Random Thoughts: The Market Digests Good News
The reaction to the news is more important than the news itself.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
We walked into work this morning to find some constructive news in the marketplace.
Citigroup (NYSE:C) beat analyst estimates largely due to its bond trading revenue, and retail sales were better than expected. That, coupled with firm bourses overseas, put some pep in the bovine step as we embark on a fresh five-session set.
All is not cream puffs and powdered sugar, however. The S&P (INDEXSP:.INX) remains below where we were trading when QE-finity was announced, and despite 15 trillion odd reasons why the economy “should” be doing better, economic grown is sluggish at best, per the latest stateside GDP report and the most recent forecast from the IMF.
What to do? Breathe, and take our journey one step at a time as we together find our way.
Through that lens and along those lines, I humbly offer today’s random thoughts in no particular order:
It's not the depth of the socioeconomic malaise that matters, it's the length. I view that as both a good and bad thing; it's good in that we're well into it (we need to go through it to get through it) and bad in that we've got a ways to go. I don't profess to know how long, but I do know that we're a lot closer than we were six years ago.
Despite the "better" tone in equities, market internals do not yet qualify as an upside "tell" today.
Facebook (NASDAQ:FB) hangs tight above our much-discussed $19 level (the 50% retracement of the corporate life cycle). Gun to head? It hangs "in and around" here until the earnings release (next Tuesday) and they we see a sizable gap in the stock.
- What jumps out? Commodities are taking it on the chin today, and I’ve included an updated chart of the S&P vs. CRB which we highlighted several weeks ago for purposes of perspective.
I DO believe that marijuana will be legalized in our lifetime, ergo, there will be money to be made in stocks that cater to this new industry. It makes sense, right? It will simultaneously create new tax revenue and cut crime rates (which is necessary given the overcrowding in the prison system). Just thinking out loud for new and fertile investment ideas!
- The S&P closed directly on the 50-day moving average on Friday, which is certainly not lost on the bulls. If they hope to have last week's breakdown of the S&P trend channel mirror the false breakdown in July—which also found footing at the 50-day—they'll have to get their groove on, and fast.
JPMorgan (NYSE:JPM) "beat" earnings on Friday and the stock closed down (note: we spoke last week about how earnings are rear-view and the market is forward-looking, and this was especially true for the financials). Citigroup is today's real-time proxy after it beat on the top- and bottom-line.
The NDX (INDEXNASDAQ:NDX) Head & Shoulders that we've been flagging for weeks "broke" last week as well. Near-term resistance comes into play at NDX 2770 and the pattern "works" through a pure technical lens to NDX 2670.
And yes—that's just the technical metric. We mapped the importance of the psychological, structural, and fundamental metrics last week, as well. Give it a read if you get a chance; the goal when trading is to have as many of the market "legs" under the table at any given time.
Remember last week we said that a "re-test" of Apple (NASDAQ:AAPL) $650 would be the level to initiate short-side risk, according to Technical Analysis 101? It got to $647 before failing. That H&S pattern works to $600ish, if and when.
I continue to watch the spread between Apple and Google (NASDAQ:GOOG), which is now $120 dollars the other way. This is almost a $300 reversal of relative fortune vs. where these stocks were trading earlier this year. I spied this two weeks ago (on the Buzz) but offered to stay away as I continued to hear "issues" surrounding the iPhone 5. At a point—and I don't know when that point is—the Long Apple-Short Google pairs will spring back to life.
I enter this five-session stretch with a half position in Research in Motion (NASDAQ:RIMM) (with a stop below $7-half) and a lot of dry powder. I'm in hit-it-to-quit-it mode into year-end and as always, I'll share my best vibes on the Buzz (click here for a free two-week trial)!
It was a tough week on the sports front as the Raiders lost a heart-breaker in Atlanta and the Yankees dropped the first two games—and their captain—in the ALCS. The good news? Our (Peewee) Dallas Cowboys tied the undefeated Jets in Peewee football; that's good news, despite time expiring as we drove the ball to the two-yard line, and the kids had fun, as did their coach!
- Good luck this week, and remember that profitability begins within!
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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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