Greeting the Week with Google, JPMorgan, and GE

“OK, here’s the situation; my parent’s went away on a week’s vacation.” --Jazzy Jeff and the Fresh Prince

Go figure... I excuse myself for a midsummer respite to recharge my batteries and the tape enjoys its best week in almost a year. It stands to reason, right? If there was one singular theme in the front nine of 2010 -- aside, of course, from the specter of European Contagion, the Shift in Social Mood, A War on Capitalism, and historic spates of volatility, it would probably be the tendency of the markets to rally on light volume and decline on heavy volume. It’s a sign of distribution that’s typically not healthy.

Alas, the natives are restless and optimism abounds that the upcoming earnings avalanche -- which features Alcoa (AA), Google (GOOG), JP Morgan (JPM), and General Electric (GE) this week alone -- will surprise to the upside. We spoke before I left about how our four primary metrics jockey for position on the trading totem pole and this is the quarterly run by the fundamentals to capture the mind-share of America.

A few Random Thoughts as I edge my way back to life, back to reality:
 

• There’s an old adage that tapes that are oversold are bought on bad (but not horrid) news while tapes that are overbought are sold on good (but not great) news. Through that lens, last week’s rally made the upcoming earnings entirely more difficult to game.
  
  
• The dandruff (head & shoulders) remains in place across the mainstay indices. In the case of the S&P, the right shoulder comes into play around 1150 while layered resistance remains at S&P 1100 (a newly defined downtrend) and S&P 1115.
  
                                          
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• Other areas of interest? General Electric $15 (the neckline of pronounced dandruff) and daddy’s nemesis at BKX 50, where we’re again testing after some upbeat commentary from State Street (STT) last week.
  
  
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• I continue to believe we’re in The Eye of the Storm, although I don’t profess to know how wide-eyed the bulls will be. It will take me a few sessions to find my rhythm but if we rally today -- we should at least probe the upside after last week’s strong showing -- and begin to probe the S&P 1100-1115 area (where short side risk can be defined), I may well take a downside cut into Turnaround Tuesday.
  
  
• As I watched the mania surrounding “The Decision” last Thursday night -- a “decision” I believe was made by LeBron, Wade, and Bosh long ago -- all I could think of was “Stamp a ticket, this is the NBA top right here.”
  
  
• I covered my S&P shorts (in real-time on the Buzz & Banter) before last week so I could (try to) relax on my break. I more or less did, some personal “digestion” aside. I wrote like a banshee (5-6 hours per day on “The Project”), watched the World Cup (congrats Spain!), finally started The Alchemist and after my Blackberry blitzed on my first day off, and took the iPhone plunge as I followed in the footsteps of my older brother, Adam.
  
  
• What do I think of the new Apple (AAPL) gadget? I’m not a bandwagon type but color me i-mpressed, i-nspired, and i-n awe of the 4G -- and I walked in with a lofty bar to begin with!
  
  
• We trade the journey not the destination but please keep in mind that there are phantom corpses hiding in bank balance sheets all over the world. Remember, any time a Financial Accounting Standards Board could single-handedly tank the system, we must question how stable that system is to begin with.
  
  
• But don’t’ take my word for it; the co-heads of President Obama’s national debt commission, commenting on the nation’s total federal debt of $14 trillion next year -- that’s about $47,000 for each and every US resident -- said, “This debt is like cancer... it is truly going to destroy the country from within.”
  
  
• Wait a minute... credit cancer that is eating through the system? That sounds vaguely familiar, if memory serves.
  
  
• The lead story in the WSJ touches on how stocks are trading in lockstep more than at any time since the 1987 crash. They attribute that to the proliferation of ETF’s but I have a slightly different take. We’ve been talking about this “monolithic” movement for some time. While ETF’s may be contributing to the N’Sync movement, I view it as endemic of the juxtaposition of asset classes in an ongoing process of price discovery.
  
  
• Overnight sovereign credit spreads widened on the aggregate but nothing to shake a stick at. BP (BP), meanwhile, continued to tighten (improve).
  
  
• I read a lot of chatter about the “Death Cross.” First about what a bone crusher it is and later, after the rally, about how inconsequential it is. Minyans have long known our take on this technical signal when viewed in isolation, which was first shared by Professor Jason Goepfert in 2006 and repeated many times thereafter. And I quote:
  
  “What does the Death Cross mean? In a word, nothing. For those who may not have heard of this signal, it occurs when the 50-day moving average crosses below the 200-day moving average of whatever vehicle you’re looking at. I’m not sure what its origin is but I can’t for the life of me figure out why in the world people pay attention to it.
  
  Let’s just look at the facts, using the S&P 500 from 1950-present (remember, this was scribed in 2006). If you had sold short the S&P on every Death Cross, and held for either a 5% gain (meaning the market fell 5%) or a 5% loss (meaning it rallied 5%), then you would have had 15 winners out of 28 trades. Your average take would have been 0.6%; that’s a tough way to make a living.
  
  Trying this another way, if you sold short the S&P on those signals and went away for six months, then came back and covered, you would have lost on 54% of your trades, with an average return of -3.3% to show for it. Returns would be similarly dismal looking out anywhere from a month to a year.
  
  The next time someone points out this Death Cross to you, I suggest you shrug your shoulders, smile kindly and say, “Good luck.”
  
  
• There’s no place like home, there’s no place like home. Good luck this week and I’ll see you on the Buzz.
  

R.P.

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