Editor's Note: Todd posts his vibes in real time each day on
Buzz & Banter
Yesterday, a butterfly flapped his wings in Washington and there
was a financial tsunami in Asia.
We can talk about
(INDEXNIKKEI:NI225) was down 2%, or 18% since the May 22 top,
following an 84% rally), but the real story may be
, which is down 10% thus far in June.
The People's Bank of China (PBoC)
squashed hopes of a liquidity boost
, seemingly opting for their banks to take medicine to cure the
debt disease rather than drugs to mask the symptoms (unlike some
central banks we know), and that has bulls backpedaling around the
To get a sense of the carnage in Shanghai, check the long-term
chart below; I will warn you: It's not pretty, particularly with
stateside proxies a stone's throw from all-time highs.
Commodities, for their part, are also listening to some chin music,
with gold and silver both lower to the tune of 6-7% (as I type,
our all-important $1325 level
, trading down $72 at $1300).
To get a sense of why this matters for stateside stocks, check out
the second chart below, which updates the
that yawning chasm should revert to the mean, if the rising tide
lifts and lowers all boats as a matter of course.
The bigger story, perhaps, is the backup in global interest rates
at a time when investors are balls-to-the-wall invested in the
carry trade (borrowing at cheap rates to invest in risk assets).
In a highly leveraged finance-based global economy, the
butterfly-in this case Ben Bernanke-set the stage for the Gorilla,
in the form of China, to return volley. The spectators, from India
to Brazil and throughout emerging markets, have been whiplashed in
hemorrhaging capital as social unrest grips their
In my opener yesterday,
The Waning Integrity of US Financial Markets
, I closed the missive with the following vibe:
I see a diminishing likelihood of this ending well, at least in
the traditional sense. The DNA of this stock market is polluted and
the human capital that will be necessary to unbox Pandora is
tossing towels left and right. When the music stops, and it will,
we'll see just how talented the robots and black boxes are at
finding their respective chairs.
In the span of 18 hours, the music didn't fade; it reversed like
Adding spice to the mix, the S&P trend line that has been in
place since November is in serious jeopardy of breaking today with
a move through
(remember, this is an upward sloping technical measure, which is
why the rip-cord level continues to rise). Should that happen, past
support will morph into future resistance and the bears will have a
fresh level to lean against.
Finally, as discussed in
5 Things to Watch on the FOMC Announcement
, I entered yesterday's catalyst with a negative bias (
short delta; long gamma
) and covered that overage into the slippage as a function of
discipline (I am long a few individual stocks, including
) with a tight stop, as well as December
(NYSEARCA:SPY) puts). I want to watch the opening-there
be a bounce attempt-and will continue to operate from the short
side so long as I can map advantageous risk-reward with defined
To lend some perspective, despite yesterday's price action,
the S&P is 3.45% from an all-time high
and a 10% correction, from those highs, would place the index in
If every market move is defined by three phases-
denial, migration, and panic
-I urge investors to pay close attention to their risk profiles,
synch them with their time horizon, and remember that there are
Ten Trading Commandments
that are designed to help us through environments such as this.
- Remember that June expiration is tomorrow and that typically
manifests with volatility in the days preceding the actual
- I did a
Minyanville Fireside Chat
with David Stockman, author of
The Great Deformation: The Destruction of
Capitalism in America,
which will be posted soon on Minyanville. It was an eye-opener,
even for me, so give a listen if you have the time, or read the
book if you want the full-throttle story.
- We asked the question on May 23:
Can the S&P Trade to 1500?
It seemed silly at the time and for many, it still does. Hmm.
- Watch the financials; a move (lower) through
would break the pennant formation we've been monitoring, and as
go the piggies, so goes the poke.
Goldman Sachs Group Inc
JPMorgan Chase & Co.
) remain stateside tells, while
Deutsche Bank AG (USA)
Barclays PLC (ADR)
) are overseas proxies.
- Leave emotions for weddings and funerals; stay lucid when it
comes to financial decision-making, and understand that when
there are a lot of traders standing in a circle shooting at each
other, the goal is to be in a position to prosper when the dust
There will be better days and easier trades; our goal is to get
there, and yes, enjoy the journey (away from the screens) as we
- Good luck today.