from day to day.
That's not to say we're always right. I'll be the first to admit my feel chilled for the better part of September and October. I could ramble on about trying to do too much and being caught flat-footed by the last leg of the rally but I'm not one for excuses and you don't have the time. Inherent in our editorial mandate of truth and trust is an embedded honesty that you, as a Minyan, most certainly deserve.
I offer this context as we edge into the final stretch of a wicked year on Wall Street. As the first two months of 2009 required a fight for survival and the next eight featured one of the sharpest rallies in history, it's hard not to wonder if we'll see some symmetry in the home stretch. Given how viciously the pendulum swung from fear to greed, it would almost be cruelly ironic if the guillotine again fell into the holidays.
What provides a basis for this potential scenario other than the disconnect between perception (of a recovery) and reality (that for most folks, the environment continues to worsen)?
We saw textbook technical failures last week after the market broke the 2009 uptrend in the S&P and NDX on Wednesday, back-tested those levels Thursday and failed anew on Friday. As past support is future resistance, the baton has now been passed from Hoofy to Boo and traders can lean against those levels as defined risk short-side backstops.
Technical analysis is but one of four primary metrics, we know, but with fund managers chasing their benchmarks, we can safely assume that investors will remain reactive-as they have all year-with regard to their performance anxiety. Where you stand is a function of where you sit but for and with my money, I continue to manage risk rather than chase reward, hit it to quit it and operate with financial staying power as my ultimate objective.
That doesn't make it right; it simply makes it honest.
Some Random Thoughts
- Nine bank failures-on top of the CIT (CIT) toe tag-aren't helping things, nor is the Wilbur Ross article where he sees a 'Huge' commercial real estate crash.
- After taking a quick and dirty upside shot Thursday (prescient, although I prematurely evacuated from that exposure), I layered into a 50% short position Friday morning (into the initial Snapper) and covered half that exposure into the closing bell on Friday as a function of discipline. My initial inclination is to fade (read: make sales) into opening strength but plan to take the pulse of the tea leaves and letting the tape show me the way.
- The aforementioned trend-lines in the S&P and NDX offer risk definition for short-side tries.
- S&P 1070 and 1120 are the next tangible resistance points; S&P 1040 and 1025 were and are key areas of support.
- BKX 43.5, remains the level of lore for financials galore. As go the piggies, so goes the poke.
- Remember the Research in Motion (RIMM) gap we spied a few months ago? It's front and center once again as a breach of $58ish "works" to $48ish on a chart.
Click to enlarge
- Wanna see another perspective on the "dollar vs. asset class" correlation?
- The dollar? Note the downtrend and SEE THIS, for if the greenback gets its groove back and violates that trend-line, it'll tell you all you need to know about the coming direction of equities. I remain long the UUP which isn't advice, just communication.
- How many traders bought into the 50-day moving average bounce last Thursday? We spoke about conditioned behavior (after the last test of that level) and how that would embolden the bulls. Now, you gotta wonder how many trapped longs there are?
- Where are we on the denial, migration and panic continuum?
- Will "forced unions" contribute to societal acrimony?
- In 2006, when talking about the future of Wall Street, I offered "an emerging trend of 'outsourced information' should soon become industry standard and in time, a customer will have the ability to 'opt-in' to a pool of commoditized research much the way they can currently craft a risk profile." That vibe now extends to next generation digital media as a whole; customized content is the new industry standard.
- My buddy Bobby Sager (interviewed earlier this week for the 'Ville) told his tale on The Today Show alongside Sting. I've already scooped five of his books for family and friends, as 100% of the money will be donated to create indestructible footballs for war torn villages. That might seem silly to some but for many, they serve as a symbol of hope.
- Festivus is ONE MONTH AWAY and if you haven't locked your spot for the critter trot, I sincerely hope you do. This is our annual gathering of the Minyanville community to help the leaders and dreamers of tomorrow through The Ruby Peck Foundation for Children's Education. It will be a ton of fun and there will be strong human capital in the hood. Come early, stay late and enjoy the journey, Minyans; you've most certainly earned it!
- If you're on Twitter, you can follow me here and follow Minyanville here. Of course, the majority of my vibes are still shared in real-time on our Buzz & Banter.
- Good luck, and let's be careful out there.
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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