Three Caveats to the Upside Run in Stocks
See both sides as the year-end looms.
We've reached the halfway point of this freaky week as global indices "back and fill" recent gains. You know the drill; with mainstay indices up smartly this year -- the Dow Jones Industrial Average (INDEXDJX:.DJI) is up 22%, the S&P 500 (INDEXSP:.INX) is ahead 25%, and the Nasdaq (INDEXNASDAQ:.IXIC) is sporting a 30% return -- fund managers are "on edge" with 28 sessions left until the year-end letters are penned.
In recent sessions over on our real-time Buzz & Banter, we've paid homage to the technical landscape -- initial support resides at S&P 1775, with more meaningful supports down at S&P 1730 and NDX 3255 -- as we continue to respect the "long squeeze," with buyers higher and sellers lower into year-end. Perception is reality in the marketplace, and the masses have made a bet that current perception continues to manifest.
There are a few caveats as the bulls count their Benjamins. For one, the Investors Intelligence Advisor Sentiment Index finds 53.6% bulls and only 15.5% bears, which is near the prior peak of 55.2% bulls two weeks ago. That dovetails into the VXO (INDEXCBOE:VXO) chart below, which shows that "fear" is a kitten's whisker away from 25-year support. If the past is any prologue to the future, option hedges and/or stock replacements will prove to be smart strategies.
Another flag, for those who care of such things, is the price action in high-beta. Tesla (NASDAQ:TSLA), which was king of the world at $190, is suddenly the poster child of ambition gone awry, while other fliers, such as LinkedIn (NYSE:LNKD), Yelp (NYSE:YELP), Chipolte Mexican Grill (NYSE:CMG), Netflix (NASDAQ:NFLX) and Facebook (NASDAQ:FB) have become sudden battlegrounds. These names remain a proxy for performance anxiety as they are "bang for the buck" vehicles for those trailing their benchmarks.
We'll get the FOMC minutes this afternoon at 2 p.m. EST, which will be dissected in kind. Keep an eye out for any tangible shift in perception; while Ms. Yellen's Federal Reserve prides itself on wearing white feathers (read: remaining dovish), dissension in the ranks could rattle psychology in kind.
The bears are cautiously optimistic that Monday was the start of a long-overdue decline. "Even a broken clock is right twice a day," said Boo the Bear as he adjusted his full-body cast. "I don't know anyone who is short these days -- negative, perhaps, but not short; being a bear has been too painful," he added. He's right, insofar as every dip has been shallow this year -- and they've seemingly gotten shallower as the year progresses.
Consistent with a long-held theme, societal acrimony continues to continue, be it overt (knockout -- really?) or otherwise (Twitter (NYSE:TWTR) wars). Thus far, "social mood and risk appetite" have not shaped financial markets; whether that's a function of the Fed, cumulative in cause and effect, or just plain wrong remains to be seen (and yes, if the final score was tallied today, it would be flat-out wrong).
I can add "trips to the dentist" to my list of pet peeves, along with close talkers, loud chewers and long lines. Be that as it may, I will again venture to "the chair" this Friday for what I hope will be the last trip in a while; four times in one week fills my quota for the year, as those things go.
The BLS is manipulating employment data? Yawn. That's right up there with the invisible hand being "news" back in the day.
Bitcoin? Reminds me of when analysts starting measuring eyeballs in Y2K. It was generally accepted (or, rationalized) but in hindsight, it was rather silly.
Homeland isn't doing it for me this season, but perhaps that's because Jack Bauer set such a high bar!
What do the recent high-profile talking-head contracts in the financial space mean through the lens of social mood?
When will Twitter pass Facebook on a pure price basis?
Remember when the floor of the NYSE had more traders than media personalities?
What is it about years ending in "3"?
Do you really think the Federal Reserve will be able to control interest rates forevermore?
Doesn't that fly in the face of everything we've learned about a "free" market?
If we synch your time horizon with your risk profile, can't we take that journey one step at a time? (Yes.)
I recently scribed Stock Market Trading: 20 Rules of Engagement, which is 23 years' worth of trading tidbits wrapped into a single URL. Hope you enjoy it....
- 100% of net proceeds raised by The Ruby Peck Foundation for Children's Education will be donated to Typhoon Haiyan relief. For those interested in paying it forward, this is as worthy a cause as any right now. Thanks!
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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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