So now what? That's the question on traders' minds now that support at S&P 1,300 has given way.
Thus far, shorts waiting for an immediate collapse in stocks have been disappointed, but the bulls remain curiously quiet. Staying flat forever isn't an option. Something's gotta give in the stock market.
To help divine the tape's direction, Breakout invited Burt White, the chief investment officer of LPL Financial, to give us his take. As it happens, White has a little bit for everyone. We're in the midst of "a good old fashioned pull-back of about 7-10%," and "we're about halfway through that," he says.
That may be a good enough answer for regular financial programs, but that dog simply won't hunt in Casa de Breakout, so we pushed him for more. What are traders doing? What is he doing? Where's the market going, and can Bernanke save the day? Why do I get toothaches? White fielded them all.
White says the first stocks to sell off were what he refers to as the "sailboats" of the market -- companies requiring economic tailwinds to make gains, or the cyclicals, in other words. Once traders rotated into more defensive names -- or "motorboats" that can chug along regardless of the tide or wind -- a wave of lousy economic news poured in, leading to a "full risk-off trade (and) stocks being sold indiscriminately."
His firm has raised cash and even has some market shorts in place, not just reducing risk but making bets against the tape, he says. It's not an outright bearish stance, he says, but a way to play the tape down to what he and others see as support at 1,250 on the S&P 500. White thinks we hold 1,250, which is good since he doesn't see the next stop until 1,170, roughly 10% below current levels.
So what does Mr. White think is going to stop the selling? Brace yourselves for this next paragraph, cynics. Ready?
White believes Bernanke and his weaker dollar strategy are going to save the day. White says further abuse of the greenback will support our multinationals, leading to higher stocks and more jobs. As long as Ben and crew can create "good inflation" (assets) but avoid "bad inflation" (everything else) companies will be hiring and consumers will be ready to shop in time for back-to-school season. Bashing the Fed is traders' favorite sport, insuring that White's views will be met with "skepticism," to put it nicely.
If the S&P holds 1,250, he'll look to get long business cyclicals like Microsoft (MSFT) and Oracle (ORCL) and large-cap pharmaceuticals. He likes the former for continued business spending potential and the latter for their cash flows. For Big Pharma, White also says the bad news regarding expiring patents and modifications to health care are already priced into the stocks.
We pinned him down and he laid it out for us. Burt White is an affable guy unafraid of the tough questions, but is he right? Hey, we're Breakout, obviously we'll have him back to either take a victory lap or face our scorn.
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