Will Black Friday Come for the Stock Market?
Social mood and risk appetites shape financial assets.
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:
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.
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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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