Random Thoughts: Credit Concerns Emerge and Gold Breaks Down
Tying together an increasingly complex world.
Oh, I like this one... One dog goes one way, the other dog goes the other way, and this guy's sayin', "Whadda ya want from me?"
--Tommy DeVito, Goodfellas
Global markets exhaled yesterday as hope of an amicable political resolution permeated.
Consistent with the vibes shared after the FOMC minutes were released on Wednesday, the most likely scenario was -- and remains -- a short-term resolution as politicians find a middle ground that will push the debt ceiling a few months out on the horizon.
While some argue that this is a Band-Aid on a broken bone, the disaster scenario was perceived to have been avoided, and as that was priced into the market, stocks had one of their best days of the year.
The action in the credit markets yesterday supported, and some would say drove, the equity action. This morning, however, November and December T-bill rates are ratcheting higher, suggesting that significant concerns remain into year-end.
Will this create yet another wall of worry for the markets to scale? Or is this a legitimate crisis that warrants attention at precisely the time investors have been conditioned to ignore it?
There is much to digest; let’s chew through some Random Thoughts.
The reaction to news is always more important than the news itself; through that lens, keep tabs on Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM), both of which reported earnings this morning. While these reports were "rear-view," the price action in the financial complex is particularly forward looking.
- Thus far in 2013, the corrections have been extremely tame, with a 7.5%, 4.8%, and the latest 4.8% pullback littering an otherwise stellar trend higher. THE question we must wrestle with is whether we've seen the last of them or if that's just what they want us to think.
The bulls will argue that the big money that is up 20%+ won't let their gains slip away -- they want to get paid.
The bears view the conditioned complacency -- buy the dip every single time-- as a recipe for disappointment, if not disaster.
- Yesterday morning, we chewed through numerous technical levels, with S&P (INDEXSP:.INX) 1670 (the 11-month trend-line) and S&P 1680 (the 50-day) serving as primary resistance. After yesterday's hot popper, those levels morph into forward support.
Y'all see the VXO (INDEXCBOE:VXO) back below sweet sixteen levels?
- We've been fingering the emerging head-and-shoulders pattern in gold for the last few weeks -- and this morning, it triggered with a move below 1275. This measured move works to 1180 in a technical vacuum, which is effectively the summer low.
We knew there would be two-sided volatility surrounding a potential debt ceiling resolution; pricing in an extension is the "other side" of that dynamic. Ironically, a stock market rally may quell select political ambitions, as FUBAR as that sounds.
The USA isn't scoring any points on the global stage, eh?
Big beta, which has gotten smoked of late but bounced strongly yesterday, remains a tell as it's the go-to complex for performance anxiety ketchup. Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), LinkedIn (NYSE:LNKD), and Tesla (NASDAQ:TSLA) remain individual proxies.
- The Dow Jones Industrial Average (INDEXDJX:.DJI) bounced where it "should" have yesterday, at least the first time. And you say charts don’t matter.
- We’re almost at our requisite respite; let’s make it count so we can enjoy the journey. Good luck today.
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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 email@example.com.
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