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"This is a bullshit rally!"

Fascinating and instructive conversation with a few of our traders/clients this afternoon, including a hedge fund momentum gunner who asked me "if this rally really mattered."

The answer is simply if it goes against you, it matters to your bottom line and/or your clients net for the year. If you were long going into this you made money, you showed a better P&L, your assets under management grew, your clients are happy. If you were short, you got your nuts squeezed, and that's that.

More importantly, the S&P cleared key resistance, the spread triple top so many technicians have been talking about is now toast (See chart at bottom). If this breakout holds holds the next couple of days, that will inform of us about the technical strength right here, and if it fails, that will also be quite instructive. Indeed, this is shaping up to be quite an important rally. 

So to answer the original question, yes, this rally matters.

"This is a bullshit rally"  he said.

I asked him Why? Specifically, I ask:

"Do you disagree with this because you were positioned improperly, or because you cannot find a rational basis for today's move? Do either of those things matter?"

No answer. He then asks me, "What did you think of today's Retail data?"

Sigh. . . I said it was weak, that most retailers were doing only fair, that in addition to anyone home-related (i.e., Home Depot (HD) and Sears (SHLD)), we saw the Department stores doing poorly, Macy's (M) and JCPenney  (JCP). We already heard Target (TGT) was at the low end of their range.

Here comes the money shot:  "And Wal-Mart" he asked?

Mediocre. They don't break out food (as they do energy), but we can draw some assumptions from their breakdown between Wal-mart and Sam's Price Club (see our earlier post), as well as what BJs said. As we learned today, Food sales at Wal-Mart, Sam's, Cost-Co (COST) and BJ's Warehouse (BJ) were robust.

Here's the key line from BJ's report:

"Sales of food increased by 6% and sales of general merchandise increased by approximately 1%."

So to answer all of his queries: yes, today's rally mattered. Yes, the retail sales data was weak. Yes, it was essentially a celebration of higher food prices.

However, if you are looking for a rational basis for the day to day movements of markets, if you seek to find a degree of serenity by understanding why markets do what they do short term (A/K/A noise), well then you are going to drive yourself insane.

Here's that chart mentioned above:

SPX Breakout Triple Top

Thursday, July 12, 2007 | 04:45 PM | Permalink | Comments (76) | TrackBack (0)
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Comments

well put...

warning hind sight pontification below:

"usually" when prices jump like they did from the march low... and then tightly form a flag...

neither breaking out over 13700 nor going under 13250...it's not really a triple top... but a consolidation where prices would tend to continue to go in the direction the were going upon entering the aforementioned consolidation...

THE KEY WAS NOT TO SELL UNTIL IT BROKE DOWN DECISIVELY UNDER 13250...

Posted by: SINGER | Jul 12, 2007 5:42:20 PM