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Is the 50-Year Financial Storm on the Horizon?

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Capital preservation is the first step toward wealth accumulation.

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MINYANVILLE ORIGINAL

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

These are historic times, and that may lead to historic moves in the market.

Entering May this year, we asked the question on Minyanville: Will European Elections Trigger the Next Phase of the Financial Crisis?

In that column, we detailed the technical, structural, and psychological metrics and how they might play out through the summer.

The following day-The Morning After, actually-we clarified our view for the avoidance of doubt:
"If it's possible that I understated my concerns Thursday morning, let me make something perfectly clear: I am extremely bearish here. I've built a sizable short in the S&P (with some Deutsche Bank (DB) puts as a sweetener) and set my stop above recent highs at S&P 1420.

I'm not prone to hyperbole and the above missive offered a full take on what I saw and perhaps more importantly felt last Thursday. While we strive to remove emotion from the trading process, me no likee the stock market at these levels, not one bit."

Better lucky than smart; the S&P shed 10% over the next month before chopping toward the upside trend channel we've highlighted in recent weeks. Hands-over-eyes, the S&P recouped roughly 50% of the decline from the 2012 highs (that level is S&P 1345) as we enter the meat of the earnings heat and the center of the European storm.

For purposes of full disclosure, my stylistic approach remains surgical; when I spy an advantageous risk-reward with defined risk parameters, I hit it to quit it and remind myself that good traders know how to make money but great traders know how to take a loss. Stay humble as the adage goes, or the market will do it for you.

I share this for a reason; I'm getting that old familiar feeling: that a downside ride lies in wait for our financial fate. Perhaps it's the headlines-the worse drought in 50 years; the highest poverty level in 50 years-or maybe it's our solemn social structure, as evidenced by the Dark Knight Massacre and the Black Sea bombing. (See: A Dark Knight Descends on Wall Street.)

Quite possibly it's both, with some intuition sprinkled in for good measure.

My chief beef with 'right here, right now' on the short side is the lack of definable risk; discipline must always trump conviction and I simply don't see a setup that makes my mouth water. (I wrote last week that a move toward S&P 1400 would provide such an opportunity, but true to the path of maximum frustration, the tape pulled up lame.) The closest catalyst that I can see is BKX 44; if the financials break below that level, the bears will likely press the downside.

In the interim, I continue to watch, wait, and demonstrate proactive patience as we edge our way to better days and easier trades. I see what you see and feel what you feel in terms of the "pressure" building under the seemingly calm summer surface, so please keep your right hand up as we find our way from here to there.

Random Thoughts:
  • Keep an eye on the Spanish IBEX as it's snapping higher into the European close. It was down more than 5.5% on the lows today and is working toward the flat-line.
  • The S&P and NDX both held the bottom of their respective trend channels yesterday-and you didn't believe in technical analysis!

  • If and when these indices break the bottom band, past support will morph into future resistance.
  • On the earnings front, Apple (AAPL) is the big dog tonight and it's interesting to note that the spread between Apple and Google (GOOG) has now inverted-which may suggest that I should put the "long Apple-short Google" pairs back on.
  • Lockheed Martin (LMT), EMC (EMC), Under Armour (UA), AT&T (T), Dupont (DD) and United Parcel Service (UPS) all posted this morning. As always, the reaction to news will be more important than the news itself.
  • Crude is shaping up to be a massive tug-of-war between deflation and the potential for political strife.
  • I wanted to again highlight the chasm between commodities and stocks, as per the chart below. Either the former must rally or the latter will decline.


  • Was our Ojai discussion really seven years ago?
  • When is the last time you read Kevin Depew's The Modern Stealth Depression?
  • It's the little moments that matter in life; capture them in a bottle so when you're thirsty for perspective, you can drink them in!
  • Good luck today!
R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
No positions in stocks mentioned.

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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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