"What lies behind us, and what lies before us are small matters compared to what lies within us."
- Ralph Waldo Emerson
I was on a flight to Los Angeles last night and I could not stop thinking about the manic groupthink that has become the US stock market. Being on a Virgin America flight where I was hostage to getting the market’s post close news from CNBC didn’t help. I wonder if Larry Kudlow knows about You Tube’s archiving process.
The morning after another squeeze, what lies behind us is another higher-low. What lies within us is a prejudice to follow the herd. What lies before us is a small matter of perceived institutional job security in managing risk based on what lies behind us.
AFTER we crashed, how is it that everyone is a professional prognosticator of crashes to come? At a price, are people allowed to be bullish? Or do we need Meredith Whitney to remind us that the sun rises in the East and Goldman is going to crush the quarter?
AFTER the US stock market locked in 4 consecutive down weeks, Dennis Gartman is the latest to come out calling for new market lows. Yesterday, Fast Money’s czar of British hedging philosophy stated “we’ve no choice then to conclude that the recent bull run from the March lows was nothing more than a bear market correction, and that new lows lay yet ahead.” No choice? I have no other than to call that out. Garty, the math implies you are looking for a -34% crash in the SP500 from here – just fyi.
AFTER the US stock market closed above its 200-day moving average (878), the one-factor model monkeys now have themselves quite a trapeze act to explain. Or do they? Who holds those who are flinging your moneys around like bananas accountable? When it comes to their investment process, what is it, exactly, that they are getting paid to do?
In the last few Early Looks I have been focused on China and Japan. China hit another new YTD high last night, closing up another +2.1% at +72.8% for 2009. Meanwhile the Japanese stock market finally had an up day after 7 consecutive down ones. This morning, let me shift gears back to the US and be crystal clear on my US stock market stance for Q3 of 2009. I think this market has a high probability of trading in a proactively predictable range – on our Q3 Macro Theme conference call we called this Range Rover.
My intermediate term TREND of downside support for the SP500 remains 871, and my long term TAIL or upside resistance remains 954. The Volatility Index (VIX) broke its immediate term TRADE momentum line yesterday ($28.92) and remains broken across our three key durations (TRADE, TREND, and TAIL). Credit spreads are healthy, and the yield curve (247 basis points wide this morning) looks as good as any socialized banking curve you can find.
What lies before us this morning is another day of risk management. Having “no choice” is not what we do. If the SP500 breaks down and closes below the 871 line, I have a choice to call the next level of support whatever it is. I also had a choice to sleep in this morning, but I didn’t. Not being able to “trade” or manage risk is a choice. So is selling low and buying high. I make a lot of mistakes, but I don’t have to subscribe to the arbitrary Wall Street rules of technical “200-day” alchemy.
As the US government sponsors a Burning of The Buck, don’t underestimate the power of the math. When the US Dollar goes down like it did yesterday, everything priced in dollars goes up. Another government stimulus plan will only erode America’s balance sheet and her currency further. My new trading range for the US Dollar Index is $79.57-$82.46.
Today is the morning after. Manage risk around the game that’s in front of you – what lies behind us is yesterday’s news. Markets look forward.