Stocks Get Slammed: Is It Time to Buy?

By Todd Harrison  APR 05, 2013 10:47 AM

Discipline over conviction as we find our way.

 


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

We awoke this morning to find a crimson tide rolling throughout the world, the bounce in Japan notwithstanding.  The paltry non-farm payroll report (88K vs. est. 190K) was the equivalent of Boo the Bear jumping up and down on Hoofy the Bull's fingers as he tries to hold on to the Cliff Branch.

For those reading the tea leaves -- or anyone who has studied Newton's law of gravity -- the slippage shouldn't come as a shocker.

We've been highlighting the chasm between perception and reality (the market at an all-time high yet nobody feeling like we're at an all-time high), the difference between a stock market rally and an economic recovery (in the system formerly known as capitalism), the price action in commodities (and what it means for stocks) and the technical toggle that is S&P (INDEXSP:.INX) 1580, which I've been leaning against on the short side.

So, I must be massively short, right? Nope; I entered today with 30% (of a full position) SPY short exposure—and I covered that trade in its entirety on the open when the S&P was down 20+ handles, in real-time on the Buzz & Banter (click here for a free two-week trial!).

Why, you ask? Discipline over conviction; I've been trading "in between" and hit-it-to-quit-it and in this market, you can't have your cake and eat it too.  For every unit of reward, there is incremental risk, and if you're managing risk (vs. chasing reward) this is the "other side" of that approach.

Another reason is the chart below, which maps the S&P from mid-November 2012.  If and when we break this trend line, I can revisit the short side using past support as future resistance, effectively rolling down my stop from S&P 1580 to S&P 1540, consistent with our stair-step approach to risk management.



Am I suffering from premature evacuation (from my positioning) once again?  It certainly wouldn’t be a shocker, but as I’m leaving for Atlanta this afternoon, I can do so with a clear head as blind risk is bad risk.  In this market -- and life as a whole -- we have to take our journey one step at a time and base our decisions on the information we have at that particular moment.

Random Thoughts:

R.P.

Twitter: @todd_harrison

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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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