Random Thoughts: Is the Market Setting Up for an Off-Sides?

By Todd Harrison  APR 11, 2013 9:47 AM

A euphoric market awaits earnings.


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

They say the toughest fades are the best trades; should that prove true, a great trade awaits.

With our long-awaited S&P (INDEXSP:.INX) 1580 level finally upon us—this is where the reverse H&S (flagged in mid-March) "worked to," and the long-term triple-lindy price point we've discussed since February—the bulls are large and in charge.

Let's reflect for a moment: All-time highs in the Dow Jones (INDEXDJX:.DJI) and S&P, a positive reaction to any and all bad news, only 19.31% bulls in the weekly equity investor sentiment index (can this be right?), and a widespread "What, me worry?" mindset have the matador crowd standing proud.  Put some lipstick on this pig and that bacon is shakin'.

After selling my SPY put position at S&P 1540 following the NFP report last Friday, I began to gingerly nibble back at the position a few days ago.  Late yesterday, the fourth day of a vicious Snapper that has cleared out many burnt shorts, I rounded that exposure up to a full position in an attempt to use price to my advantage.

The reasoning is as follows: We're at a technical inflection point (that we've patiently awaited), a slew of hedges were unwound the last few days, and the market’s field position (following this rally) is ripe for an off-sides with catalysts, in the form of earnings, on the immediate horizon.

Will my trade pay off? Time will tell—and time (theta) is my risk. From a pure price standpoint, I've set my stop on the other side of S&P 1600, which is +/- 15 handles from last night's close.  And while the SPY is a "full position," it is a full position with regard to my comfort zone on directional risk, not a full position of my overall book (read: I’m not “all in”).

Remember, when trading, right-sizing your risk, and syncing that risk profile to your time horizon, is half the battle.

Random Thoughts:

Twitter: @todd_harrison

Position in SPY.

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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