Todd Harrison: The S&P Breaks Out in Thin Post-Holiday Trading
The view from the front lines of the Wall Street shuffle.
Billionaire Petro Poroshenko took the Ukraine presidency this past Sunday. He received 54% of the 72.3% vote counted, which indicates an overwhelming victory. Recall that the Russian government, particularly Vladimir Putin, said that it would work with whomever was elected no matter what.
Thus far the Russian Foreign Ministry has reached out to Poroshenko to set up a visit to Russia, as long as Ukraine pulls back on military operations in its eastern regions that have killed as many as 40 people in the past 24 hours. Performance wise, the Russian MICEX (MCX:MICEXINDEXCF) gained 0.72% yesterday with US and UK markets closed, but is down 2.45% this morning. The German DAX (INDEXDB:DAX), which is a Ukraine proxy, has rallied for two straight days. Soft ags are all down, most notably corn and wheat.
In the other major election for the weekend, the EU Parliament, non-core political parties took 31% of total seats, up from the current 20%. The worry heading into the election was that they would gain more power and stall legislation coming through the European Union's final authority.
Although the Parliament has zero authoritative powers, it does have the final say on about 90% of legislation in the EU. The one outlier effect is that the UK Independence Party took the largest vote in the UK; it wants to pull the country out of the EU. There is no real effect -- economic or financial -- if the UK is kicked out; it is merely political. It has its own currency and its own economy.
China is kicking out US technology companies IBM (NYSE:IBM) and Cisco (NYSE:CSCO) from its banking industry in response to recent spying allegations. It has already cut out Windows 8 and plans to make further cuts from Microsoft (NASDAQ:MSFT), and of course other domestic technology companies.
China sank a Vietnamese fishing boat this weekend; Russia diverted Lithuanian ships in the Baltic Sea this morning and penetrated Estonian airspace.
In other Random Thoughts...:
We noted how the Federal Reserve warned of "Compression" in the marketplace.
John Succo addressed the compression dynamic 10 years ago and the structural implications remain the same.
I detailed the reasoning behind Why I'm Exiting the Digital Media Business.
We've touched on how this impacts -- or doesn't impact --our community. If you missed that, you can read it here.
- Yes, volatility levels can remain compressed for years at a time; note the periods between 1992-1996 and 2004-2006 in the first chart below. I remember them well; it was death by 1,000 paper cuts for anyone who over-traded.
- The Bloomberg Smart Money Flow Index -- described here -- is another contextual red flag. Nothing is omniscient given the multilinear dynamic of the markets, but some clues are worth watching; this is one of them.
Stephanie Pomboy's interview in Barron's from this past weekend is being referenced quite a bit this morning. In it she discusses her thesis of why she thinks the Fed will "un-taper the taper" for three reasons: 1. There is now a net deficit of natural buyers vs. net supply in the Treasury market; 2. Of the $25 trillion in wealth increases over the past five years, only $3 trillion of that has come in the real estate sector, where consumers are able to leverage any marginal spending increases. 3. Because of the above, she does not see any material risk to rising yields.
Apple (NASDAQ:AAPL) broke out above $605, which now morphs into a bovine backstop for those playing the upside.
- The small caps, as measured by the Russell 2000 (INDEXRUSSELL:RUT), had a nice session on Friday, pushing it above the 200-day moving average. Two downtrends (lower highs) remain, which can be seen on the next chart, as well as the chart that tracks the index relative to the S&P (INDEXSP:.INX).
Remember, the market will take the time premium (theta) of options before the three-day weekend. If that's all Greek to you, check out this options primer from one of the best to ever trade those vehicles.
The Wall Street Journal weighs in on Minyanville's strategic shift.
This is an important session through a technical lens; we've been eying the reverse head & shoulders on the S&P for some time. Although this is but one of our four primary metrics, you can bet that a lot of risk managers are using this to frame exposure. See it, even if you don't necessarily agree with it.
I remain long Twitter (NYSE:TWTR), having purchased the stock at $29.99 a few weeks ago. My entry level is at risk, but I continue to hold the stock for the time being.
We start this abbreviated four-session set with the Dow Jones (INDEXDJX:.DJI) up 18 basis points year-to-date and the Nasdaq (INDEXNASDAQ:.IXIC) 22 basis points higher, year-to-date. The S&P, for its part -- and it's been sticky despite the price action in high-beta tech and the small caps -- is up a whopping 2.8%. The bulls, of course, will take solace that the bears have had every opportunity to knock the tape down but haven't mustered the energy as of yet.
- Good luck today; we only have four days this week -- let's make them count!
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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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