Random Thoughts: Stocks Rocket on the ECB... But Will It Last?
The path we take trumps the destination we arrive at.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
Many have I loved, many times been bitten; many times I've gazed along the open road.
– Led Zeppelin
As portfolio managers shake the sand from their swimsuits after the long holiday stretch, they've nervously cast an eye toward quarter- and year-end. The performance anxiety is palpable; while there is a litany of reasons for global markets to crack - we discussed this yesterday, at length - underperformance is a four-letter word on Wall Street - and it's not "Drat!"
Mario Draghi is the latest policymaker to assume the role of Sisyphus as he rolls the global imbalances into a cumulative boulder and pushes it up the hill. The European Central Bank President unveiled an unlimited bond-purchase program in an attempt to reign in interest rates across the eurozone, which, presumably, will quell the speculation that the currency will splinter.
The always prescient Peter Atwater, this morning on the Buzz & Banter, offered that "the ECB just won the battle and lost the war. When you cut to the 'but,' there are plenty of conditions... and worse, Germany has been painted into a shrinking box." He further opined that "Irreversibility is like capital, liquidity, and good looks. The more you feel you have to say it, the less you really have it."
The Pavlovian response of investors has been to buy risk assets with reckless abandon. To wit, the only red beans in today's green seas are the VXO (-8% at 15ish) and the VXN (-7%, at 17ish), both of which are fear proxies. Market breadth is almost 5:1 positive, commodities are acting well (but outside of crude, not great), and both the S&P and NDX are trading at fresh 2012 highs. How about that!
Per yesterday's commentary on the Buzz, I entered today's session with a dollar-neutral trade: Long Facebook (FB) against a spate of NDX puts (QQQ). As the former is up 2% and the latter is up 1.6%, it's been a "no great shakes" session from a P&L standpoint, but that is subject to change.
I am taking my trade in Facebook as it re-tests $19 (the 50% Fibonacci retracement; I may revisit this position as gun-to-head it has upside room) and added a 25% to my short position in the NDX (I am raising that stop to 2850 to allow for a potential Pop & Drop as shorts scramble to cover. NDX 2806 was/is a 50% retracement of the entire Nasdaq downdraft, so I'm drawing this line with a crayon rather than a pencil).
Sometimes right, sometimes wrong, always hungry; I will be updating my posture in real-time on the Buzz (click here for a FREE two-week trial).
There's a little bit of Peter Lynch in all of us; when we use, like, and enjoy a particular product, we intuitively believe in the brand, which, in a perfect world, makes us wanna own the stock. That dynamic arrived last week as I was behind the wheel of my new ride. I haven't owned a car in over a decade (living in NYC) and it was (cough) suggested to me that I get something practical.
I have an American flag in my front yard and it didn't feel quite right having a foreign car parked in my driveway. I swallowed hard and leased what I perceived to be a Mommy Wagon: The Ford Flex. Lemme tell you this - it is not a Mommy Wagon; I am very impressed with this car. As a matter of fact, I barely get to drive it anymore as my Jamie adopted it as her own (happy wife, happy life!).
The renaissance of American car manufacturers is in full swing; given today's "here, me, now" socionomic mindset, folks are hunkering down to take care of their own. When GM was toe-tagged in 2008, I took a long hard look at buying some Ford (F) and putting it away for a rainy day (the stock was changing hands for a buck and change). I didn't pull the trigger, but that was then and this is now.
Sure enough, when I pulled up the chart, I saw a (bearish) head & shoulders pattern. Ironically, doing the math, this chart, through a pure technical lens, works back to $1. (The "head" ($19) minus the shoulder ($10) equals $9; when subtracted from the right shoulder ($10), you arrive at $1.)
Obviously, I don't think that Ford trades back to a buck anytime soon but it was enough to quell my desire to get involved in the stock under $10. See the chart below, and remember that technical analysis is but one of our four primary metrics.
Click to enlarge
Yesterday's missive may be right or wrong - I mapped both sides - but I can tell you that I feel much better now that I've shared that intuition. And to be clear, the path we take is more important than the destination we arrive at.
Last week, between settling the family in and enjoying the journey, I thought about how different - and difficult - the world has become. We've been forecasting it for years, but writing it and living it are two different dynamics.
The DNA of today's marketplace no longer consists of investors looking for attractive opportunities and traders capturing disconnects between perception and reality. It is algorithms that trigger in nanoseconds and a cacophony of acronym-masked government intervention.
Trade the market we have, not the market we want; I get that. What I also get is that folks have financial fatigue after a decade of booms and busts. We long ago wrote that credit of a different breed - that of credibility - will prove to be the issue at hand for markets at large.
That remains in play - truth and trust are the most valuable commodities in today's day and age. What remains to be seen is how long the facade can continue until it reaches a breaking point.
I don't profess to have the answer (anyone who claims to is not to be trusted). From here to there, you can call my stylistic approach "Jack" - nimble, quick, and looking for a candlestick as I make trades to take trades and practice discipline over conviction. This too shall pass - this we know - the goal is to be in a position to prosper once it does.
Will the second mouse get the cheese? Or will the central bank cats get the mouse?
I did look to Google (GOOG) on this move higher (to get short), but I'm avoiding that name for a while as it has the potential to be an emotional trade - and emotion is the enemy when trading.
Festivus. December 7, 2012. It rocks, and you should be there as we do our part to give back to the children who are less fortunate than we are. Click here to view past events - and if you sign up now, use "friends12" for an early-bird discount!
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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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