Mr. Unexpectedly

Two points I’d like to hit tonight before the recaps, which you can always just scroll down and click through to.

First, today’s consumer confidence report. It is down, and as the link points out dropped below the lowest analyst expectation, never mind consensus. The cutoff date was July 21, well into our current rally, so the market movement isn’t helping, as it often does.

I won’t bother rehashing the data as fifty trillion other blogs do. I just want to point out that consumer confidence dropping as the market rises is a bit of a bearish divergence. In a nation where the DJIA is reported as part of five-minute news updates–as if it had some relationship to reality on its best days–consumers know what companies are reporting, and how it’s moving the market. And they’re still, erm, concerned. More concerned, I would venture to say, than traders.

Yeah, well. “The tape” may be “ignoring the macro” for the moment, but the consumer isn’t, and if the consumer continues to fail to ignore it, “the tape” will have to listen. See, a lot of people say that the Conference Board isn’t really a good indicator of the state of the economy, because people can change their minds pretty swiftly. Guess what? Same with the market. The number of very good traders I hear table-thumping the new market strength off 12 days–I’m sorry, that’s 78 hours–of trading activity may well be right about where we’re headed next, and are trading it accordingly. Consumers, on the other hand, have an equal claim to being right–it’s all speculation, after all, and I’ll believe in the failure of any and all attempts to presage until they prove to have been closer to resulting facts–and are living it accordingly. In the vast behemoth that is the economy and its “stakeholders”, I prefer to listen to the livers over the traders. That’s just me though.

Second point: a lot of these same very good traders have been supporting their bullishness for months on the claim that the beats are massive, and the price action is massive, and pretty soon money managers are going to start playing catch-up. Problem is, in a 4-month window of opportunity–I’m sorry, that’s 1/3 of 1 year, which is a fair amount of salary-earning, business-creating, and redemption-busting–these managers haven’t. Not based on volume.

While traders have gone on a 78-hour mouth-frothing marathon of momentum the likes of which we haven’t seen since at least, oh, four months ago, but under an opposite vector, I’m not sure the “earnings beats everywhere!” and “we’re goin’ to 1000!” memes have taken hold as much as some very good traders are saying, at least among the community of money managers they think are gonna start chasing this… tomorrow.

Without further ado, your recaps:

• Market Talk (concise commentary, no charts)
• Cobra’s Market View (annotated chart analysis)
• Tickerville (video chart analysis, exactly 22 mins)
• The Chart Pattern Trader (video chart analysis, ~29 mins)
• Jack McHugh (commentary with links)

Good luck out there.

For today’s market metaphor, we scrabble up the slippery slope of politics. Yeeeeah. This is not a political blog, so bear with me as I present this next little bit as an example of what I’m seeing in the markets. Or just scroll down for your recap links and save us both the trouble.

There’s a particularly unsightly little bit of “satire” floating around all the internets called “Obamopoly”. (I don’t link scurrilous effluvium, but the Googles will helps you finds it.) With only slightly less nuance than a sixteen-pound gutter ball, it attempts to present the actions of our current government as reaching deep into our economy, Kindle-style, presumably creating some sort of nasty “monopoly” over our lives. Uh-huh, uh-huh. Wait, what? Forget about the screeching whine of rightist amalgam politics here; the graphic doesn’t even make sense. In the board game, players compete, against each other, to establish full control of the board. Not unlike in our economy, the adversary is not the game itself, but the competition. Half the “properties” in this failed bit o’ wit (they couldn’t even pull off a good name) don’t even “belong” to this administration, but to its predecessor, who would have made an outstanding player if only he could have read and counted.

Still, not much value (though plenty of fun!) in dismantling idiotic humor that fails to be clear, or instructive, or, y’know, “funny”. What’s particularly disgusting about this Obamotacolepsy bit o’ half-wit is the replacement of the classic “get out of jail free” card with a “race card” that allows the holder–again, some confusion over who’s playing and who actually is the game here, but oh well–“get off scot-free”, to be “used repeatedly as often as needed”. (Oh really, repeatedly and as often as needed? That’s pretty often, and also quite often!) Implying that somehow, in all the Big-Brotherization of our otherwise robust and thriving free-market economy, it’s all about those pesky minorities and their vast monopolistic game plan.

Anyone who failed to see that electing the first minority president in our country’s history was going to bring out the cracker honky redneck racists in force has been living under a rock the last, oh, entire history of the country. But placing government intervention, and the efforts–however valid–to save this wrecked economy, at the doorstep of race? That is hysterical, in at least two senses of the word.

So, the markets. (No, I did not lose my train of thought.) You might have noticed, we have a two-week near-vertical rally on our hands. Very, very strong movement, earnings-driven and technically sustained by… well, exactly the same Technical Analysis 101 that keeps not working in the market’s various failed attempts to pull back and correct.

