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Random Thoughts: Redemption Songs and Beta Longs

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Hop-scotching through the Turnaround Tuesday tape.

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We've been talking about how the S&P was churning under resistance -- which is bearish -- as opposed to basing (for a move higher), as well as the parallels between DAX 5500 and S&P 1100 (the former is our global line-in-the-sand, and it is nestled above).

Further, we've talked about Redemption Songs and heard yesterday that "big name after big name" of sizable funds has been blowing up. While that may be -- and likely is -- true based on the price action, we've learned many times over that it's always dangerous to game invisible catalysts.

I'm on record offering that a re-test of the March '09 lows wouldn't shock me. Much of that depends on the "how," "why," and "when" as well as (and this sucks to say) the actions and reactions to government policy. We've also discussed "The Second Side of the Storm" that followed "The Eye of the Financial Storm" which we've "enjoyed" the last few years. So, I'm a realist with the best of them and I don't foresee any magic pills or sudden panaceas.

With that said, I'll ask Minyans to please see both sides here. If this is in fact a hedge fund -- or funds -- blowing up, we won't get the call to clean up the seller. Further, as repeatedly discussed, the market is a forward-looking discounting mechanism. If there is a "solution" overseas -- and by "solution," I mean a policy directive such as Euro Bonds or another effort that effectively kicks the can down the road -- the combination of negative sentiment and pent up performance anxiety could make the bears look silly very quickly.

Again, it's very "If-Then" but with Turnaround Tuesday on tap, I'm compelled to ask you to practice risk management over reward chasing on both sides of the ride.

Some Random Thoughts

  • We spoke of the "churn channel" in the S&P above. Here's what that looks like:


    Click to enlarge

  • Warren Buffett invested more in equities during the third quarter ($4B) than he has since the third quarter of 2008. While icons are on a precarious perch as a function of social mood, this is most worth noting as we await "resolution" out of Europe.

  • There's been a ton of chatter on Morgan Stanley (MS) regarding its exposure to European banks (the stock is down almost 60% this year). Please keep that in mind as European options are weighed, as well as the price action into earnings. Stocks that have been decimated into these events are typically bought on bad (but not horrific) news, and if there's a whiff of relief, Mother Morgan could spank the bears who tried to consume too much porridge.

  • Watch big beta today, as they've been fingered as possible victims of redemption songs. Gold was also looped into that group -- and rallied smartly yesterday -- so the movers and shakers might find a bid, if there is a bid to be found as portfolio managers posture to start the fourth and final quarter.

  • When Lebron "took his talents to South Beach," I tweeted that I was "stamping a ticket, checking a borrow, and shorting the NBA right then and there." Thus far, that trade is working out in a big way and I see no reason to cover it.

  • Check out Minyanville's latest offering: Gary Kaltbaum's Equity Trading Setups newsletter. Gary is a very smart guy and we're offering a 14 day money back guarantee (no questions/hassle - you have my/our word) so give it a shot.

  • Consistent with the "eyes" this morning (looking for a potential bounce in the names that were purged into quarter-end), we are seeing some traction in the big beta names -- Netflix (NFLX), F5 Networks (FFIV), Baidu (BIDU), Salesforce (CRM) -- although there are notable absentees, such as Google (GOOG).

  • I spoke with a friend who has been on Wall Street longer than I and he tells me that sales traders are dropping like flies as "flow" dries up and business is concentrated at the few firms willing to commit capital.

  • We spoke a lot about this in years past but it's entirely more ominous when it transpires in real-time. There won't be much sympathy the world over but many of these folks are good people trying to make an honest living and have been caught in a vicious societal crossfire... and I'm not afraid to say it.

  • Keep an eye on the grabby greenback. I continue to feel this works higher and, as we know, that will be a headwind to asset classes of all shapes and sizes.

  • We touched on the trannies yesterday following a sickening downside reversal -- 5% from the daily high -- so I wanted to show you why this might matter for the S&P.


    Click to enlarge

  • This 'face for radio' will be speaking at The Big Picture Conference next week, for those interested in attending. The panel I've been assigned to focuses on user-generated content rather than market trends or brand building, but I'm sure we'll deviate from the script to touch on other topics. Other smart cookies will be speaking as well, so if you wanna attend, please click here.

  • And finally, some fun and worthy news! The Minyanville Festivus is less than two months away (can you believe it?) and we'll once again gather for a slew of BBQ, tremendous tunes (we've got Police, Journey and U2 covers), an open top-shelf bar, and 500 of our most worthy Minyans and Professors, all in the name of children's education. If you wanna join us for some hugs and handshakes, please click here! At our core, we're a community that gives back. Let's walk that walk together!

  • As always, I hope this finds you well.

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.

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