Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
Hey baby; there ain’t no easy way out.
-- Tom Petty
Midday Friday, after my plane touched down in Austin for the Tom Petty anniversary weekend with my betrothed, the first thing I did was pull up market information on my smartphone. That’s the thing about carrying risk when you’re not at your turret; when you’re not thinking about it, you should be.
While we were still in the air—eyeing the averages on the in-air televisions but dangerously close to when the flight attendant instructed us to turn off all electronic devices—I frantically typed into my phone and hit the send button. I knew that as soon as we were within reach of a signal, it would shoot over to our crack Buzz & Banter
The Buzz went something like this:
"If it's possible that I understated my concerns yesterday (Thursday) morning
, please let me make something perfectly clear: I am extremely bearish here. I've built a sizable short in the S&P
(with some Deutsche Bank
(DB) puts for additional shnitz and giggles) and set my stop above recent highs (at S&P 1420; nobody is smarter than the market; particularly me).
"I'm not prone to hyperbole and the above missive
offered a full take on what I saw and perhaps more importantly, felt (again, this was Thursday). While we strive to remove emotion from the trading process, we're human beings at the end of the day—but me no likee the stock market at these levels, not one bit."
The thought process that dovetailed into positioning that market exposure was as follows: I spied a (negative) Head & Shoulders pattern in Deutsche Bank—which “works” to DB $30 in a pure technical vacuum—and assumed our longstanding Minyanville mantra, "As go the piggies, so goes the poke," applies to Deutschland as well.
That brought me to the German DAX, which also has some pretty pronounced dandruff in play. If the German market broke DAX 6500
, according to this pure technical lens, it “works” to DAX 5810
, or 11.5% below where it closed on Friday. We’ve seen false technical signals before, of course, so I looked across the horizon for a catalyst and sure enough, the French and Greek elections were three days away.
The level of stateside lore into the close (this was written on Friday) is S&P 1370
, which will be defended by the bulls as they know that large sell-stop orders reside directly below. IF and when we break that all important technical toggle, we could see another whoosh lower—and then S&P 1370
would morph into near-term resistance (note: the next support level below that zone is S&P 1340
, so if and when that broke, the next stair-step lens with which to measure risk will be S&P 1340-1370
; Mr. Valentine has set the price).
Technical Analysis 101 dictates that the time to initiate risk is when a big level is broken and then subsequently retested. We’re seeing that in Germany now—it traded overnight to DAX 6411 and rallied directly back to 6500, where it’s “doing work” now—and we’ve seen similar action in the S&P futures, which were down 15 handles when they opened last night and are currently trading down a finski (five points). It would not surprise me one bit to see the market trade higher today, consistent with the path of maximum frustration; it just can’t trade higher the S&P 1370 if the bears are to take the control.
Finally, I will remind ye faithful that discipline must always trump conviction
, so while I have a high degree of confidence that the market will trade lower, perhaps significantly, consistent with my Ten Themes for 2012,
when I offered that we could see a tale of two tapes with S&P 1360
as a toggle (and yes, we overshot to the upside), I have rolled down my trading stops to ensure that this particular puppy will be profitable. In terms of my short-market exposure, I’m not operating with a stop above S&P 1375
and I’ve set my stop above $43.50 in Deutsche Bank.
Of course, I reserve the right to “pick” at my positions as a matter of course—trading “in between” is often smart in tricky tapes—but you will NOT see post-rationalization should the above levels breach.
Good luck today, and I’ll see YOU over on the Buzz (click here for a free two-week trial
No positions in stocks mentioned.