Todd Harrison: The Holiday Party Indicator Flashes a Sell Signal
Over-the-top parties lead to over-the-top markets.
'Tis the season for holiday parties in New York City, and while I traded "models and bottles" for "bottles and babies" long ago, I dusted off my dancing shoes last night to squire my wife to a high-end real estate soiree.
I've been to my fair share of parties in the day but lemme tell you, this was some event; a massive downtown venue, the beautiful crowd rubbing elbows, food and booze at every turn. There wasn't a care in the air as conversations whispered in and out of my ear; I half expected The Great Gatsby to emerge from a terrace to soak it all in.
I saw a lot of folks from way back when and was happy to see many of them doing so well. There are people in today's society that feel better when others suffer or fail -- you know the type -- but I'm not one of them. As a friend, one who moved to the burbs and left the bright lights of the big city to others, it was great to catch up and see the sparkles in their eyes. As a trader, one who has seen excess breed excess until it was no longer sustainable, I couldn't help think that I've seen this movie before.
Most of my discussions were two-sided check-ins on our respective families, but there was some shop talk. When people asked me, "What do you like here?" -- again, déjà vu -- I replied, "Cannabis and Cuba as secular plays for the next decade." The look of confusion on their faces told me I'm on to something, even if I'm early and haven't fully vetted pure plays. Some people pressed, asking for stock symbols, but I wasn't going there; the risk-reward of offering tips at holiday parties is a mugs game, a lesson I learned long ago.
Yesterday afternoon on the Buzz & Banter (click here for a free trial), we shared a missive from Bank of America-Merrill Lynch (NYSE:BAC) about "a bearish divergence in breadth that is similar to previous plunge-preceding divergences." (Hat tip: Zero Hedge)
While I would be the first person to raise my hand and admit to confirmation bias, the accompanying chart jibes with several vibes of mine, including the potential for continued performance anxiety through year-end and into 2014 (when risk parameters relax to begin the cycle anew) before a more meaningful comeuppance in the first quarter. The pathway from here to there is ripe with trapdoor potential, mind you, but if there weren't risk it would be called "winning," not "trading."
Drilling down to the here and now, the watered-down Volcker Rule and the specter of a budget accord, which still has to pass both chambers of Congress, should have Wall Street in a better mood, as measured by the world's largest thermometer that is the stock market.
Waking up this morning to find flat pre-market futures was telling to my seasoned eyes (if they're not going up, they're going down) but we would be wise to watch our road signs given the emotional state of the year-end tape. The banks, high-beta tech (particularly the social media space), and market internals will help guide us as we take our journey one step at a time.
Twitter (NYSE:TWTR) leap-frogged Facebook (NASDAQ:FB) yesterday on an absolute price basis, as we sensed it would.
The Volcker Rule, while restricting some proprietary activities, is in other ways a toothless tiger. That may be perceived as a net positive for the sector (much of which has been priced in), but it doesn't address many of the risks it was designed to mitigate.
The tape is in "bend not break" mode above S&P (INDEXSP:.INX) 1800, which remains the nearest technical toggle. S&P 1775 and S&P 1440ish are tranched support below.
Gold $1,250 is newfound support for the GDX (NYSEARCA:GDX) (and components) trade, for those looking for some ketchup.
- I told my wife that my trading performance wasn't up to snuff this year; she told me my performance as a father and husband rocked. I'll take it.
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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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