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There is something in the air. And when it's all over, we may look back on Labor Day, 2012 as the day when life as we once knew it changed forever.
We left home Friday night for a tennis tournament in Waco, Texas. The GOP convention was over, and very little movement if any was visible. Polls showed a "modest" and "predictable" bounce for Mr. Romney. The biggest story of the convention was the MSNBC take on the Clint Eastwood speech. The news cycle was turning to the Democrat convention. Mr. Obama was in full campaign mode. All seemed normal, as in "the new normal."
The mainstream media decided that Mr. Eastwood was crazy. Turn the page. On with the next story. Let's sell some papers. Yet, they might not have noticed the reception that his "empty chair" monologue got from the crowd in the hall. It was the kind of crowd response you get at a rock concert. It was surreal, disturbing, thought provoking, and symbolic. It was unexpected. And it hit home. As we watched, we wondered if this wasn't a turning point for the election. It's still early. But things, suddenly feel different.
So, the Drudge Report mania over "empty chair" day may be the start of something. This is not a partisan item for us. This is important. Something is happening here and it could affect the markets, and the lives of all Americans. So, we better pay attention. The "empty chair" could be the start of something big. "Make my day" is a phrase that has stood the test of time. Just as eventually truth wins out. The empty chair connected. The emperor has no clothes. It was there for all who wanted to see it.
What a difference a year makes? Last year, in Waco Texas, we described a disgruntled set of people who seemed to be near making a great decision. This year, the same number of people are unrecognizable and their deepest thoughts are unfathomable.
We'll start with the "green hedge fund manager." This is a smart fellow who works awfully hard and who is a staunch conservative. Last year his major concern was that the Solyndra scandal would be bigger than Watergate. This year, he's just tickled pink that in a tough market he's had lots of shares of Apple (Nasdaq: AAPL) and that he's leveraged them with call options. The take home message from our hedge fund manager is that Apple's run "isn't over, yet."
Next, we'll revisit the worried mom who was reading "Atlas Shrugged," and as we pointed out then "she was reading it because she had heard of the parallels of the story to some of what seems to be going on in our own time." This year, she just watched her son play tennis, and spent most of her time speaking with her friends. She was smiling quite a bit too, compared to last year when she was very worried. We did notice, though, that she is still driving the same car she was driving last year. And while it is a luxury SUV, there is now more SUV than luxury about it.
Last year's worried network executive was nursing a cold and was more concerned with that than with whether he would lose his job. He didn't really want to discuss his company's order book. He was just glad to be there, enjoying the 100 degree weather at the asphalt and concrete jungle in the middle of nowhere. He wasn't in the fray. He was in the moment. It wasn't the French Riviera, but it was a battlefield where the stakes were different and he wasn't directly in the fight. That was enough.
Finally, we looked for the skeet shooters in the hotel lobby. They were worried about their Medicare benefits. Either they got another hotel, or they weren't shooting this year. Maybe the meet got cancelled. Or maybe they're just saving their ammo for whatever reason.
The Texas economy is a juggernaut compared to other areas of the country. Truck traffic was stifling on I-35, both ways. The truck stops were full of 18-wheelers. And the town of Waco keeps getting bigger and is seemingly more prosperous. Small towns are still benefiting from the woes of large towns. They are still good places to run to if you've got something to bring with you.
What a difference a year makes. Everyone has gotten on with their lives. They seem to have reduced their expectations. And they seem resigned to whatever the future brings. Is it defeat? Or is it resolution and resolve?
A good friend, doing volunteer work for the sisters of Mother Teresa's order went to the county hospital in Dallas over the weekend with one of the nuns to visit a sick parishioner. Our friend told us an interesting story. People of all races, creeds, professional standing, and color were coming up to the sister, praising her, and asking for her blessings and prayers.
Our friend described the situation as one in which it wasn't one or two people who approached the sister. It was many people, throughout the hospital as she moved through the facility.
