Yesterday’s Action: LawnChair Larry* Only Wanted to Go in One Direction

by Dan June 28, 2011 7:53 am • Commentary

UP: Since my start in this business back in 1997 there is one little piece of market advice that I routinely ignore, if only temporarily……DON’T FIGHT THE FED.  In this period the “FED” has come to mean to me generally any government intervention into the private markets……there have been periods like we just saw in our recent credit crisis where central banks took very coordinated intrusive actions and then others where they have just flat out kept interests rate so low as they did in the early part of last decade and now where they are subtly inducing new bubbles.  Even as we have recently and repeatedly heard from pundits and strategists that the FEDs were out of bullets to combat economic and market weakness associated with a slowing global growth and fears of a Sovereign debt crisis in Europe they pull some stuff out of their you know what…….You have heard me say this before but most associated with the market (YOU, your broker, your bank, your mutual fund, your pension fund, the Fed etc etc etc) need things that they own to go UP and our whole financial system is very levered to the notion that things we own go UP most of the time and will act in “EVERY-ONE’S” self interest to put forth best efforts to aid this endeavor.

TAPE BOMBS: this is a term traders use to explain the sort of headlines that can dramatically move markets or individual names…..we have had a few of them of late, and at times like this when the markets are skittish they can do some damage to your portfolio if positioned incorrectly…..and the truth is, they don’t even need to be that accurate, just the mere utterance of a story citing “sources close the situation” can leave you running for cover.  The most recent instance was the late day rally last Thursday caused by a news service reporting that the IMF and Greece had reached an agreement on terms for intermediate cost cutting……this ended up proving to be a non-story but the market rallied almost 1.5% in a straight line doing some serious damage to shorts (only to reverse all gains Friday-oops)….and then there have been a ton of similar stories out of this Basel III thingy on financial regulation and how much capital the banks will need to hold…..well the truth is tape bombs are too be feared and especially when the market is in over-sold and over-bought conditions as that is when people are most nervous about their positioning. Be mindful of the fact that those who need things to go UP will look for every opportunity when things are going down to get a few tape bombs out there to squeeze shorts.

SPR: There has been much talk about the timing of the coordinated effort to tap the Strategic Petroleum Reserve, and the markets just didn’t see this one coming and this could very likely be the sort of thing that helps put in a near-term bottom, because at-least the perception of low oil and lower gas prices can bouy more confidence among consumers and businesses……..I certainly don’t have the answer to that, but if (and that is a big IF) Greek bailout goes as planned and U.S. corporate earnings are similar to that of NKE‘s reported last night than we could be off to the races for the time being….This coming all from a guy who would have loved nothing more than to see a precipitous drop in the global equity markets as a bit of reminder that we are indeed on very shaky ground resulting from a whole host of issues that there is no magic bullet for.  If the market is going to end up on the year in a high single to low double digit or teens % as most market strategists at big banks feel then we will at least in my opinion need a little capitulation on the downside like we saw last May through August.

NKE: reported strong earnings last night even as they face the challenge of rising input costs, specifically the price of cotton…..some of the beat was a result of lowering marketing costs yoy as they had healthy comparisons given NKE’s spend on the World Cup last year. Regardless the company performed well in a difficult environment and the stock is reacting as much up 4.5% in the pre-market.  3 weeks ago I put a low premium Put Fly on in July for this event and initially got the direction right with the spread offering a small gain…..on the site yesterday I suggested taking at-;east half off in front of the even as I no longer had strong conviction one way or the other…..I mention this as I think it is important to re-evaluate why you have things on and continually challenge the original thinking, and if you don’t have strong conviction then take it off and move on.

YESTERDAY: I found market action, specifically in high-flying technology names almost scary…..AMZN up 4.5%, LKND up 9%, SINA up 6%, BIDU up 3.5%, VMW up 3.5%…this doesn’t make a lot of sense to me but one thing it tells me is this the sector that guys want when things stabilize….I say let them have them now, may help set up for another great opportunity to short them.

TODAY: we have Case Shiller Home Price Index at 9am and then Consumer Confidence at 10am……and should have continued stuff out of Greece.

*Read More on LawnChair Larry here.