2-Ways

"I saw a couple fall out, and I had one in the back of my throat. I could feel it and coughed it out.”

-Duncan Keith

Whether on the ice or in the market, there is nothing that gets me smiling as much as winning does. After helping secure the Chicago Blackhawks first Stanley Cup Final birth since 1992 yesterday, Assistant Captain, Duncan Keith, was all smiles last night – minus the 7 teeth he lost during the game.

“They just stuck a bunch of needles in there and froze it all up. It feels a lot better when we win,” the selfless Olympic Gold Medalist from Winnipeg, Manitoba said. Gotta love having a 2-Way defenseman like that on your team!

This market went 2-Ways on Friday and created exactly what the game of buy low/sell high capitalism should create – winners and losers. After gapping down on the open, there was an epic intraday short squeeze into the market close, leaving reactive/undisciplined players missing a lot more than some teeth.

We don’t always get things right, but we have had the hot hand as of late and aren’t shy to show people the replay. This market needs some leadership. It’s time that we, the people of America, take both this country and stock market back. Many more of you are winning alongside us than ever before. For that, we are grateful.

Back to the replay - in anticipation of the San Jose team about to feel as much shame as the S&P futures trader who short sold SPX 1056 pre-open, we had a premonition about a snap back SP500 rally and wrote a note to our subscribers at 10:55AM EST titled “The Shark Tank.” Here’s an excerpt:

“The thick green line in the chart below is the line you should be laser-like focused on. That’s the long term TAIL line of support for the SP500 at 1070. And we need more price, volume, and volatility data than a 1.5 hour feeding by Squeezy The Shark to validate it.”

I’m going to give this 3 days. If the long term TAIL line of support can hold, the SP500 has no resistance up to the 1125 line. That would be a 5% squeeze that performance chasers and monkeys alike cannot afford to miss.”

Premonition obviously, we had not. This is math, not alchemy. An no, I don’t have all my teeth…

This morning the game of globally interconnected risk continues, and here are some things were seeing on the positive and negative side of our proactive risk management playbook:

Positive:

  1. SP500 long term TAIL line of support (1070) held on a closing basis on Friday.
  2. Advance/Decline line 74% to the bullish side on Friday.
  3. SP500 Sector Risk Management Model flashed positive in all 9 Sectors.
  4. China’s stock market followed up on Friday’s strength this morning making for a 2 day move of +4.6% (leading indicator?).
  5. Taiwan and Australia, closed up +1.2% and +2%, respectively, broadening the rally in Asia.
  6. Brazil closed +3.6% Friday and, like China, needs to show some follow through this morning holding high-lows.
  7. Gold prices are bouncing this morning right at the immediate term TRADE line of support = 1182.
  8. Dr. Copper pops his head back above our long term TAIL line of support ($3.01/lb), combined with the rally in China = good.
  9. TED Spread expansion stops expanding this morning and holds flat d/d at 35bps wide.

Negative:

  1. SP500 upside resistance remains across all immediate and intermediate durations with 1128 and 1144 being our TRADE and TREND lines of resistance.
  2. Range in our 3-day SP500 model remains bearish (too wide) at 125 SPX points of probability (top to bottom).
  3. Volatility (VIX) remains a raging bull with immediate term TRADE support/resistance now 33.04-45.43.
  4. SP500 Sector Risk Management Model still has all 9 sectors in bearish intermediate term TREND position.
  5. Japan was down again overnight and remains one of the big sovereign debt elephants in the globally interconnected room that worries Mr. Macro Market.
  6. European equity markets rally on hope (low volume) and continue to look awful across all 3 of our investment durations (TRADE, TREND, TAIL).
  7. WTI oil price remains broken across all 3 durations with the long term TAIL of resistance overhead at $75.63/barrel.
  8. Compression in the Piggy Banker Spread (Yield Spread) continued week/week down to 245bps this morning vs. 267bps last Monday.
  9. The Euro rallied right up to where it should have but makes another lower-high at $1.25 and is selling off again (our downside target remains $1.21).

Managing risk doesn’t happen in the vacuum of certainty. Sometimes you take a puck to the head. There are plenty of bullish and bearish data points across your screens this morning and the goal of this game remains getting the timing right.

What risks are priced in and on what duration? What is the proactive plan on market strength or weakness? What risk management levels do you have confidence in and what are your macro calendar catalysts?

No one ever said managing globally interconnected risk is easy, but I can tell you this – you need to play this game 2-ways.

Best of luck out there this week,

KM

2-Ways - Pic of the Day