Dispensers of trading wisdom like to remind us–at least a couple in the links below do–that the markets are “irrational”. I’ve never really understood what this means, since “the markets” aren’t a person or a mind, but a collection of haphazard buying and selling that either coalesces, or does not coalesce, into trends of varying lengths, redistributing, creating, and destroying money as it goes. Ascribing human characteristics to its movements is like mixing up the game played with the players; the market is nothing but the results of a lot of human actions. It is untouched by winning and losing, cold, inanimate, indifferent. Doesn’t sound particularly irrational to me.

The players, on the other hand, vary in levels of irrationality from player to player and day to day, and now I come to my point: this rally, and the price action of these two weeks, it seems to me, demonstrates a near-collective hysteria. Many of its component parts are irrational–two-fisted buying on so-so earnings, short-covering in the face of a pullback that just won’t come–but what raises its pitch is the conviction that the bottom is in, the risk is acceptable, and the reward not to be missed. With a couple intraday exceptions, there hasn’t been any dip-buying the last two weeks, because there haven’t been any dips. If you buy XYZ at 9 and sell it to me at 10, you’re a sucker, because I’m selling it at 11. The lack of volume probably means I’m selling it back to you, but that’s ok, because we can keep volleying it back and forth, all the way up to a zillion, because this is a vast opportunity.

If you’re unfamiliar with my broader stance, you can read it here, but what I want to focus on in this post is the desperate character of the buying we’ve seen since March. Granted, that adjective is a tough sell. It’s much easier to describe selling like that of January-February 2009 as desperate, because prices are falling, and fast, and falling is perceived as negative, and fast is more negative, and desperation is a negative state. Pinning the adjective on buying is much trickier, because when as we’ve seen since July 7, prices are rising, and fast, that’s perceived as positive: rising means prosperity, and rising fast means confidence in the prosperity, and what’s desperate about that?

All the same, I think all it takes to get to hysteria–the root of desperate market action–is a nimble leap across the chasm of thinking, a la the Obamochrestomathy cretins. That leap has come to us, indeed fallen from the sky and landed squat on our faces, in the form of defeated analyst expectations, and by an enormous margin! Oh, except in revenues (yeah, same link, don’t click it twice). The players in the market are frothing at the mouth with joy, because analysts who were cooking up their thinking with a spoon and a bic back in December ’08 fell well short of all the goodness we were going to produce.

The thing about hysteria is, you can’t fight it. It only takes one simple chart to show how utterly imbecilic it is, but it’s impossible to stick a fact-pin in market mania and burst it. (I recommend trading [or not, if you’re me] accordingly.) This is probably owing to the fact that Obama is not a white man, and has wrecked facts in the name of greater minority dominance. This is why all your TA 101 is belong to us. Except the hysterically bullish kind, of course, which has been working a treat.

Without further ado, your recaps:

• Market Talk (concise commentary, no charts)
• Tickerville (video chart analysis, ~21 mins)
• Cobra’s Market View (annotated chart analysis)
• Alphatrends (annotated chart analysis. Incidentally, this guy was my old steady, and we broke up over… Obamotatababaphilia.)
• Random Roger’s Big Picture (video investment advice)

Good luck out there. And try not to lose your head.

Perhaps I’m growing paranoid, but the impression I have is that those not outright ignoring Unexpectedly LLC pay the most attention when the market is moving the direction they believe we want it to go, and that that direction is down.

I’ve said so several times here, but though I’ve been trading bearishly (and mostly unsuccessfully, as I’ve stated quite frankly here) for the majority of this rally (still the same one, kids, nothing new started last week, because the first rally never properly ended), I am not a bear, but a skeptic. For purposes of simplification and future linkage, I am now outlining this distinction in detail, and pretending that this is the Unexpectedly Corp. position.

First, the technical reasons I’m skeptical that this rally is the real deal:

• Volume. Still sucks, never picked up, not last week, not in all 4 bloated months. In fact, after some very nice volume in March and early April, volume has declined. This is traders popping traders, and HFT/Program Bots popping us all, to the tune of as much as 73% of said metric.
• No correction. In a bull market, correction is a normal part of short- and intermediate-term movement. Were this a new bull market, every dip would not need to be bought, nor would a couple of days in a row down make every bull in the land pull his apron up over his eyes and wail. We don’t go down because we can’t go down, because the longer we wait to go down, the greater the likelihood we go down hard, instead of just a bit. Best to keep on melting up.
• Risk/Reward. While there have been plenty of great opportunities in plenty of great individual names on the long (and short, for that matter) sides, index movement since late April has been pretty range-bound. Sure, you can catch those tops and bottoms and play that range; I doubt as many traders have done so as claim to have. See the above point; each time we come down to the bottom of that range, the risk grows that we don’t hold it. Risking another 15, 20, 40% drop to gain the 10% or so available since late April just doesn’t make mathematical sense to Unexpectedly Labs.

