Random Thoughts: Red Rain on a Freaky Friday

By Todd Harrison  APR 12, 2013 9:28 AM

Bulls and bears battle at an important technical toggle.


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

It's Freaky Friday and the skies are crying on the East Coast as red rain pelts global markets. Europe is lower, Asia was lower, and the early morning futures are pointing...lower.  It's very early but Rufus must be confused; he's not used to seeing bowling averages down and mini-golf scores higher!

Yesterday, as the market opened marginally lower, we discussed how after an outsized move, such as what we saw on Wednesday, the tape tends to probe the prevalent direction at least once. We got that in spades as the S&P (INDEXSP:.INX) was 10+ handles higher—knock, knock, knocking on heaven's door at S&P 1600—before drifting lower to end the session off its highs.

This morning, we have some meaty earnings reports in JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC). Both topped estimates but are trading off in the early going.  I've traded this sector for twenty DASH three years and can tell you that financial earnings, more than any other sector, are rear-view rather than forward-looking and the reaction to news will be more important than the news itself.

We spoke yesterday about how the field position in the S&P was extended, up 19% since September and in the midst of a 70-session "buying stampede." The financials are up 23% since the November lows, albeit not in a straight line, so some back-and-fill shouldn't shock anyone.  And yes, only time will tell if there's more to it than that (remember, there are Three Phases of Leave).

I enter today's fray with a full SPY September put position, which I've been "trading around" under +/-S&P 1600. It's a bit of a moving stop-trigger given the "slope of hope" and time horizon surrounding it.  In other words, in here, on this first real probe, I'm more inclined to maintain my bias, whereas if we meander around these levels, working off the overbought condition as a function of time rather than price, I'll tighten up the reins. Remember, there are "counts" that work to about S&P 1610 or so.

Finally, I would be remiss if I didn't note the price action in gold, as it is down $30 and below our all-important $1550 level. We've spoken at length about how commodity volatility typically precedes equity movement, and I've updated that chart below. It's a piece of the puzzle, and one that warrants respect as we together find our way.

On a personal note, I must excuse myself for a few hours today to pay respects to a family friend who lost his father. While I am unable to make the trip to Atlanta for The Social Mood Conference (I'll know the next steps for my hip on Monday...no pun intended), I must make this trip today, as right is right and the market will be here when I return. We will, so you know, shoot a segment on the social mood presentation, which will be available for all Minyanville readers as well.

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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