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Random Thoughts: Summers Lovin'

By: Minyanville
Posted: 9/16/2013 10:55:00 AM
Referenced Stocks: AAPL

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter .

It's a cold, dark, dreary Monday in the big city, but you couldn't tell by looking at the stock market.

News that Larry Summers has withdrawn his name for consideration as the Chairman of the Federal Reserve has markets feeling groovy the world over. He was more hawkish than some of the other potential nominees, although it's tough to argue that markets were discounting his appointment given the September price action.

While Wall Street is no fan of Summers, his appointment-or at the very least, his nomination-was viewed as a near certainty, according to high-placed sources (which is further confirmed by the initial kneejerk higher in equity prices). Of course, we'll get further information from the Fed this week when it announces its "rate decision," and speculation is rampant about whether it will taper, and how much.

The bulls continue to view the taper decision as "heads I win, tails you lose"; the FOMC will only taper if the economy is improving, or so the thinking goes, and will remain accomodative until it does. This assumes past performance (liquidity-fueled gains) is a guarantor of future returns, but it has earned the benefit of the collective doubt given the stock market action in the five years since Lehman Brothers fell.

While we can point to numerous issues - the transparency of Level III (off-balance sheet) assets , the lack of regulation in the OTC derivative market, the interdependency and interconnectedness of the global machination, sovereign debt levels relative to GDP - those concerns are akin to Chicken Little as long as the screens are green. Financial players are notoriously shortsighted when it comes to the risk of rewards, and with the Dow Jones Industrial Average (INDEXDJX:.DJI), Nasdaq (INDEXNASAQ:.IXIC), and S&P (INDEXSP:.INX) 20% higher on the aggregate, performance anxiety is good and thick.

In the here and now, traders are looking at the potential cup-and-handle formation in the S&P, per the chart below, which requires a breakout through recent (all-time) highs to trigger. While this week started on a strong note, there is a slew of news left to digest in this five-session stretch, so be sure to manage risk rather than chase reward as we together find our way.

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Twitter: @todd_harrison