Morning Musings From Art Cashin
Via UBS Financial Services
Napkins Have Great Run But Bulls Buckle At The End – Since we’ve been incommunicado for several important trading days, a recap certainly appears to be in order.
On Wednesday morning, with U.S. stock futures running strong, I did a pre-opening Squawkbox hit on CNBC with Carl Quintanilla. I said the napkins indicated the next two days could be critical to the bulls. I reported that the napkins said resistance in the S&P sat at 1088/1092 and that there was a risk of a late day selloff. Sure enough, the intra-day high was 1090 in the S&P and late in the session stocks swooned heavily.
The Thursday CNBC hit was canceled, but I reiterated on the UBS squawkbox that the day would be critical to the bulls. They needed a strong rally with no late fade. As ordered, the market delivered with a broad and strong rally.
Friday morning we were back on CNBC telling Carl that it was critical that the bulls defend and hold their Thursday gains. We said the napkins saw S&P 1096/1097 as critical.
That was the level that the napkins saw as the ten month moving average on the S&P monthly closing chart. A close above 1097 would potentially open the door to another run at the old highs. A close below would present challenges to the bulls and might even trigger a sell signal.
Shortly after the opening bell, the S&P, as though drawn by gravity, headed toward that critical 1096/1097 level. Into the early afternoon stocks snaked around those levels. Around 12:30, Fitch cut the bond rating on Spain’s sovereign debt. Stocks went into a tailspin and S&P suddenly looked like an ancient memory.
But, the bulls would not be so easily dismissed. Shortly after 2:00, they regrouped and began to move prices higher. The progress was steady and unrelenting. In the final 40 minutes the battle of 1097 re-joined. In a give and take that one trader saw as reminiscent of the classic tennis battles between Conners and McEnroe.
For twenty minutes, the bulls battled the bears, step by step. The advantage changed hands again and again. The floor stood in awe of the struggle. But, as the market on close imbalances became evident, the bulls lost the initiative. The late rally attempt evaporated and 1097 did become a memory. It was a solid setback for the bulls.
Cocktail Napkin Charting - The napkins as previously noted, saw the 1096/1097 in the S&P as a rather critical test area. That looked like the level of the ten month moving average (MMA) on the monthly chart. Some friends who use computers instead of napkins say the 10 MMA was at 1095. Adding to the confusion, Dennis Slothower, who follows the indicator avidly maintains that we closed May dead on the 10 MMA.
The reason that is important is that a break of the S&P 10 MMA has traditionally been an effective trading signal. A break below – sell. A move above – buy. So, while we may not have seen an outright sell, we certainly got a warning signal.
Somewhat perversely, Friday’s late swoon came on slightly lower selling pressure. Nevertheless, the selling pressure/demand power ratio remains in a “correction” mode.
Today’s targets look interesting. Thursday’s S&P stopped dead at the 200 DMA (circa 1104/1105). If we sell off this morning, as seems likely, first resistance on any rally attempt should be 1088/1092 and then the critical 1104/1105. Support looks like 1072/1075. Then we revert to last Wednesday’s lows 1064/1067. Below that the “do or die line” is at last week’s low 1040. Despite Thursday’s rally, market is still oversold so bulls could try an afternoon salvage operation.
Consensus – As our good friend, Dennis Gartman, pointed out this morning, the first trading day of a new month has a strong upward bias. Additionally, this year the opening day of the week has had an upward bias. Those tendencies will have an uphill fight today.
Geo-political tensions are growing on several fronts. On both financial and military fronts, a rash decision by some government leader suddenly poses global risk. Stay very, very nimble.
Today's Question - What fairly common word has six i's? (Hint - 14 letters)
Bonus Question - How could you predict this - What does the "Ouija" in Ouija Board stand for??
Bonus/ Bonus Question - Several fish swim "upstream", but only one species of fish swims "upright." Which is it?
AN ENCORE PRESENTATION
On this day (+1) in 1851, the N.Y. Knickerbockers Baseball Club, which had only been organized as America's first ball club just five years earlier, decided to try yet another new innovation. Perhaps inspired by the sight of returning veterans of the Mexican War, Alexander Cartwright, the father of baseball, thought the thing that would build team spirit was a uniform.
So, he outfitted the Knickerbockers in "breeches, shirts and caps" of blue and white. That historical notation has caused an interesting but erroneous myth - that the "breeches" were short pants or "knickers" which led to the word "knickbockers" (a word closely associated with New York...except in certain 4th quarters).
The theory may be somewhat inverted. The first breeches for the team were long pants which they probably "bloused" inside their high sox (thus giving the illusion of short pants). But everybody knows the name knickerbocker became associated with New York because of Washington Irving's spoof -"A History of New York." When he published it in 1809, he used the pseudonym - "Diedrich Knickerbocker." The book was so funny (imagine someone making history funny) it became an instant hit and knickerbocker became synonymous with New York. (Irving later wrote about a guy name Rip Van Winkle, and about a Headless Horseman...but nobody read that stuff.)
History does not record where Cartwright bought the uniforms but folklore says the team's record improved dramatically.
Traders would be willing to try new uniforms or anything else that could improve last week's dreadful performance.