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1987 Vs. 2013: The Pros and Cons


The fortune of our global economy hangs in the balance.

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Apropos of my recent webcast with Bob Prechter-and in front of my presentation next month at The Social Mood Conference-I couldn't help notice this Vanity Fair article, The Breakdown of Champions.

It has a familiar ring to it, right? Reminiscent of The Short-Sale of American Icons?

I know, I know, it doesn't matter; not only is the Dow (INDEXDJX:.DJI) at all-time highs, it's at all-time highs every single day! Eat your heart out Miami Heat; this is the only streak that matters at the moment.

To be sure, socionomics is an emerging discipline and one that is further muddied by extraneous influences that never before existed in a free-market economy. I'm reminded of a quote by Victor Frankl in Man's Search for Meaning (a book I highly recommend): "Everything can be taken from a man but one thing: the last of the human freedoms-to choose one's attitude in any given set of circumstances, to choose one's own way."

In other words, markets can be manipulated (or, intervened in, if such actions are openly communicated) but free will can never be caged.

Why does this matter for today? Well, it doesn't, at least not yet. But as we fit together the pieces of our forward path, we would be wise to respect The Devolution of Social Mood with the benefit of foresight rather than hindsight, when it will again be obvious that the signs surrounded anyone who was willing to pay attention. Again, time and price are the arbiters of our financial fate, and it's hard enough to nail one, much less both.

We touched on both sides of the time and price coin yesterday morning and for what it's worth, it doesn't feel like the time or price to make a stand, which paradoxically may mean that's the right positioning (the best trades are typically the hardest fades). With that said, not being short isn't the same as being "all in," so please remain lucid as we together find our way.

1987 Vs. 2013: See Both Sides

Yesterday, we featured an article by Minyanville's Jeff Cooper, Is This 1987 All Over Again? Some of his juicier tidbits included:
  • "Even the intelligent investor is likely to need considerable willpower to keep from following the crowd." (Benjamin Graham)
  • "More and more, this year reminds me of the pattern from the 25-year cycle from 1987 which had two long DJIA winning streaks: 13 days in January and 11 days in June."
  • "The top in 2000 came on March 24 when it looked like a continuation into quarter-end was in the bag."
  • "There is a difference between not fighting the trend and thinking that money will be made buying the market at the beginning of a fifth year of a rally that required a 130% advance to get retail back in."
  • "This is the age of short-termism and immediate gratification, or at least the illusion of gratification: Never confuse unrealized gains with profits."
This morning, Jeff Saut of Raymond James-one of a handful of folks I not only read, but listen intently to-offers the "other side" of that trade. Some of his highlights (emphasis mine):
  • "On the anniversary of its March 2009 low, the Dow crossed above its all-time closing high…that confirmed the Dow Jones Transportation Average's move to a new all-time high and registered the fourth Dow Theory 'buy signal' since that Dow bottom in March 2009."
  • "We are also working on another record in that today is session 52 since the 'buying stampede' began with the back-to-back 90% Upside Volume Days (12-31-12 and 1-2-13)."
  • "Since 1950, such back-to-back days resulting in the S&P 500 (INDEXSP:.INX) 6.1% higher one month later 83% of the time, and 12.8% higher three months later 100% of the time, per the chart below. (We are currently up a little over 10% YTD.)"
  • "It is rare for the Dow to go in any one direction for more than nine consecutive sessions, and yesterday was day 10 in this current upside skein."
  • "In my notes of over 50 years, there have only been 25 other occasions when the Dow has rallied for nine consecutive sessions (or more), the longest being 14 straight sessions on the upside that ended on 1-20-1987."
  • "I wrote about this eerie coincidence back in early January noting that in 1987 this 90% upside volume 'two-step' started a rally that would lift the senior index by over 24% into early April."
  • "Interestingly, since 1950, there have only been 12 other instances that the DJIA was better by more than 8% in the first quarter and the index finished the year in a positive mode at 100% of the time! Therefore, I continue to invest, and trade, accordingly."

Random Thoughts
  • While I'm a contrarian, I'm a disciplined contrarian who isn't fighting the tape or letting an opinion get in the way of making money. I'm just "hitting to quit it"(both ways) and managing risk rather than chasing reward. I-and we-do that every day in real-time on the Buzz & Banter (click here for a free two-week trial).
  • I've again dipped a toe in a newfound cannabis play, consistent with my Single Best Idea for the Next Decade. I am not comfortable sharing the play (it's thin and I don't want the perception to be that I'm talking my book) but I wanted to communicate as I continue to believe this space is bio-tech circa 1990.
  • I may be overstaying my welcome in BlackBerry (NASDAQ:BBRY) after a 20% rally in three days but I bought back a (right-sized) position into yesterday's pullback (I had taken a snazzy trade into Wednesday's close; again, all of these trades are shared on the Buzz).
  • And yes, I've been thinking about adding back some Facebook (NASDAQ:FB) puts with a stop above $29, and I still may. I was herding cats yesterday so I couldn't focus on it but I'll take a peek this morning. It certainly doesn't trade great given the broader tenor in the marketplace.
  • A few folks have asked me why I'm not buying the VXO (INDEXCBOE:VXO) near 20-year lows. Two reasons: First, I traded through the 2004-2006 period when vols hugged VXO 10 (no, it wasn't much fun), and second, I don't trust the trading vehicles that measure the VXO. Different strokes for different folks (some do like betting on a move "either way") but it's not for me.

Disclosure: Minyanville has a business relationship with BlackBerry.

Twitter: @todd_harrison

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