“Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, preferably one that is sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading.”
— Mark Weinstein, “Market Wizard”
The downdraft took on a life of its own last week, with the Nasdaq putting in an unusual four distribution days in a row, and bringing to mind the August downpour.
As players left their desks Friday, and with August and May ’10 in their memories, there was little expectation of the de rigueur bounce.
The European situation decays. Talk circulated of the potential for bank runs in Greece and Spain. Spanish 10s, after printing a high for the move of 6.35% on Tuesday, dropped on Wednesday and Friday, going out at 6.27%.
Regardless of Europe, the overall tide moves out, mainly due to a China slowdown, which impacts Australia and Brazil, among other emerging markets. The view here is that China cannot simply flip on the stimulus switch as it did so well in ’09. Debt is higher now and so is inflation.
Gold attracted attention by bouncing Thursday and Friday as it neared an important prior low of January. Could this be the market’s discounting of easier credit, i.e. more pump-priming by the Federal Reserve? The view here is that this would be a stretch.
Currencies, which are more sensitive to support/resistance areas than any other market, saw the same action as gold, with the euro positively testing its January low. This chart carries more weight with us than gold, because if the currency that is the scourge of the world lifts its head off the mat amid fears of bank runs…well, a picture can be worth a thousand words. And we will see what this one looks like in the days ahead.
Among the names, precious little sets up, which is as it should be in such an environment. Petsmart (PETM), Dunkin’ Brands Group (DNKN), Sally Beauty Holdings (SBH), Pharmacyclics (PCYC), and Liquidity Services (LQDT) are among the few that hold up, with only PCYC actually forming a base.
The latter attempted to come out on Thursday, but was rebuffed at the door. Either this glamour is ahead of its time, or it is living in the past. Time will tell.
Others that could possibly be interesting if the averages were to turn and go include Zillow (Z), Vocera (VCRA), Demandware (DWRE), and Spirit Airlines (SAVE). These do not warrant entry at present.
In summation, last week’s report ended with “…the market will usually bottom when it is least obvious.” The worse the backdrop becomes, the more important it is to focus on just the market’s reaction to the news, and not the news itself. At some point, all of the negative will be priced into the market, as the last person who wanted to get out will have gotten out. It is then that a new advance filled with opportunities will emerge. The exact timing of when this will transpire is the least of our concerns. Because it will be recognizable as it happens. Not before. Until then, a flexible approach that places a premium on open-mindedness will best serve the speculator.
As it always does.