But the vast majority of the Unexpectedly Holdings point of view–stop your ears, traders–is fundamental, macro, and (gasp!) a tad populist, and despite trading losses, some significant, owing to short-side trading that should have just been cash hand-sitting, it’s no time to dash into the fray just because a few days’ of charts say here we go again. Those of you who have are to be congratulated on your “rightness” or “good fortune”, however you choose to see it; those of you who will continue to do so are wished well, especially as a few more days of charts can always tell the exact opposite story. Very bad news and analysis, on everything from commercial real estate to European banking instability, is out there every day–today included–and ignored, or at least taken for granted. Until it isn’t.

It bears (hah!) mention here that this is not a trading blog. Sure, I link recaps and point you toward great trading analysis. But that space is overcrowded as it is, and for reasons that have more to do with quality of life than quality of greed or fear–U. Enterprises draws that line dark and thick, and never crosses it, since trading,  however engaging and artful a pursuit, is a poor excuse for productive work–the central preoccupation here has been, and will continue to be, what makes sense.

Past its initial stages, this rally has made none from these seats, except to the investor/trader class, institutional or individual, that continues to bid it up. It is a tractor beam for whatever average Americans’ wealth has yet to be destroyed in this massive cataclysm, and a tremendous source of short-term (and, some will later say, ill-gotten) profit for the two or three trading banks not put out of business by their own embracing of Risk Is Reward for the past decade, and therefore all the more to be avoided.

2008-2009 will be remembered for a number of narratives that have yet to fully emerge, and one of them, whose lineage can be traced from complex derivatives and mortgage securitization straight through to the burgeoning focus on HFT, is the divergence in intent between trading and investing, and the persistent mischaracterization of the former as the latter that has made dupes of a lot of people who wanted “above-average” return on their savings while they were too busy “working” “actual jobs” to go get it for themselves, and believed Wall Street existed to provide it. The Street has proven not to, perhaps now more than ever, and we believe this rally will ultimately prove to have been another privatized profit and another socialized loss.

Wrote a bunch of commentary, but didn’t finish it to my satisfaction. Alas, the time. So I dropped it all, and leave you with the source of the title only.

Courtesy of the immortal George Carlin, in his own words:

Do you ever get that strange feeling of vuja de? Not deja vu, vuja de. It’s the distinct sense that somehow, something that just happened has never happened before. Nothing seems familiar. And then suddenly the feeling is gone. Vuja de.

Uh-huh, uh-huh. Seems to me a lot of people are feeling that way this week; the buying action reminds me of nothing so much as that around earnings Q1–the same red-lining of the risk trade, the same balls-out correlation, the same conviction that from here we go up another 10, another 20, another 30 percent. And then suddenly, we realize it’s a different story at 930 than it was at 730, and the feeling passes.

Without further ado–except to note how many people seem to want to chime in after a week of charts yer pet mongoose could analyze for you–your recaps:

• Market Talk (concise commentary, no charts. Some bearish bias perhaps, but I appreciate the shout-outs in there.)
• Alphatrends (video chart analysis, $SPY exclusively in multiple time frames, ~12 mins. Yay, a freebie from Stocktwits premimum! This guy may have blocked me on twitter this week [and then tried to sermonize tell me why, via a reply my now-blocked account could not receive (dear me, web 201x is challenging!)], but he’s still a master of chart and trade. Must watch.)
• Investopedia Week in Review (annotated chart analysis and commentary. Pretty generic. First time here.)
• Jack McHugh (in-depth commentary with links. If you don’t read this guy, why do you read me?)
• Hamzei Analytics – Market Timing (video proprietary chart analysis from one of my favorite follows. ~8 mins. First time here.)
• Tickerville (video chart analysis, ~20 mins. Short version: he’s flipped back to bullish.)
• Cobra’s Market View (annotated chart analysis, super mix of indicators)
• The Chart Pattern Trader (TWO videos of chart analysis, ~23 and ~30 mins. Yikes.)
• Random Roger’s Big Picture (video investing commentary. ~10.5 mins)
• Unexpectedly, Inc. (one $SPY chart, one pattern repeat, and the Unknowable Future. Diggable.)

And I leave you with the quote of the week, from the digital pen of 24/7 Wall St., whose 24/7 coverage is vital if their perspective leaves Mr. U a little, um, underwhelmed 23/24 and 6/7. Not this time. Rest of that link is interesting too.

…everyone knows that AIG needs cash more than a homeless junkie.

Good luck out there. Yikes, and awaaaaaaay.

I didn’t post here for a long time, because there was nothing to say. The most striking aspect of this bloated and misguided rally in its latter weeks has been the failure to allow a natural correction. There is no more story in bounces off every sign of weakness, endless three o’clock hour stick saves, persistent lack of volume, and total program-trading domination of the markets; that story feels much older to me than the several weeks it has persisted.

