Will the Bull Breakout Last?

By Todd Harrison  MAR 05, 2013 12:05 PM

Smiles abound on Wall and Broad.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Greetings from Minyanville HQ, where I strapped into my turret this morning after several intensive hours of Entrepreneurial Management 101.  If you think trading the tape is a full-time job, try juggling risk alongside a digital media enterprise with several moving parts that include editorial (dot.com), licensing (MVP) and production (MV Studios). Complaining? Nah, just explaining; cause that's how we roll.

Turning my attention to the tape...

Yesterday morning, while the market was meandering around S&P (INDEXSP:.INX) 1515, I called an "audible" (in real-time on the Buzz & Banter) and covered my short market exposure (while, at the same time, punting my Potash (NYSE:POT) call position).  I did it for a few reasons, one of which was how seemingly crowded S&P 1525 (and NDX (INDEXNASDAQ:NDX) 2750) had become, and the other was a gut sense that the tape had a binary feel to it—and I'm not in the business of flipping coins.

By the end of the session—and obviously, given today's price action—that prudence was rewarded. Sure, I could lament missing upside trades (there are always reasons to complain if you're looking for them) but if my biggest loss is that of opportunity, I will consider myself fortunate. Different strokes for different folks, I know, but I will again share that a surgical approach to this market (hit-it-to-quit-it) "fits" my current risk appetite, and yes, my current schedule (time management has never been my strong suit and blind risk is bad risk).

Looking out, now that the market has, or is in the process of, clearing out the shorts and establishing a long squeeze (performance anxiety; the only thing worse than losing money on Wall Street is not making as much as your peers), my eyes are firmly cast to S&P 1580 as perhaps the most important level of lore all year—or even, for that matter, in years. We've flagged this level before but it wasn't "next up" on our stair-step risk management process.

That's no longer the case; from a trading perspective, the closer we edge to S&P 1580, the more defined the risk becomes for those who are looking to fade (read: sell and/or short) this rally. Check the chart below; either this time is different (a dangerous, but not entirely impossible assumption) or we're approaching the zone where investors will once again get punished at the tops, just as savers have been screwed at the bottoms.

Seeing both sides---we must always see both sides—the recent sideways action was just what the doctor ordered for the bulls, working off the overbought condition as a function of time rather than price. Nowhere is that more self-evident than in the tech sector, where the NDX has been coiling, complete with false breakdowns and breakouts, for this entire calendar year (the second chart).

We must respect -- not defer to -- the price action, so please understand that technical analysis is a better risk context than catalyst as we together find our way.

Random Thoughts:

Disclosure: Minyanville has a business relationship with BlackBerry.

Twitter: @todd_harrison

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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