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Freaky Friday Potpourri: The Hunt for Red October

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Bears try to ride the Crimson Tide

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"What'd you think, son? That I was just some crazy old coot, putting everyone in harm's way as I yelled "YEE-HA"?"
- Capt. Ramsey, Crimson Tide



It's not easy sharing a variant view on a real-time basis, particularly when you're swimming against the tide.

As old school Minyans can attest, that's an old hat in these parts. We were extremely bearish into October 2007 and maintained that posture-with several successful counter-trend tries nestled along the way-until February and March of this year, when we flipped the switch and turned bullish for a trade.

Ditto crude. After being constructive on energy and metals since 2003, we assumed a very unpopular short position in Texas Tea in May 2008, when it was trading around $135/barrel.

As I'm often early, the pushback was palpable when we traversed those cusps and the venom was thick as societal acrimony percolated. Indeed, when I offered a balanced assessment in November 2008 that profound opportunities would emerge on the other side of the crisis, some lost soul scribed,

"Todd Harrison: You are just wrong. In fact I hope that you are the next person out on the street, destitute, eating dead rats that you cook over a garbage can fire. TO FEED YOUR CHILDREN. Then we will talk about your rosy optimism scenario in regards to the Great Depression. Yeah it was paradise for socialist agendas.

To be sure, nobody is right all the time and I've had plenty of misses in my career, most of which were documented in the 'Ville. So why have I chosen to touch on this topic today? The uniformity in opinion that we've entered an echo bubble and my steadfast belief that this crisis hasn't ended, it's simply changed shape and will arrive in waves.

To be clear-and seeing both sides-we discussed the potential for another bubble in early August, channeling Fred Hickey and Bill Fleckenstein as they offered short positions could prove more futile than during the periods leading up to the 2000 and 2007 tops. They're sharp cookies and those thoughts, coupled with the recent wisdom form James Grant, is most certainly food for thought.

Technical metrics, overbought-readings aside, support that stance as psychology shifts in the marketplace. I had dinner last night with a close friend who currently works as a retail broker. He told me he's seeing early signs of a feeding frenzy that could trigger a 1999 style melt-up.

"This won't end well," he said, "but I'm pressing my bets on the upside until it does-Mr. and Mrs. Jones are panicking."

I've learned a lot during my career, with humility at the top of the list. I want to see all sides, including John Q. Public being squeezed from money markets (at 0%) back into risky assets. I reminded my friend that market moves are characterized by three phases-denial, migration and panic-but he maintained we're in the early stages of the last leg.

He may be right (the action has been superb) but as his friend, I asked him to please keep an ear to the ground and his eyes wide open. For my part-with an admittedly different stylistic approach-I've been operating with a short bias, defined risk and trailing stops.

While I respect the credit market strength and understand quarter-end is on top, the hit it to quit it approach has served me in good stead and discipline will trump any and all conviction.

Sometimes right, sometimes wrong, always honest.

Some Random Thoughts:

  • In yesterday's morning missive, I touched on the China vs. S&P in terms of the tail wagging the stateside dog. Yesterday, another dynamic jumped out and bit my ankle for attention, that of Crude vs. the S&P. Check out the chart below of Texas Tea vs. equities as a picture speaks 1000 words.



    Click to enlarge

  • Keep close tabs on the master betas (Google (GOOG), Amazon (AMZN), Baidu (BIDU), Apple (AAPL)) on the heels of Research in Motion (RIMM) earnings, for these have been the primary bang for the buck quarter-end plays and the reaction to news will offer clues to the market psychology fuse.

  • Inconceivable! I would be remiss if I didn't note that CNBC ran a segment yesterday "What happens after DJIA 10,000?" There are certain market axioms you can seemingly set your watch by.
    • Stay humble, or the market will do it for you.

    • The first move following the FOMC is typically the false move.

    • Contra-hour

    • The news is best at the top and worst at the bottom.

    • If you're selling when they're buying, you'll be laughing while they're crying. If you're buying when they're selling, a cardboard box will be your dwelling.

  • Last but not least? Don't anticipate the anticipator! We can see DJIA 10K today for all I know, so this isn't salty, snarky or otherwise meant as disrespectful.

  • But when the mainstream media proclaims "10,000 on the Dow is inevitable," it warrants a raised eyebrow and scrunched nose (a finski to you if you can do those both at the same time).

  • Want some technical context? Bears can operate with upside stop above S&P 1077-or S&P 1120, for those with a looser grip-while initial support arrives at S&P 1035-1040, S&P 1000 and S&P 95.

The Following vibes were from Mr. Practical on yesterday's Buzz & Banter:

Employment continues to worsen more than the numbers show. Extended Unemployment Claims rose a very large 80k. This means that continuing employment claims would have been 80k worse except those unemployed people's normal unemployment benefits ran out: they are now no longer counted as continuing claims. In addition the exhaustion rate hit a record 52%: 52% of those on EUC completely ran out of benefits and are on their own. They are no longer even counted as unemployed (except for the U-6 unemployment rate, which is not what everyone looks at).

Answers I Really Wanna Know...

  • Note the dollar (+1.25%) steadily gaining traction. A trend change perhaps?

  • For those with an eye on crude (-4.5%), do you "see" the trendline violation in the USO?

  • Are you trading to win or trading not to lose?

  • Why didn't we use the first take when I discussed "the new GSE" (government sponsored euphoria)?

  • Doesn't it feel like everyone is conditioned to buy the dips?

  • When does that change? Down 2%? Down 5%?

  • If discipline trumps conviction, should that really matter?

  • Why was American Express (AXP) trading so dry yesterday?

  • Just as the rationalization for demand arrived after the market turned higher in March, will the justification for supply become evident in the weeks and months ahead?

  • Or is this simply an example of the sharpest pullbacks occur in the context of a (cyclical) bull market?

  • In short, quarter-end upside trend or a bottleneck at the exit as folks attempt to lock in performance?

  • If you're working your buns off all week only to use the weekend to rest up for the next stretch of effort, why not shake up the mojo and enjoy the journey a bit?

  • Are you joining us for Festivus on December 4th (it's awesome) or would your firm like to be a reflection of the company they keep-while helping a lot of kids-and sponsor the event?

Fare ye well on the final fifth of this freaky week and think positive as profitability begins within. For those observing the Jewish holiday, have an easy fast on Monday and I'll see YOU in the 'Ville on Tuesday.

May peace be with you.

R.P.



Register For Minyanville's Holiday Festivus '09 Here
Position in ndx, s&p

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.

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