But a new story may be emerging, so it’s time to start recapping and prepping again. There was significant weakness over the last couple weeks; to watch the market yesterday and today, you would think it had never happened, but it was real, and could not be entirely erased by the perpetual dip-buying.

So what changed this weekend, other than a (very cautious and short-term) bullish call by Meredith Whitney that eerily parallels the Pandit “two profitable months” nonsense from Q1 that helped kick this rally off? Why earnings, of course. The season is upon us, and behemoths aplenty are weighing in this week, thus far “beating” the “expectations” that are a prize Pomeranian in the dog-and-pony show that traders use to justify their ongoing self-righteous and misguided notion that market action correlates with “facts”.

Facts aren’t the issue, but which fictions–the aggregate of our psychological intelligence–are in play is key. To my mind, there are three key scenarios to watch for (and all I’m doing is watching right now, have lost enough money for the year thank you very much) over the next week or so. (Keep in mind, with options expiry on Friday, action is liable to be squirrelly the next couple days, for completely meaningless reasons.)

1. MODERATION: Some earnings beat or meet, but are priced in; other earnings fail, and weren’t supposed to. In this version, the indices are up for grabs, and we enter a stockpickers’ market phase (vs. the high-beta fully correlated nonsense we’ve been in the entire year). My take? Unless a lot of companies beat ($GS and $INTC are just the blue-chip beginners, and not that surprising), I would expect this scenario to fail to break our recent downtrend, or best case keep us moving sideways. This is the oh-maybe-the-market-isn’t-drinking-as-much-Kool-Aid-as-I-thought scenario.
2. DRUNKEN CAROUSING: Many earnings beat, and investors have forgotten that this is why we’ve already rallied 40%, so try to drive it higher. This only works out well if volume–the persistent absent guest throughout this rally–comes in. In this version of events, the market is as dumb as a post, but it is important to remember that the legions who have chased the rally since April have received scant punishment for their efforts. Some might say this is the sine qua non of postness-dumbth.
3. ON THE WAGON: Earnings? Meh, we knew that. What about the economic clusterfuck we find ourselves in to this very day? I have believed, all along, that the truth would play out, at least long enough for a significant correction to occur. There has not been a significant correction, I will remind you, since this rally began. (I do not consider chopping around in the $SPX 875-950 range to qualifty.) I can believe it no longer; the quantity of disregarded bad news these last few months dwarfs our governments’ bailout expenditures. I thus (and only very recently, mind you) find this scenario highly unlikely, unless large numbers of reports fail what are slam-dunk whiffle-ball-on-a-tee low analyst expectations. Oh and this would be a much smarter market than we’ve seen in months; smart markets wouldn’t give a shit what “analysts” “expected”, but would actually, y’know, read the numbers.

You may note that none of these scenarios is particularly bearish, which is the posture my deep skepticism and rally aversion is often mistaken for. This is because I have lost faith in the current market to even tangentially relate to the truth, and because the writers of the trading fictions gripping the action these days are bulls, bots, and cheerleaders focused on the shortest of terms and the greatest self-interest imaginable. In short, welcome to the new equities bubble.

Yes, in a perfect Unexpectedly world, we all wise up, stop gunning and gobbling, and actually fix something before we trade as if we had. I am however now in the process of abandoning all hope that traders will rationally accept the poverty of their risk-reward ratios and calm the hell down any time a long “opportunity” pops up, until they finally have the required correction shoved down their throats. That day will come, but I have exhausted myself waiting for it. Our blind failure to correct our own actions–and nothing says this better than stellar $GS earnings on some very risky “banking”–means we are doomed to repeat ourselves. Until we learn–until we learn–I’ll see you in bubbleland. Enjoy your stay, for its brevity is highly unpredictable.

In short, while I remain as skeptical of this rally as ever, I am now even more skeptical that the number of smart people playing in its traffic remotely approaches the number of greedy fools gunning it up. $GS & friends have some serious bonus money to earn, after all; the rest of us, quite simply, can get fucked. Which fucking is fully underway, and will progress speedily to orgasmic levels once we are granted the privilege of bailing them all out again later this year.

Without further ado, your recaps:

• Market Talk (concise commentary, no charts)
• Tickerville (video chart analysis, ~24 mins. Full of contradictions. Recommended.)
• The Chart Pattern Trader (video chart analysis, ~21 mins. Not helpful for me tonight, but I link nonetheless.)
• Cobra’s Market View (annotated chart analysis)
• Jack McHugh (commentary plus links)

And in case you missed them, here’s the quick rundown on the $INTC earnings that are gunning futures this evening, together with a quick statistical reminder.

Good luck out there. Gonna be some hairy days ahead.