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Monday Morning Quarterback: From Prada to Nada


It's make or break for the Jet Set

It's hard to be unimpressed with the stock market action. After deep double-digit declines to start the year, the tape snapped back with furious vengeance that caught even the most ardent optimists by surprise.

We chronicled the action in real-time, successful in spates and other times in vain, but through it all with truth and trust. In a world where many are pointing fingers and placing blame, we pride ourselves on being part of the solution. This crisis is no longer financial or economic; it's now social and spreading.

The question we must wrestle with isn't whether or not it's over; it's how and when it will manifest next. When the government bought the cancer and sold the car crash, the quick fix came with a profound cost. I don't profess to know the answers but asking tough questions is a proactive step of preparedness.

Old school faithful have a strong sense of our foresight but I touch on this point for newcomers to our community. With upwards of 10,000,000 page views in July alone, the Minyanville mission of effecting positive change through financial understanding is gaining momentum and mind-share.

As we switch gears into the next phase of this socioeconomic storm, the point of recognition will again sweep through society. For some, that will be the realization that this will take years, not months, to fully flush out of the system. For others, it will be the understanding that there will be a geopolitical price for our policies.

For many, it will require a complete reprogramming of how we look at ourselves and judge others. Quite hopefully, as the greatest wisdom being bred as a function of pain, this will be a cleansing process that paves the way to better days; not just for us but also for our children, those who will inherit the residual aftermath of our generational excess.

Lucidity Now!

Friday, as I attempted to thread traditionally dry financial prose with pop culture references and deliver an amusing yet insightful rhythm that resonates with reason and provokes thought, I offered my trading posture remained largely unchanged.

I made my market bed and that is how I've awoken today.

In terms of the "worth-it-meter," I had a high degree of confidence that the risk-reward was compelling when I slapped on short-side exposure into the Thursday circle smirk. As discussed in real-time and communicated thereafter, if I didn't swing the risk bat at that particular pitch, I shouldn't be trading the tape.

Since those positions were initiated-they were established at NASDAQ 2007 and NDX 1630-the market meandered east by southeast with an underlying bid but two-sided tenor. The enthusiasm for this particular risk wasn't the directional bias as much as the confluence of elements that surrounded the bet and the timing of the bet itself.

In addition to the intersection of two major resistance levels for the technology sector, the precise "pivot point" was a 50% retracement of the entire decline in the four-letter freaks since the 2007 top. Further, S&P 1000 represents a 50% rally off the March low (where we peaked into the election) as we edge into a seasonably week stretch.

Click to enlarge

The fact that few people are focused on this-following the widespread coverage of the bearish head & shoulder pattern at S&P 975-adds incremental allure to the set-up. And the risk-reward-the amount I can lose relative to potential gains-is perhaps the best I've seen all year.

Given my "buy stops" are set directly on the other side of the entry levels of NASDAQ 2007 and NDX 1630, I'm effectively risking small to make big. That doesn't mean it will work-this market has a mind of it's own-but I'll make that bet 100 times out of 100 and have no regrets regardless of the outcome.

As we're apt to say in the 'Ville, the mechanics of the swing trump the results of the at-bat.

I Think I've Got the Black Lung Pa!

No, I'm not a miner-coal, data or otherwise-but Minyan Rahul brought this article to our attention and we wanted to share it with ye faithful. I would imagine the FASB is under intense political pressure not to rock the boat by changing accounting rules, but we pride ourselves on seeing both sides of every trade.

And now we do.

Random Thoughts

  • My biggest concern about Friday's close was that there would be wiggle room between today's opening and our levels of lore. As discussed at the time, I wanted to allow for the potential for monthly inflows with the arrival of August.

  • My vehicles are skewed primarily to the tech sector (including NDX and S&P). I've also got some underneath out-month puts (such as Research in Motion (RIMM) $60-lines) that I've mentally marked at zero. Point is, if tech stocks are where our risk-reward is most measurable, the underlying instruments in our pockets should mirror what we see with our eyes.

  • If "month-end squaring" the real reason for the sudden pop (in gold (GLD)) and drop (in the dollar) Friday afternoon, we must question whether that's reactive reasoning given most portfolio managers don't write monthly investor letters.

  • Given a lower greenback is a necessary precursor to-but no guarantor of-higher asset classes, what are the implications for equities and can we read into the fact that equities didn't catch a bid, which was a subtle shift from what we've seen?

  • My grandfather Ruby used to say that time was the most precious commodity and as usual, he was right. How many hours have you spent staring at that screen while the world continues to rotate?

  • A quick back-of-the-envelope calculation puts my cumulative tally near 40,000 hours, or 2,400,000 minutes, or 144,000,000 seconds, depending on the measuring stick.

  • The stealth traction in Bank of America (BAC) was not lost on me. Impressive, really. Always early what?

  • The greatest trick the devil ever pulled was convencer al mundo que no podía hablar español!

  • If you've got an interest in joining me at the NYSSA Market Forecast: The Economy and Markets at the Crossroads luncheon tomorrow , please use "MINYAN" as the registration code for our community discount.

  • While August is traditionally a slow summer month, that doesn't mean it can't get nutty (see 2007 and 2008 for recent reference). Indeed it's hard to believe it's been a full year since Nick & Toni revisited the tape!

  • Hit 'em hard and hit 'em straight, Minyans, and let's make this five-session set time well spent. Good luck today.


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