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Will Black Friday Come for the Stock Market?

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Social mood and risk appetites shape financial assets.

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

When Black Friday comes, I'll collect everything I'm owed; and before my friends find out, I'll be on the road.
-- Steely Dan

Greetings from Minyanville headquarters where I recently arrived after sitting on the parking lot known as the Long Island Expressway for two hours. While I typically take the train to work, I opted to grab a ride with my wife following this morning's physical therapy. With temperatures tickling triple-digits on the East Coast, my usual three-train commute didn't sound so appealing -- and with NYC hosting the MLB All-Star game tonight, the roads are a snarl.

While working my hips this morning -- PT, not the other thing -- I saw Goldman Sachs (NYSE:GS) trading 1% higher on the back of earnings. I hearkened back to a live interview I did on Bloomberg a few years ago when the Goldman report painted the tape while I was on air and the stock was ripping.

I told Betty Liu (the smallest of the Lius) that earnings in the financials are notoriously rear-view, and I wouldn't be surprised to see the stock trade lower given the run-up into earnings (and the insider sales window that always opens a few days after earnings). While I missed my window of communication this morning, the same caveats apply and Goldman has been a stellar tell for the tape.

Yesterday we listed the current state of stock market metrics. If I had to list them in order of importance, I would put psychology on top, structural (rates, QE) second, fundamentals third (it's earnings season), and technical analysis fourth. The trick to that trade is that social mood and risk appetites -- psychology -- shape financial markets and of course, it's the most amorphous of the metrics. While the other metrics are tangible, the forward mood of the market is always difficult to ascertain.

I got stopped out of my December SPY (NYSEARCA:SPY) puts last week, and on Friday, in a move that I am finding difficult to explain, I opted to take a fixed amount of money and buy back some downside exposure. I have been trading for a long time -- almost a quarter-century, which is difficult to write -- and I have a process that has served me in good stead. While I suppose my credibility is at risk alongside my money, I am not about to hide what I did, even if I can't quite articulate precisely why I did it.

Jeff Saut, who is as good as it gets when it comes to being a person and a professional, shared the following fare this morning. Nobody is smarter than the market (hand raised) but when I saw Jeff share these thoughts, I sat up and took notice. And I quote:

"When Black Friday comes I'll stand down by the door and catch the grey men when they dive from the fourteenth floor" . . . the year was 1975, and the group, Steely Dan (see the live video here). Raymond James' bond portfolio manager extraordinaire, James Camp, reminded me of "Black Friday" yesterday while reading my prose that referenced July 19 as being the major "timing point" I have discussed for the past few months as having the potential for the commencement of the first meaningful decline this year. Additionally, it's worth mentioning that the 19th was also the timing date of the infamous October 1987 "crash," even though I am not predicting any such event now. I do, however, believe the equity markets are VERY tired after the longest "buying stampede" ever chronicled in my notes of some 50 years. Today is session 135, while the second longest previous skein I have seen ended at day 53. Indeed, it has been an unbelievable 135 sessions on the upside for the Dow Jones Industrial Average (INDEXDJX:.DJI) without more than a 1-3 day pause/pullback since the stampede began with the back-to-back 90% Upside Volume Days of 12-31-12 and 1-2-13! So, we are outta time, outta momentum, outta leadership, and outta the oversold condition that spawned this stampede. The only question in my mind is if we end this thing with a whimper or a blue-heat, upside blow-off.

Yesterday, however, the question I received on FOX TV was about money flows. The anchor had this quip to read, "In the shadow of a June bond market rout, and with stocks at all-time highs, investors have a new love: cash. Some $80 billion has flowed out of bond mutual and exchange-traded [bond] funds since the start of June, according to TrimTabs. Most of this money has made its way to savings accounts and retail money market funds, they find." My response was that I agree, the great rotation out of bonds and into stocks has not yet begun, but the rotation from non-US equities into US equities began about nine months ago and is alive and well. Then I was questioned about the Fed trying to put their statement of mid-May, which caused a 7.5% decline in the stock indices, "back in the box." If so, she asked, "How can we have a 'meaningful decline'?" My response, "We're about to find out if the timing models that have worked so well will continue to work as well." Speaking of upside non-confirmation, look at the attendant chart of the Value Line Geometric Index that is in the process of potentially making a spread triple-top, enough said..."

As discussed, I am out Friday (filming the first of three new eSignal commercials) and taking my wife Jamie and daughter Ruby to San Diego on Saturday for three days, before returning to film yet another commercial Thursday. Given I've been stretched thin -- in business and in life of late -- I'm looking forward to unplugging from the world and focusing on some family time.

My hope and intention is to steer clear of financial news, but anyone who has read the 'Ville for an extended period will confirm that strange things tend to happen when I'm away from my turret. Time will tell…

As always, I hope this finds you well.

R.P.

Twitter: @todd_harrison

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Position in SPY.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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