Editor's Note: Todd posts his vibes in real time each day on
Buzz & Banter
It's Hump Day in the City of Critters and the bulls have already
staked their claim to upside fame, with the
(INDEXNASDAQ:.IXIC) opening up double-digits. The day-to-day
ADD-ness is amazing, even for someone as ADD as I am; all the
while, we're just playing, playing in two bands, as evidenced by
the chart below.
after entering the session flat directional risk
, I patiently waited until the market filled the opening gap (in
) and gently entered some December
as per my game plan shared last week.
I've set my defined risk buy-stop above
, as opposed to
, to give myself a little wiggle room to trade around my current
bias. I am actively trading this risk, as shared in real-time on
our Buzz & Banter. (
Click here for a free two-week trial.
Potential catalysts include Japan,
the social unrest in Turkey,
and the specter of
German push-back on European back-stops
Today's tells include the transports (the 50-day is TRAN 6228), the
financials (underperformed yesterday:
)), market breadth (putrid yesterday), and of course, our technical
If and when support falters, it will open the door for a deeper
, potentially to S&P 1500.
One disciplined step at a time as we together find our way.
Do you remember a few weeks ago, on May 20,
we flagged the Morgan Stanley z-score
To refresh your memory:
Morgan Stanley explains that among its equity long-short fund
activity, the short activity (the net of shorts added and shorts
covered) reached a minus-2 Z-score, indicating massive covering
over the past 20 days.
The last three times this occurred were April 2010 (S&P then
fell 13% in eight days), July 2011 (S&P then fell 19% in 23
days), and Oct 2011 (S&P then fell 10.5% in 20 days).
Across sectors, Consumer Discretionary has been the most covered
over the past week and month. Due to heavy covering, Discretionary
short activity fell below a minus-3 Z score as of yesterday
(Thursday, May 16; now the highest long/short ratio of all
sectors). It is worth keeping in mind, they add, that historically
speaking, the sector with the highest long/short ratio has often
gone on to under-perform over the following six to 12 months.
This covering has driven median net leverage up to 64% (its 97th
percentile of post crisis levels).
Money on the sideline? Not so much; massive short-covering rally --
Quoting a Morgan Stanley representative:
Long/short funds have been consistently covering over the past
month, which has driven gross lower and net higher. One way we
measure long and short activity is by looking at the activity Z
scores on a rolling basis where the past 20 days' cumulative
activity is compared to all 20-day rolling periods over the past 12
months. On this basis, the short activity z-score reached -2 as of
this week, indicating significant covering by L/S funds. Other
times we've seen a minus 2 z-score: late April 2010, early July
2011, and late Oct 2011.
Got it? Good. Now, this just in, through a source, so
please take it for what it's worth, which is second-hand
Looking at the long activity, it had been relatively paired off
(i.e. longs bought approximately equal to longs sold), prior to a
small increase very recently. This illustrates that most of the
buying has come from shorts covered rather than longs bought.
From Morgan Stanley Stock Loan:
Yesterday was the largest short addition day in almost two
months. New shorts were driven by single name activity, led by
Multi- and Macro-funds. Short contributions were broad-based across
eight out of ten sectors. Discretionary was our most shorted
Maybe something, maybe nothing but certainly worthy of a mention!