A Surgical Approach to the Stock Market
One man's approach -- and missteps -- as the market trades to all-time highs.
Greetings from MV East-also known as my home office-on this, the fifth day following total hip replacement and third day back from the hospital.
When folks ask how I'm feeling, I offer that "I'm trending in the right direction," although it's not a linear path as I'm still in a fair amount of pain. Meanwhile, I've decided to cut the dosage on my pain meds in half-these things scare me-just as my rigorous two-week physical therapy regimen starts to heat up. Only time will tell if this is a smart "leg" or unnecessary risk.
We spent some time the week before last discussing The Critical Juncture of the Technical Landscape, including how a jump through S&P (INDEXSP:.INX) 1600 (to clear out the shorts) may have been a necessary precursor to the path of maximum frustration (Pop & Drop). As I gingerly sit here on May 6, 2013, however, the price action continues to impress with the S&P hovering around 1615.
The financials (Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS)), as well as select tech (Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL) -- not-so-much Amazon (NASDAQ:AMZN) and IBM (NYSE:IBM)) are better bid while traditionally defensive sectors (consumer non-durables and big-cap pharma) are a source of funds. Sector rotation, as we know, is traditionally a whole lot healthier than outright migration.
Consistent with March 2009 vs. April 2013: A Lesson in Discipline, I covered a slew of my S&P short prior to my going under the knife but-and this is me being honest-I didn't punt my September SPY (NYSEARCA:SPY) put position in its entirety. I got cute and tried to peel out of my remaining leaves on Wednesday's close, still loopy from surgery and into the 15-handle S&P drop, but my remote-access system wouldn't connect from room 614 at The Hospital for Special Surgery, which helped drive an important point home once again: Blind risk is bad risk.
Of course, the tape hasn't looked back since; the market recaptured Wednesday's loss on Thursday and on Friday, it sprung through S&P 1600 on a better-than-expected jobs report (or, jobs that were reported to be better than expected). All the while, the buying stampede is now at 85 straight sessions-vs. the previous record of 53-in a streak that would make Joe DiMaggio blush. As with most things in the market and life, that won't matter-until it does.
(Note: The savvy Jeff Saut, who turned me on to the buying stampede, shared his most recent weekly thoughts here, and fails to mention the buying stampede, so I am double-checking these particulars.)
In terms of a forward lens, I will scribe missives as I can for the next week or so as I cannot sit for more than an hour at a clip (this promises to improve). My intention is to recover well and not do anything that will set me back, which requires diligent PT, plenty of rest, and "being good to others and better to myself."
As we say all too often at Minyanville but mean now more than ever, one step at a time as we together find our way.
Some Random Thoughts:
The French have proclaimed that "Austerity is dead!" That should play well with their German counterparts; I'm reminded of the now-infamous "Mission Accomplished" banner that proved to be premature for celebration.
Per the Wall Street Journal article that covered my buddy Doug Kass in Omaha over the weekend, "When two intelligent parties disagree, that's when the potential for learning and moving ahead begins," Mr. Dalio told me last week. "The most powerful thing that [an investor] can do to be effective is to find people you respect who have opposite, different points of view [from yours]-and have an open-minded exchange with them about what's true and what to do about it." Yes, that has been the mission of Minyanville since day one.
I agree with Mr. Buffett that the end of QE3 will be "the shot heard 'round the world" but I have to think-or hope-that the policymakers pulling the strings are very aware of the musical chairs in the marketplace. Maybe their intention is to get the market to heights where even a sharp reversal will leave us better than we were? Not sure but I, for one, look forward to markets that are once again free.
Seeing both sides, the trend-channel in the S&P "works" through a pure technical lens to 1640. Looking the other way, and as past resistance is future support, the bulls won't break a sweat until S&P 1560-1580 is breached to the downside. And yes, this is a pure technical lens, which must be factored in along with the fundamentals, structural forces, and psychology.
Finally, it hasn't been the easiest stretch for yours truly (on a few fronts) but yesterday, as I sat beneath a Japanese maple in my front yard, watching my wife Jamie and the kids plant flowers, everything felt right, if only for a moment. I had the most incredible moment of bliss-complete and absolute satisfaction-that I wish I could capture in a bottle and drink whenever needed. It is indeed moments like that that make life what it is.
- Good luck today, and as always, I hope this finds you well.
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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 firstname.lastname@example.org.
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