Although it seems hard to imagine, there was a time when Dell was a cool company. Actually it wasn’t just a cool company – it was the cool company. Everyone wanted a DELL personal computer. They had a great marketing campaign with a hip young kid proclaiming – “Dude you’re getting a DELL!”
In a testament to how long it has been, the character of slacker Steve was played by Ben Curtis who gained notoriety when he was busted on the Lower East side trying to buy some weed. Today buying some weed is barely headline news for anyone but the Pope or the President. But this was during the early 2000s, and at that time, Dell computers were still really cool and most of American drug policies were still strangely Nancy Raegan-esque.
In the late 1990s, Apple was on the verge of going out of business. Their computers were anything but cool, and their business model was a complete mess. The Apple board returned to their roots and begged Steve Jobs to return as CEO.
At the time DELL Computer company founder Michael Dell was the Wall Street computer wunderkid poster boy. He could do no wrong and was rewarded with an ever increasing stock price. The company that started with Dell building computers in his University dorm room would eventually be worth more than $100 billion dollars at the height of the Dot Com bubble.
During this period Michael Dell was asked what he would do would with Apple Computers. He responded:
“What would I do? I’d shut it down and give the money back to the shareholders.”
Today Dell is a nondescript computer box maker that has struggled to remain relevant. Apple is the most dynamic consumer technology in the world.
Although after Michael Dell’s comments Apple did struggle to retool itself and the Dell stock price continued to move higher, eventually the lack of hubris from Dell was recognized by the stock market.
Apple mkt cap (white line) vs DELL market cap (yellow line)</a> </div>
I don’t mean to pick on Michael Dell, but this weekend my best old friend was in town and we were chatting about different things. One of our discussions resolved around how it is important to remain humble. So many mistakes in life are made by those that think they know better. Just when you think you know something, life gives you a kick to remind you that you are all too human. It doesn’t matter if you are a multi-billionaire computer CEO or some hack macro trader like me, the moment you think you know something is the moment you are going to fail.
Michael Dell was all too arrogant about Apple’s ability to compete against his computer company. Although you might argue that this comment was the most logical response to the question given Apple’s dire straits, I would counter that is was symptomatic of Dell’s attitude about the competition. He forgot what made his company great and thought that he knew better. He was not nearly humble enough. The result from this lack of hubris speaks for itself.
Market Gods not letting me go unpunished
When I think back to all my really bad trades, they all happened after a big win. My lack of hubris all too often results in a Michael Dell type result. Trading is a terrific wonderful game, but if you forget how hard it is you are going to get bit in the ass.
Recently I had been short and fighting the rising stock market. I thought I knew better. I didn’t respect the possibility of the rally accelerating to the upside.
The Market Gods could not let that lack of respect go unpunished and the squeeze higher ended up taking way too much of my hard fought for wins from earlier in the year.
After taking off the position and clearing my head of these insidious thoughts, I was able to return to my more respectful process of trying to listen to the market instead of telling it what to do.
On Friday, for the first time in a while, I got the sense that the market was getting tired. We had some bad earnings results from Visa and Amazon that actually resulted in the stocks going down. Previously even bad results were met with muted selling, but these two big companies were sold hard.
V 2 day chart</a> </div>
AMZN 2 day chart</a> </div>
There are a ton of worrisome indicators, but I don’t want to bother with those as a lot of them have been flashing red for the past few weeks.
What I would like to focus on is the fact that the market is acting heavy, and the trading has set up one of my favourite patterns. I like to call this pattern the “Pop and Drop”:
S&P 500 chart</a> </div>
In this pattern we get a move to new highs that quickly rolls over and heads back into the range. It “pops” to new highs, and then “drops” back into the range.
I have found that this often sets up a great level to lean against from the short side. There are a lot of “trapped” bulls that have chased it into new highs only to find it quickly roll over. It is often the final short term gasp to the upside.
I returned to the dark side of the stock market, but this time I am going to remain much more humble. I am going to remember that I don’t know that this is the top. It might or might not be the short term top, but at the very least, the market is acting heavy and I have a level to lean against.
I shorted both S&Ps and EuroStoxx on Friday. I will use the 1986 breakout level (which translates to 1979.25 on the Sep futs) as a stop on a closing basis for half the position. The other half I will let ride a little more. That will take a close at new highs to stop me out.
The hedge funds are almost all gone from the grains
As you know, I hate positions that are popular with the hedge funds. I am also a long term bull on the agriculture complex.
This long term bullishness made it difficult for me to part with my grain positions as they rose this spring. I had some nagging doubts due to the large hedge fund long positions, but I mistakenly told myself not to worry as I was trading for the long term.
The lesson is that you should never stick with positions that are popular with the hedge funds. If something goes wrong, the exit is so small for all these momentum chasing knobs and the damage is way over exaggerated.
This is exactly what happened this summer. The weather has basically been perfect for growing crops. Combine that with the excessive long positions from the hedge funds and you get a perfect storm to the downside.
The carnage in the grains has been epic. Like a true mope, I have sat through the pain.
But last week I decided to increase my position as I got the sense we were getting close to a bottom.
This week-end’s CFTC reporting has confirmed my theory that the hedge funds are almost completely out of the grains.
Let’s start with the bad news. The speculative position in Corn is still net long, but at least it is declining:
CORN spec position</a> </div></p>
The better news is that Soybeans have flipped over to a net speculative short position for the first time since 2012.
SOYBEANS spec position</a> </div></p>
And the best news is that specs are now solidly short wheat.
WHEAT spec position</a> </div>
The hedge funds are now hopefully gone and the time to pick up some cheap grains is shining bright.