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US GDP: A Stock Market Rally Vs. An Economic Recovery


Chewing through gold, GDP, and quarter-end.

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

The stock market rallied yesterday as it enjoyed yet another Turnaround Tuesday. Market internals were positive, mini-golf scores were way down, and the bulls, after rallying the tape almost 30 S&P (INDEXSP:.INX) handles off Monday's low, must have felt pretty good.

The question, of course, was whether that was a pause to catch our breath before a resumption of the move lower-a "dead-cat bounce," if you will-or a more meaningful turn that will again catch the bears with their paws stuck in the honey pot. Bulls, cats, bears? Relax; this is Minyanville.

There are several forward catalysts that are top of mind. Quarter-end is front and center for portfolio managers and we would be wise to respect the motivated agendas of folks fighting for their livelihoods. Yesterday was "T-3" Settlement and while we may see further posturing by funds defending their positions, we may have seen the meat of that heat already.

Gold is getting hammered again after getting hit with the double-whammy of a higher dollar and taper shadows. I recently shared my thoughts about the yellow metal, and they remain largely unchanged. Remember, this puppy was trading with a $3 handle-as in $300/oz.-when we were playing it from the long side in the 'Ville. Despite a 36% decline from the highs-almost to the tick when this article was penned-it's still +/- 400% higher than it was back then.

Quarterly GDP was released this morning, and despite upwards of $10 trillion of artificial stimuli, our economy grew at 1.8% (vs. estimates of 2.4%). Drugs that mask the symptoms indeed. And this again draws the distinction between a stock market rally and an economic recovery. Sometimes I feel like I'm taking silly pills as I watch this unfold in real time, but then I remember that there's nothing silly about passing our obligations to our children. I can think of other words; silly isn't one of them.

I have been very active on the Buzz-click here for a free two-week trial-and we've been trading IN-N-OUT like banshees. I can't discuss the particulars in front of the paywall (sorry) but suffice to say that I've been surgically trading around the short side with defined risk in vehicles such as December SPY (NYSEARCA:SPY) puts and August IWM puts, which is of course subject to change. The chart below tells the tale.

Some Random Thoughts:
  • What shifts my bias? Time and price, and the above trend line is big; away from that, I'm keeping half an eye on the financials as they get up to BKX (INDEXDJX:BXK) 60.75, the near-term downtrend, per the chart below.
  • As go the piggies, so goes the poke, and the banks-Goldman Sachs Group Inc (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Deutsche Bank AG (USA) (NYSE:DB), Barclays Plc (ADR) (NYSE:BCS), Citigroup Inc (C)-remain a super tell, particularly if a butterfly flaps his wings in Asia.
  • On top of quarter-end this Friday, next week-the beginning of the third quarter-will be a holiday-thinned stretch, which increases the likelihood of some serious swings. Keep that in the back of your crowded keppe and right-size your risk. The last thing you want to be doing while trying to enjoy the family is staring at screens and stressing in kind.
  • 1.8% GDP. Seriously?
  • I tabled the notion of "interest rate compression" yesterday by design; I prefer to talk about such things while the screens are green.
  • Things I've Learned.

Twitter: @todd_harrison

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