So that was it, huh? The big bearish head-and-shoulders top, the red (now green) May, the iron/copper meltdown in relation to China’s imaginary growth and many woes, the foreboding, brooding flattening yield curve, the fuckery within the oil and gas space (see $CHK and $BCEI), the struggling retail space, looming fed hikes, Brexit, and the sleuth of other bearish headlines (c)overtly wafting about. We get some of the best housing numbers in recent years yesterday within the continued backdrop of improved unemployment numbers, within the macro context of central bankers’ fully bought-in commitment to stimulating/easing in one form or another (sans Grandma Yellen and co.), and it’s dip buy city all over again…and again.
Over the last week, I significantly lightened up longs in anticipation of a fed-induced trigger for the May selloff I’ve been discussing. I played some $VXX and expected post-Fed weakness to continue into this last week of May leading up to Memorial day weekend. The stage was set, supply was clinging to a potential floodgate level, volatility kicked up, and like clockwork in this multi-year bull market (I’m not in the ‘bear market has begun camp’), we briefly probed levels lower, and what do you know…found buyers and reversed higher (I adjusted accordingly, but remain cash heavy). Poof! There goes the bear bent! So is the headline wheel stuck on bear? Are the daily spins through the market news wasteland only to lure (at this point of the bull run) lobotomized sarcophagi out from the incessant short squeeze purgatory to engage the short side of this tape? Who is left?
And yet, here we are. Same old formula, the way we seamlessly went through the May chop, to neatly hammer a timely bottom, reemerge green soldier candlesticking right back up, gapping, cocaine’d and staring at ATH’s. So sanitary. So clean. Was that really it?
Remember, there is always a cost, an ongoing conditioning in the tape. The price action is designed to posture and position participants. For everything we gain, there is something exchanged. In light of the recent movement, I am reminded of Chapter XIV (no inverse volatility) of Hemingway’s The Sun Also Rises – the shortest chapter of the novel situated nearly halfway through the text.
“…That only delayed the presentation of the bill. The bill always came. That was one of the swell things you could count on.
I thought I had paid for everything…No idea of retribution or punishment. Just exchange of values. You gave up something and got something else. Or you worked for something. You paid some way for everything that was any good. I paid my way into enough things that I liked, so that I had a good time. Either you paid by learning about them, or by experience, or by taking chances, or by money. Enjoying living was learning to get your money’s worth and knowing when you had it. You could get your money’s worth. The world was a good place to buy in. It seemed like a fine philosophy. In five years, I thought, it will seem just as silly as all the other fine philosophies I’ve had.
Perhaps that wasn’t true, though. Perhaps as you went along you did learn something. I did not care what it was all about. All I wanted to know was how to live in it. Maybe if you found out how to live in it you learned from that what it was all about.”
The bill is always coming. It comes not like a thief in the night, but like a repetitive, coaxing silent wind through your window – pneumonia by a thousand cool breezes. It comes in the form of conditioning, shaping, and molding your mode of engagement with the market. There’s an exchange of value happening. You willingly dine in mother market’s den, forced to comport with how and when to order, how and what to eat, the modicums of reward parsed out through fellow dinner guests’ cues. We (un)consciously take an inventory of rewards and punishments – and their derivations. Our mind’s obsession with pattern unearthing where only transient arrangement syndication exists. Ruled by self-fulfilling prophecy, confirmation bias, and deeply programmed primal reactions to stress (See an eye-opening exploration of behavioral finance in “The Hour Between Dog and Wolf”), we are colonized by the market and emboldened to crave it. Even when we are mindful, our mindfulness is mindfucked.
I agree with Hemingway when it come’s to buying in (if you’re plugged into this trading endeavor, you probably do, too). The market is a worthy place to park oneself in the casino of life, and buy in, exchange your time, energy, and aptitude for some chips, in size. Zooming in to trading practice, what approach are you stacking chips on? How monolithic and fixed is that approach? Is it responsive to market conditions? Does it take into account the binary disguise? And finally, like Hemingway, in a given (indeterminate) amount of time, will that approach be the worst strategy to engage the market? Hemingway’s conclusion: shelf the why, focus on the how. While the music still plays, they say..
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