These are Catholic nuns, dressed in white with blue fringe, usually diminutive, unassuming, and hard working women of small stature and frail looking frames. Yet, they have something. They have power. The power of unshakeable belief and Faith; the will to fight for good until there is nothing left. And then they get up and fight again. And people can recognize it. To stand in their presence is to behold something beyond politics. And people can feel it.
No one objected when the sister obligued the requests of those who approached her by reciting the Lord's Prayer in the halls of the hospital. Some joined in the prayer. You can feel that something is changing in the air. It's traveling. It was in Waco, last year. And it's in Dallas this year. It was with Clint Eastwood. It's growing stronger. And the mainstream media and the political class are immune to it.
The butterfly is flapping its wings. The predictably unpredictably nature of Chaos is working its craft. The political class sits in their offices and in their studios and they spin stories with meaning reserved for themselves and their cohorts. Meanwhile, in the real world, kids in the middle of nowhere are playing their hearts out, fighting for a reduced number of tennis scholarships and failing prospects in the future. The odds are against most of them. But they fight on. Their parents are so whipped by circumstances that they can no longer complain. They just quietly hope that something good happens. But they show up, mothers and fathers. And they brave the heat and the crummy conditions. Because it's all they've got left. A chance to fight.
And in the halls of the sick and the dying, the destitute can recognize the power that a small, and deceptively frail looking tireless worker of God can bring. There is still fight. There is still hope. The butterfly is still alive. And more and more people are feeling the breeze of its wings.
As to the political class, it seems as if maybe fewer are listening.
The Markets
The charts are still signaling that the path of least resistance, albeit a bumpy one is to the up side.
Chart Courtesy of StockCharts.com
The S & P 500 (SPX) continues to show Bollinger Band constriction. This is a sign that price compression is ongoing. This is a prelude to a big move. If we were to bet, we would be starting to bet that the move is to the up side. We say this knowing full well that we could be wrong.
There are two factors that suggest that an up side move is more likely, though. One is that the market has taken a beating and continues to bounce back. The other is that the Fed knows that if it doesn't ease policy, one way or another, there will likely be a big selloff. That puts the odds towars easing. And the Fed is well aware of the fact that it has to make a dramatic move.
Chart Courtesy of StockCharts.com
Russell 2000 (RUT) is mirroring the action in the S & P 500. That's a difference from a few weeks ago when the small stocks were lagging.
The market's breadth has flattened out. The Nasdaq Advance Decline line (NAAD) is running in place. That's not a horrible thing. It could be heading down which would be a negative.
Chart Courtesy of StockCharts.com
The Nasdaq Hi-lo line (NAHL) has been acting best of all indicators. The upward slope signals that up side momentum, ie. money coming into the market, is increasing.
Chart Courtesy of StockCharts.com
Conclusion
There is a big move coming in the market. There are some hints that the move will be to the up side. But it's not certain.
There is also an intangible quantity to the populace right now. With the election nearing, and the economy lurching, a whole lot can change in the next few days to weeks.
That could make for a continuation of the volatile market.
Trading Plan Review
The markets decided that Beranke will ease monetary policy one way or another. It's not a certainty, though. And the Fed is well aware of the consequences of its actions.
We are hopeful that things work out well for the bullish side of the equation. But, we remain cautious and are still not backing away from the tendency to recommend portfolio hedging at this point.
At the same time, it would be nice to have a nice rip-roaring rally start now and lead into the election. That is the natural seasonal tendency of the last three months before a presidential election.
We still have plenty of open long positions in our S & P timing section that are well hedged with sell stops. So, stay focused on the individual stock or ETF more than on the overall market.
Manage each position individually. Consider buying short term protection via ETFs such as the Short S & P 500 ETF (SH) if conditions warrant this kind of action.
Be prepared for wild swings in the short term and make sure that all sell stops are updated and in place.
Our energy portfolio is long. Our health care portfolio is long.
We are long in the gold market. We are in cash in our bond portfolio.
When you understand the big picture, the next step is how to survive and profit from what lies ahead. That's why we recommend: "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.
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