Navigating the Monday Storm
It's always darkest before the dawn.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
It's dark and dreary out there—and I'm not talking about the financial marketplace yet!
With three small kids in a summer house not known for its structural integrity, I've spent the better part of this morning preparing for the massive storm front rolling through the east end. We’ve been "between homes" for a few weeks (as we ready for the permanent family move) and while it hasn't been an optimal living situation, I'm glad to be here rather than the NYC hotel I call home Tuesday through Thursday.
Turning our attention to the tape, we offered that Europe's Most Important Week is Upon Us on Friday and we're thick in the middle of that. The posturing continued through the weekend during the Germany-Greece European Football Championship match-up as Greek fans chanted, "We're not paying you back!" (German Chancellor Angela Merkel was in attendance.) German politicians, meanwhile, reiterated their opposition to eurobonds or shared deposit insurance as the rest of Europe ratcheted up the pressure.
We've been talking about a sovereign sequel to the first phase of the financial crisis since February 2010. We get it, see it, have expected it, and respect it; now that it's here—much like in the first phase—it's entirely more daunting as real lives are effected and markets lurch and purge in real-time. I've been more surgical in my approach while keeping plenty of dry powder (read: cash) on hand; there are numerous opportunities to capture the disconnect between perception and reality (where profits are found) but capital preservation is always the first step toward wealth accumulation.
I have my "go-to" names as upside rentals (Apple (AAPL), particularly when paired against a Google (GOOG) short, as I think the latter matter works toward $522), as well as JPMorgan (JPM), which I believe works toward $38-$40, all else being equal. There is real "tape risk," however, as the "gun-to-head" vibe that the tape ticks toward S&P 1200-1250 remains in play.
I will say this: A source—and I cannot vouch for the viability of this source, but he planted the seed nonetheless—informed me that the Chinese government is preparing a massive multi-trillion economic stimulus in the back-half of July. While that may or may not be true—as I said, it is speculation in the truest sense—it does add spice to a mix that is solely focused on Europe as we fire up our jets for a fresh five session set.
I’ve started nibbling on some JPMorgan under $35 (with the above-mentioned price target) with a hard stop on the other side of $34. . My logic isn’t rocket science; I like the chart, it's beaten up (-25% off recent highs—still!), and it trades dry relative to the market and its peers.
Discipline over conviction, no matter what you’re trading or how much you believe in your thesis.
Remember when Goldman Sachs (GS) was trading at $110 and we spied the pattern that "worked" to GS $93? It's trading at $93 now so if you played along, remember that trades are made to be taken.
The transports led the market higher and proceeded to take it on the chin both Friday and today. Check the chart below; I pulled back the aperture a bit to demonstrate the correlation.
BKX 44 zone—our uber-stealth and very reliable market tell—is pinning our level as we speak! Watch the action and reaction from here; as go the piggies, so goes the poke!
I will admit that Jeff Cooper's take prompted me to carry a flat pad into the weekend (as opposed to nibbling on some upside exposure). I don't profess to fully understand the voodoo that he do, but I certainly know enough to respect his work.
- I'm gonna get this to you before the power outs, which is a very real possibility today. Good luck, 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 email@example.com.
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