Todd Harrison: The Stock Market Calm Before the Storm
Complacency rules as we slumber into summer.
I have become comfortably numb.
-- Pink Floyd
It's Hump Day in the City of Critters and the early-morning action is pretty in pink. With Europe slightly lower (it's had a nice run) and Asia flat to down (Japan flat, China down, although above the technically important Shanghai (SHA:0000001) 1985 level), stateside futures are softer to start the session. The close is more important than the opening, obviously, so stay tuned; the market writes the script and Minyanville tells the story.
I've been busier than usual these last few weeks -- the catalysts are here and here -- but from the looks of it, I haven't missed much. Trading volumes are way down and bowling averages are way up, in large part due to there being too much time on the hands of market professionals. All the while, the mainstay indices continue to navigate conflicting signals, with the S&P (INDEXSP:.INX) breakout we fingered a few weeks ago quietly playing through, at least thus far.
Year-to-date, the Dow Jones Industrial Average (INDEXDJX:DJI) is up less than 1% (good enough for an all-time high, 159% above the 2009 bottom), the S&P is up about 4% (all-time high, 189% above the 2009 bottom) and the Nasdaq (INDEXNASDAQ:.IXIC) is up 1% despite the blink-and-you-missed-it bear market in high-beta tech (233% above the 2009 bottom).
Just a little perspective as we meander into the summer with the VXO (INDEXCBOE:VXO) at 11ish (close to all-time support) and the weekly Investors Intelligence sentiment indicating that bulls are exceeding bears by more than 40%, indicating that professionals are almost, if not already, fully invested.
Some Random Thoughts to collectively ponder, in no particular order:
The ECB rate decision is due tomorrow, and according to Bloomberg, 58 of 60 surveyed on Bloomberg expect at least a cut of 10bps to the refinance rate. Twelve banks expect a 10bps refinance cut, and of those, 10 banks expect a 10bps cut to the deposit rate. Sixteen banks expect a 15bps refinance cut, and of those, only four banks expect a 15bps cut to the deposit rate.
I continue to feel that a negative deposit rate, if and when, will trigger unintended consequences for the structural underpinnings of the financial mechanism.
I had the pleasure to meet Lewis Katz a few years ago, and I went to college with his daughter. Lewis was an extremely humble, intelligent, and inspiring individual who tragically died in that Massachusetts plane crash Saturday night. I encourage you to watch his commencement speech at Temple University earlier this year as there are poignant life lessons nestled within.
I've updated the Bloomberg Smart Money Index below; a picture speaks 1,000 words.
NDX (INDEXNASDAQ:NDX) 3740 continues to offer defined risk for the bears, or what's left of them. RUT (INDEXRUSSELL:RUT) 1120 is the 200-day moving average for bulls looking to lean the other way.
- Good luck today; jump this hump with some jingle in your jeans and a smile on your puss.
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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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