Fighting Darth Vader

Thursday, April 30, 2009

Macro Man feels like he's channelling Star Wars. Yesterday's action was drearily predictable, with the poor GDP figure met with risk-asset buying, and the Fed non-announcement met with more risk-asset buying. Oh, sure, the Fed said that they were gonna keep rates low for an extended (Is that longer than "considerable"? - Ed.) period. Of course, the eurodollar strip steepened, so its not exactly like that was taken at face value across markets.

In any event, a number of risk-asset charts are looking pretty compelling. Spoos are currently trading well above the congestion zone around 870-875, the dollar's broken down, and stuff like the Ozzie, after a recent period of congestion, has broken both its recent high and the3 200-day moving average (for the first time since last August.)
It all looks really quite bullish. So Macro Man finds himself feeling like Luke Skywalker...trying to maintain his fundamental convictions, but feeling tempted by the increasingly attractive delights of the Dark Side. While some market cheerleaders are more Jar Jar Binks than Darth Vader, a number of people whose opinion Macro Man respects are bullish.

At the same time, tomorrow brings a change of month, and with it a sharply deteriorating seasonal for equities. What's a punter to do? Is it worth embracing a Dark Side, even just a little, while planning to revert to type at the appropriate time? Hey, even Darth Vader came around in the end....

Posted by Macro Man at 8:47 AM  

20 comments:

ive always been under the impression that it takes buying to move a mkt higher and it can drift lower under its own weight. I think this is real money buying and many people both smart and less so are getting bullish. Im concerned this runs out of gas after month end with next week's events hanging over the mkt. Look at the esm9 chart around 2:30 the last 2 days seems to be the time that the mkt ran out of buying power. Im waiting to see a weaker trading open before adding to a risk off trade.

TE said...
1:18 PM  

MM - I think in the spoos that 900.0 is the level that everyone is playing for. We will prob reach that today. After that I think the old adage of "Sell in May and go away" takes place. Plus the rally in equities co-insides rather nicely with the marking of Team Obama's first 100 days. What are your thoughts?

Dan

Anonymous said...
1:20 PM  

"a number of people whose opinion Macro Man respects are bullish."

What is the bull case for buying more at the current level of valuation?

Anonymous said...
1:21 PM  

"a number of people whose opinion Macro Man respects are bullish."

On second thought, most likely they are bullish because they are 200% long already. The bull case is them talking their own books. I bet they are selling into the rally right now. Don't be a bagholder!

Anonymous said...
1:25 PM  

for curiosity, who do you respect among the bulls?

Anonymous said...
1:28 PM  

Ain't the movie you're livin' Groundhog Day?

Anonymous said...
1:35 PM  

we will struggle to go higher from here, don't think we'll get above 900 soon.

say what you will about beating forecast, second derivatives and real money buyers. to me, large-cap/benchmark hugging in stocks is all but finished since late last year. the world that has seen the vix trading in high 80s will not see stocks coming back to 2007 levels for a while. it will take decades.

Anonymous said...
1:38 PM  

ANon@1.20, the people I refer to are trading bullish, not investing bullish; i.e., see rally to 950 before a dump.

ANon @ 1.28, these are just smart guys I know in the market, not anyone you see on TV

Anon @ 1.35, I could name a number of films that capture my situation. Sadly, "Brewster's Millions" isn't one of them.

Macro Man said...
1:41 PM  

I just don't understand the logic behind this green shoots movement. The only really concrete good news is that things are improving because markets are going up, and markets are going up because things are improving. How long is it going to take for everyone to realize that they have a circular reference in their logic?

No data series goes down continuously, so if we have an up month or two in economic data, I have a hard time buying into a 2nd derivative argument. Hasn't anyone learned from the dangers of future projections based on extremely limited historical data?

PPM said...
1:43 PM  

agreed ppm. diffusion indexes that compare 1mo to the prior one will eventually go back to 50... they only good reason i have found for the stock rebound is real money putting money back to work that was on the sidelines... and then the eqty going up feeding on itself.

TE said...
2:27 PM  

I am not a smart guy, but I have been net long equities for a while, primarily as a trade. I posted yesterday that I was probably 0.7 beta on balance. When the rally runs out of steam I don't know; I am no bottom- or top-ticker.

Why? Pretty simple: http://www.philadelphiafed.org/research-and-data/real-time-center/business-conditions-index/ Early this year, the data looked like we were off the cliff, never to return. The last several weeks of data make things look like they are just part of a long, painful contraction.

Depressions are priced differently than mere painful recessions.

wcw said...
2:49 PM  

I have been talked about the inventory story here since last month. When it finally got around, I begin to feel that the wind will start change. Now I see that market is overshooting in the upside. What could possibly bring down the market next time? Credit card?

Gavin J said...
3:42 PM  

When macro goes wrong, go flat and daytrade ES during the european session (7 UTC or so onwards). Use 1 minute charts, grab the cajones, and make some money. Hold your nose along the way 'cause what were buying stinks, but this is not a beauty contest.

Anonymous said...
4:20 PM  

speaking of second derivatives, the second derivative of the .spx isnt looking too flashy of late (last 2 days aside)

Anonymous said...
5:18 PM  

So you're a Chrysler bondholder and you're hung out to dry in reorg? And the UAW gets 55%? And if you're GM or Ford management this works how? If you're a UAW Chrysler worker you negotiate your raise with whom? If you're a pension or a mutual fund do you buy senior debt of any kind? If you're a TARP bank you lend to Chrysler at what terms? To Ford, GM? If you're UAW and your control of Chrysler rolls over to Fiat when you pay back government loans you pay them off when?

I have been short since 840 and painfully so, thought of reducing this morning at 885 but thanks to our president I will stay the course.

Steve said...
7:31 PM  

I am also bearish on fundamentals. And I say "also" because I see every single post here is bearish....and this makes me worried. I guess this green shoots rally will only end when the comments here gets more balanced, say 50/50...including MM going long :-). good luck to all

NS said...
7:32 PM  

NS yes we are bears but there are loads of bulls out there, as MM has pointed out we have gotten it right en masse.

Bottom-up analysists looking for $75 next year, top-down about $48. Call it $60. That to me puts an overhang at 900. With a strapped consumer and very high real interest rates I'll take my chances at 870.

Steve said...
7:43 PM  

thanks Steve, I agree with your analisys, and btw I am as bad a trader right now as most people here. I shorted S&P as well a few days ago. 850 on future. not sure if I want to keep it though. it seems swineflu made players reduce position and technicals just got better.....

NS said...
7:54 PM  

told you yesterday guys, going short in stoks made more wounds overnite. hopefully this will end with the month. I thik that in the blogs poll I bet SPX would be under 800 at this moment.

Skeptical Smith said...
8:11 PM  

MM-
I believe this sentiment is exactly what will allow this market to clear. For the past two months, I have been unable to find a single collegaue who was not short. The crowded nature of the trade is what prevented it from working.

I have felt for some time, that as soon as we have some credible believers in the "bull market", it would allow it to finally go lower. Today's tape came with commentary that commercial hedgers were finally reducing shorts. Spec's are already decently net long according to CFTC data (lagged). Finally there is someone to take the other side of the trade.

WSJ has been one of the best contrarian indicators lately. At the bottom the headline read "Dow 5000: A Real Possibility". In six short weeks, here is their headline:
To Catch the Market Rally, Try These Funds
http://online.wsj.com/article/SB124112357894174371.html

Not front-page, but still notable.

Good luck. Thanks for continuing to share your thoughts here. Consistently my favorite read every morning.

EC said...
5:57 AM  

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