Ok, fresh off providing everyone with a lesson in tarot card reading that no one asked for, former trader and current guy next door who seems to always be irritated for no readily apparent reason, Richard Breslow, is out with his Thursday missive and he’s in rare form.
“Narratives” are in many ways the bane of Richard’s existence. By outward appearances, “narratives” are second on the list of things Richard hates – second only to “people who trade on narratives” and just ahead of “people who push narratives but don’t trade on them.”
The thing about narratives is that they can be spun. Indeed, that’s what a narrative is. It’s spin. A narrative without the spin is like a Breslow without the cynicism – i.e. a contradiction in terms.
Of course we need narratives. It’s how we explain reality and it’s how we make sense of the lines we see on our screens. Sure, narratives are chock-full of value judgements and probably erroneous assumptions about the world, but if we don’t construct stories to help us explain the world, we’re left to assume that shit just happens for no reason.
Looking at chart without the benefit of a narrative is like trying to explain why you’re at the grocery store without referencing a story you’ve told yourself about how you’ll probably be hungry later. You can’t look at a 5-day of gold futures and completely divorce it from the narrative about geopolitical risk.
Still, Breslow’s point is duly noted. There’s no question that there’s far too much spin and that attempting to ascribe causes to everything can be a slippery slope to the “L” part of “P&L.”
Read Richard’s latest below and draw your own conclusions.
Kim Jong Un did a lot of damage. I’m not talking about the geopolitical ramifications of the most recent misguided guided missile launch. I’m referring to the disruptions he’s caused to the technical charts. The reaction to his latest provocation turned some interesting trends into a frenzy of over-reaction. Suddenly there was impulsive, almost panicked, selling of dollars and equities along with buying of bonds and gold. What we have at the moment with the swift reversals we’re seeing, is a market paying the price of having gotten way ahead of itself.
- Suddenly, there’s been the introduction of two-way discussion and thus risk. All courtesy of ugly looking chart patterns rather than a dispositive change in the big picture. Of course, should it continue, the narrative being spun will race to catch up. Just as it did recently in the opposite direction
- Europe is doing all right. As long as you’re not one of the 9% of the population that remains unemployed. Notice how the headlines read: EC inflation beats estimates as does German jobs data. The mixing and matching allows just about any story to be told. Nevertheless, euro buying can make sense. But grabbing them as if there’s going to be a shortage looks more like the madness of crowds. Which resulted in severely crowded short-term positioning
- Now, rather than clear sailing, 1.20 versus the dollar looks like formidable resistance and the support you were never going to have to worry about again suddenly needs to hold. Buying the euro on the theory that Draghi can live with a higher currency doesn’t mean, there won’t be pushback if it’s moving in histrionic leaps and bounds
- A reasonable case can also be made to dislike equities. Even though the folks that tell you the crash is nigh, don’t have a convincing counter to the reality that they’ve just been bullet-proof time and again. The S&P 500 sits closer to all-time highs than, very, recent lows when we were subjected to bizarre cheers of glee that it was “finally” going to crash. Makes you wonder through what puerile prism commentators view geopolitical risks
- The real issue with equities is they are described as either going up or crashing. And that is exactly how people trade them. Selling into a hole just gets you buried
- On the bright side for traders dabbling with the nascent trends was last night’s mini-flash crash in gold. With the benefit of those couple of minutes, $1300 now looks like confirmed solid support. That’s not a great reason to conclude you should run out and buy euros or sell stocks. But it does confirm that gold looks like it may be able to build on the solid gains it’s put in this year
- Last week’s, “this is so obvious” has morphed into “not so fast Kemo Sabe” heading to next week’s inevitable, “I knew it all along”