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Monday Morning Quarterback: Bulls Try to Turn the Technical Corner

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Do the charts paint the bovine picture?

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Good morning and welcome back to the flickering pack.

If you were to Google "Knocking on Heaven's door," you would likely arrive at one of two links. The first would be a snazzy little Dylan ditty that's been knocked off by everyone from Axl Rose to Avril Lavigne. The second would be Freaky Friday's technology-led rally that juiced the tape within spitting distance of monster resistance at S&P 1405.

Yep, here we are again, another critical juncture for the markets and those who are consumed with them. While technical analysis is a better context than catalyst, it assumes higher weighting in our metric mix when folks are confused and looking for legs to lean on. And make no mistake, there's no shortage of professionals spun around these days.

Psychology has been reactive (bullish higher, bearish lower), fundamentals are mixed (overseas sales and the weak dollar helped many) and structural imbalances have seemingly been absorbed by massive government intervention (it's not what is, it's what's perceived to be that matters to the market). When in doubt, professionals chart it out and eyes across the Street are focused on index and sub-index proxies.

A quick sniff of that scoreboard finds the DJIA (barely) joined the Transports on the other side of resistance (also known as newfound support). The S&P and NDX-old school and technology-have yet to break on through to the other side and the financials, from banks to the brokers, remain so far out of the game that we're left to wonder which way the ketchup flows when the stars realign.

Over the weekend, Minyan Michael Santoli of Barron's offered food for thought as we ready for the week. He mused that if you're a trader or fund that nailed the macro environment and identified the entire closet full of shoes-from housing erosion to credit dysfunction to recession realization to the softening labor market-you would have netted all of 5% (if you didn't trade the volatility).

One of two reasons explains these muted downside roots: Either the reaction to news portends one helluva looming rally-that will spark brilliantly once S&P 1405 is underfoot-or government intention, coupled with the slack in the dollar, is masking disastrous imbalances that continue to build as a function of current policy.

Binary? In many ways, it is. Difficult? You betcha. Impossible? Not on a bet.

Saddle up Minyans, this particular five-session set promises to be chock full of nuts. Some starting thoughts:

  • Expiration hangovers-or, the amount of time it takes for option traders to pare their leftover risk-should begin to abate by the time today's lunch arrives.

  • We've lived through all sorts of bubbles, from Japan to dot.com to real estate to China to derivatives to debt. Why, pray tell, would anyone believe that the debt bubble is "different this time" and the pain will be passive? It is, in many ways, the mother of all bubbles, a culmination of everything we've seen. They won't disappear like a fart in the wind no matter how much everyone wishes it would.

  • Speaking of China, did you know the Shanghai index is off 50% since October, 34% in the first quarter (which was the worst ever) and 11% last week (the worst in over a decade)? There should be an Olympic sprint higher, at a point, which can be gamed with-and only with-defined risk.

  • The weekend WSJ spoke about Qui Jiaxinnnn, the 27-year old school administrator, who bought 100,000 Yuan ($14,000) of Shanghai-listed Western Mining Co. in August after the stock more than doubled to 60 Yuan/share? With the stock now trading in the low 20's, he delayed home renovation and pushed his wedding plans to 2009. The Shanghai resident isn't selling, however, "It's not a small amount of money-it's a big loss to us. If we don't sell, it's only a paper loss." Does that sound familiar to anyone else?

  • It's something we've spoken about in Minyanville for years. We've got inflation (and in some cases, hyperinflation) in things we need to power, feed, educate and insure the world and deflation in things we need such as cell phones, plasmas and laptops. The resulting "net/net" provides a false sense of balance and calm as the middle class gets squeezed into recession or worse.

  • It's Monday and you know what that means. It's time to play "Which bank needs a capital infusion next?" National City (NCC) took top honors today, following Wachovia (WB) and Washington Mutual (WM) before it. The way I see it, there are five potential outcomes for many financials:

    • A) Massive issuance
    • B) Buy-side interest (Private Equity or Hedge Funds)
    • C) Sovereign Wealth Funds
    • D) Consolidation (subsidized, if necessary, by the Federal Government
    • E) Close the doors.

  • The last option, while painful and unpleasant, remains necessary on a much larger scale before we can realistically offer that the system has taken the necessary medicine.

  • At a recent luxury property auction in Fort Lauderdale, the auctioneer took home after home off the block within moments after opening the bidding when nobody made an offer. On one high-rise condo in the Miami enclave of Williams Island, a 3,100 square foot penthouse previously listed at $5.6 million, he opened bidding at $5 million, lowered his price to $3.5 million, $3 million, $2.5 million, and then closed the auction, all within a minute. (BTIG)

  • Seven years ago today, my grandfather and best friend, Ruby Peck, passed on. I would like to take a moment to thank those who have helped his wonderful legacy shine bright through the foundation that bears his good name and the children that continue to benefit in kind.


R.P.

No positions in stocks mentioned.

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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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