Todd Harrison: Are Darker Days Ahead for the Stock Market?

By Todd Harrison  JAN 14, 2014 10:21 AM

The bears look for their day in the sun.

 


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

The markets took it on the chin yesterday, paving the way for the ugliest stock market session in months. It's all relative, we know—investors are sitting on 30%+ gains from last year—but that was then and this is now.  With earnings season in full swing, the tape has a distinct flavor of, “What have you done for me lately?”
 
What was the downside catalyst? A hawkish Dennis Lockhart ("the economy is on solid footing"), a negative note from Goldman Sachs (NYSE:GS) (markets are overvalued on most metrics; 65% chance of a 10% correction) and uncertainty ahead of earnings, which will provide the next series of tangible catalysts.
 
While smart money will—and has—argue(d) that tapering is already priced into the marketplace, the specter of a less accommodative Federal Reserve, coupled with said earnings, gave buyers a cause for pause. Our contacts inform us that there was more covering (of short positions) yesterday than initiated short positions; I suppose old habits die hard.

Following an outsized move in the market, the tape tends to probe the prevailing direction, at least once. Through that lens, the higher pre-market futures (indicated +4.70) will likely set up a fade lower at a point today.  From there, we will take the tape’s temperature, which includes the reaction (to earnings) in JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC).

Chewing through the morning headlines, the most interesting item I saw was that the planned $63 billion contribution to the IMF was not included in the spending bill from Congress, which is sure to cause a few noses to scrunch throughout the world. I don't know how this impacts our quota but it’s worth sniffing as it smacks of isolationism (which, as we know, is the "other side" of globalization).

Finally, retail sales came in better than expected for December 2013, which is somewhat surprising given the weather mulligan. Whether "good is good" (stronger consumer, which is 70% of GDP, pacing the economy) or "good is bad" (portends more aggressive tapering) remains to be seen but yesterday's price action put the bulls on notice that 2014 won’t be a one-way ticket to prosperity.

Random Thoughts:
R.P.

Twitter: @todd_harrison

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.

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