July 29, 2020

Plains Crossings

The Comanches ruled the Llano Estacado once.

We crossed it twice this week, driving in a day to Austin from Denver, and the next day back to Denver.  South of Lubbock you plunge off the Llano into Abilene and Sweetwater, and it looks like this.  You see why Quanah Parker was lord of the Plains.

The Texans call it the “LAN-oh.” I prefer the Spanish pronunciation, the YAH-no Esta-CAH-do.  Larry McMurtry’s Lonesome Dove, an unforgettable western if you’re looking for something to do in the Pandemic, immortalized its expanse.

What’s the Llano got to do with market structure?

It’s a math problem today, crossing the Llano.  You can calculate speed, fuel, stops, food, rest. Things can go wrong of course. Weather is a deterrent.  We’ve had to shelter the car under hotel awnings, trees, scrub mesquites outside the Boys Ranch, during hailstorms and downpours on our many jaunts betwixt Texline and Lampasas.

I love the open space. There’s peace in floating clouds and volcanic vistas, the row crops, the long ribbon of tarmac, the rain at the horizon. But geography is reduced to math, albeit in majestic fashion.

It’s a way to understand both investing and investor-relations in the modern era.  Crossing the Staked Plains for Larry McMurtry’s rugged characters in Lonesome Dove wasn’t math but art, in the same way that picking stocks was a matter of understanding what others missed, or how investor-relations was relationships and wordsmithing.

Now investing is like driving I-27 from Amarillo to Lubbock, IR is market intelligence. It’s a schedule and a map.

It’s not that art doesn’t matter.  What I love about the run from Amarillo to Raton, NM is how the cowboys must’ve seen it in 1880.  You can feel what they felt, hearts full of the infinite, nobody telling you what to do or where to go.

You’re also aware that at 75 mph you should be in Raton by 2:45p.

I can tell you we see it in stock-trading patterns behind price and volume.  The patterns of Active money vary – like chasing Blue Duck across the Llano (read Lonesome Dove).

The patterns of Passive money are a schedule proceeding from the beginning of the month when the inflows or outflows from 401ks come or go, to mid-month options-expirations where derivatives are leveraged directionally or used as substitutes, to month-end when the path across the month is adjusted to the plan.

It’s cruise-control on the Llano.

For Active investors and public companies, one thought should rise like Mount Capulin in New Mexico: You mean, I can check the SCHEDULE to see where the money is?

Exactly.

All analogies break down, sure. Sometimes the schedule fails.  We’re talking here about central tendencies, guideposts.

For instance, say you’re buying Industrials stocks.  If you’re using EDGE, you’ll see that Industrials are more Overbought than at any time over the past year.  The odds of more big gains have diminished. Shorting is low – they’re not about to fall apart. But why risk your capital?

Sure, there are outliers, exceptions. The latter always come with risk – like speeding down the straightaway.

Now suppose you’re the investor-relations officer for an Industrial component reporting results this week along with about 35% of all public companies.  Two weeks ago the sector rose almost 5% on derivatives into options-expirations. Last week the group added another 2% on Passive flows. (They’re related, you know. Passives knew and bought options and futures, which ETF market-makers can legally do, before the money came.)

But the sector is 8.5/10.0 Overbought into window-dressing, the third and last phase of Passive money crossing the monthly Llano.

Money is likely to rebalance away from Industrials. So it won’t matter how good your results are.  Focus on value messages, value money.  Stock-pickers wanting entry points should be your target. You can’t control Passives. You can only surf them.

This is the stock market now. You can do it the hard way, play Lonesome Dove from your trading turret, your IR chair. Or you can plot a course. Either way you’re crossing the plains.

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