The Greenspan Put Gives Way to the Bernanke Call
A message board rant speaks to the moral hazard mindset that's sweeping the Street.
Yesterday, we highlighted the following observation:
"The stock market is the world's largest thermometer; perhaps that's why international investors are the most bullish they've been in 3.5 years, with close to two-thirds planning to raise their equity holdings during the next six months, according to Bloomberg."
Last night, reader Minyan Mark forwarded the following passage that he saw on a message board; it was in response to someone who was getting short the market:
I don't read message boards and would never have seen this if not for the watchful eyes from within our community. It stuck a chord, however, in the tenor of its certainty; this rant, if nothing else, speaks to the mindset of moral hazard and the "if you can't beat 'em, get yours before the punch bowl is removed" paradigm sweeping Wall Street—and eyeing Main Street.
Yes, underperformance is a four-letter word on in financial circles; the only thing worse than losing money, in the fakakta fund world, is not making as much as your benchmark or peers.
Sure, credit trades great on the corporate level, and dare I say, in the sovereign sphere as well.
And earnings, while still in motion, have been digested if not embraced. IBM (NYSE:IBM) and Google (NASDAQ:GOOG) are indicated higher, CSX (NYSE:CSX) and Norfolk Southern (NYSE:NSC) are in-line, and even McDonald's (NYSE:MCD) is looking McBetter.
So why share the rant? In a word: perspective.
We have witnessed conventional wisdom peak right before the asset class it surrounded. Remember The Gold Scold when the yellow metal was trading at $1900? Brutal.
Oil of Oy Vey, when crude was at $140 following the parabolic frolic of 2008? Scary.
How about the optimism shared in The Darkness Before the Dawn on March 6, 2009? That push-back was so palpable that I included a sampling of the venom within the article.
I'm not saying THIS is the top, right here and right now. I'm not that smart, nor is it a high-probability bet. When trading, it's much easier to make money between the twenties and leave the red zone (before and after each directional cusp) to others. With the projected count (highlighted last year) "working" to S&P (INDEXSP:.INX) 1520, I respect, but will never defer to, the price action, which has been all sorts of snazzy this calendar year.
What's my point? Glad you asked. There are GREAT opportunities to trade this tape—and yes, there is a risk of over-trading a solid call, as evidenced by our bullish vibes on Research in Motion (NASDAQ:RIMM), which is nearly 200% higher than it was in September, or our constructive stance when Facebook (NASDAQ:FB) traded down to $19 (the 50% Fibonacci retracement) in November, and has since tacked on 77%—but risk definition and discipline must remain steadfast elements of any approach (particularly with the VIX (^VIX) at 15-year lows).
NDX 2700-2750 is the near-term toggle for tech, while S&P 1435/1460-1500/1520 is the zone to monitor on the big board. As always, the banks, market breadth, the reaction to earnings and the price action in commodities will lend a hand as we navigate our way, one step at a time.
- Mother Morgan (NYSE:MS) and Grandma Goldman (NYSE:GS) stood out on the upside on Friday but we should keep an eye peeled for an insider sales window in Goldman, which should open this week.
In early December, I penned an article about My Single Best Investment Idea for the Next Decade. While I couldn't (and still won't) discuss individual securities (they're too thin), one of those lottery tickets doubled since I took a position, and yesterday, I sold half of that stock as a function of discipline while whispering, "Let your first sale be your worst sale."
The odd-lot S&P out-of-the-money February puts I had/have on against that long exposure? They're all but gone, but long from forgotten. As a rule of thumb, I generally don't like to sell anything for less than $0.50, and because they were sized right, I didn't feel pressure to do so.
Gun to head, Apple (NASDAQ:AAPL) springs higher after earnings, but I'm not making a sizable bets despite the $500 level offering two-sided risk definition. It's crowded and I try to avoid crowds these days, particularly given technical analysis will soon take a back seat to fundamentals.
- Deutsche Bank (NYSE:DB) stands out as a red bean in an otherwise green sea of financials today. $47ish is where the stock broke out, and by extension, it's where initial support should reside.
Disclosure: Minyanville has a commercial relationship with RIMM.
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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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