MorningWord 7/14/16: I became insane, with long intervals of horrible sanity.

by Dan July 14, 2016 10:50 am • Commentary

I had been skeptical of the S&P 500 (SPX) ability to make a new high and establish a new range above the prior highs. It has done that now. And any the confirmation of the recent rally with strong Q2 results and second half guidance would be the final nail in the bear argument, for now.

Solid results from CSX Corp (CSX) yesterday (and the stock’s one week rally that that has it solidly back in the green on the year) cannot be ignored. That’s despite still being down about 22% from its 2014 all time high.

This morning, better than expected results from JP Morgan (JPM) have the stock a couple percentage points higher. While the stock is still down on the year (-2.5%), there seem to be few surprises in the report, and the stock with a 3% dividend yield $10 billion buyback in place will continue to demonstrate relative strength no matter what comes next in Europe for its peers.

Delta Airlines (DAL) has lifted off the tarmac, up about 20% in the last week from 18 month lows, and this morning reporting Q2 results that were better than very low expectations, there is lots of room overhead.

And lastly Taiwan Semiconductor (TSM) the contract manufacturer for Apple (AAPL) and Qualcomm (QCOM) reported Q2 results that were not nearly as bad as some expected.

I highlight these companies performance as they are all considered to be potential trouble spots given the current macro backdrop, with transports, financials and parts of tech all lagging.  If these groups were all to join the party over the next couple weeks then you probably get above 2200 in the SPX. And with that 2130 becomes the new level of  sound technical support. Worth of trading on the long side from.  If fundamentals broaden out (think improve incrementally) then the rally will clearly broaden out and laggards like tech and small cap stocks will all confirm the highs of the SPX.

That may be obvious to traders. But this is a matter of time horizon and one’s ability to be trade markets in a nimble manner.  I still hold my overall risk assessment views for this market over the longer term my (good summation here from yesterday —> (MorningWord 7/13/16: You Better Check Yourself Before You Wreck Yourself).

So you trade the market that it is front of you, and price is truth and don’t be dogmatic. But I refuse to abandon rational thought in an irrational market and economic backdrop. And that is in the background of all trading decisions. That’s good to have in the back of your mind and can be the voice of reason when you want to chase a stock from the long side on a fear of missing out. There will be pullbacks. Don’t chase.

To be clear, this is the “business that I chose”. And I don’t only mean trading equities/ options, that’s easy to adjust when things prove you wrong. I’ve said consistently that a breakout above prior highs is the main thing that would change my near term market assumptions. But the “business I chose” also means writing daily and offering opinions a few days a week on CNBC.  I can assure you in periods like this where I am willing to acknowledge a changed trading environment, while still trying to adhere to what I think to be a rational view in an irrational environment overall, I want to crawl under a rock as I get bored of trying to come up with different ways to write about my convicted views.

Others like WSJ’s Jason Zweig seem to have gone the way of offering cheeky titles like this from yesterday:

Sorry, You’re Just Going To Have to Save More Money,

with a killer quote like:

In a world turned upside down, sanity will be your most valuable asset as an investor

This is the financial world we live in. Drink the Kool-Aid, buy the dip. Or look like a moron in the near term. But I agree with Zweig. Sanity is an undervalued asset right now, begging to be bought.

Oh and one more thing, if this breakout fails, then you will have another shot at 2000 very soon to buy the names you want to chase right here:

SPX 3yr chart from Bloomberg
SPX 3yr chart from Bloomberg