Random Thoughts: World Peace Breaks Out for Global Stock Markets

By Todd Harrison  JUN 17, 2013 9:52 AM

The bipolar stroller for investors continues.


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

We woke up this morning to find the world a happier place.

Japan, from the peak on May 22 to the lows late last week, was down 22% in less than a month.  That's either the technical definition of a bear market or a slow-motion crash, depending on your lens. And yes, it rallied 84% into this bear/crash/correction, so we need to keep it in perspective.  Either way, it was up almost 3% overnight, which empowered some bulls.

There's also the article in the Spanish newspaper El Mundo that AT&T Inc. (NYSE:T) attempted to buy Telefonica SA (MCE:TEF) for $93 billion, but it was blocked by the Spanish government, citing unidentified sources. Telefonica insists it has not received any indication of interest from the US phone giant, although the stock is higher in early trading. 

If this is in fact true -- the blockage part -- it is interesting through the lens of protectionism, which is the "other side" of globalization and very consistent with the trend in social mood.

And of course, there's our stateside technical construct, complete with dueling trend channels, which we've been discussing step by step here in the 'Ville.

In terms of my exposure, we shared the following scribes late Friday on the Buzz & Banter (click here for a free trial):

As detailed yesterday [Thursday], the last six weeks have been a Charles Dickens novel; it was the worst of times, it was the best of times. The takeaway, at least for me, is that this crazy nutty thing called the market is much easier to navigate when I've done so with discipline and defined risk.  I would like to say that I always employ those traits but I am man, not machine, prone to emotion and at times, cognitive biases.

I entered today's session with 50% of a full position in December SPY (NYSEARCA:SPY) puts, the 25% intra-day IN-N-OUT notwithstanding.  While I sense the tape will break lower, the fact of the matter is that the trend from November remains in place, at least until such time that S&P 1613 (or so) is broken. 

Much like I pared my risk down to 25% when we recently probed S&P (INDEXSP:.INX) 1600--with every intention of "re-loading" on the short side if/once that level broke--the same approach is again warranted given the 'slope of hope' is lifting our level of lore in kind (read: it's an upward sloping trend-line). 
As such, should the tape trade lower into the close -- toward that level -- my intention to peel out of another 25%, leaving 25%.  If we rally higher, I'm content to leave the 50% in place and continue to trade the pattern as I have, selling blips to buy dips. [Note: I peeled out of 10% exposure into the close, as discussed on the Buzz, so I enter today with 40% of a full position.]

I understand this approach isn't for everyone -- and quite honestly, I don't blame you; it's a tough way to spend the day -- but it's what I do and old habits are hard to break.  The recently volatility is tough to stomach for many but it does provide opportunities (both ways) for those who opt to play that way.

Now, everyone in the financial universe sees the S&P pennant, which is coming to a head per the chart below.  Insofar as technical analysis provides terrific risk management context, I have every intention of staying true to the stair-step discipline that has served me in such good stead on a trading basis. 

As such, I'm going to roll down my short-side stop to the other side of the pennant -- in and around S&P 1640, depending on the timing -- and trade within that range (short to buy, and cover to short) until it's no longer a range, at which point I will step back to reassess. 

Remember, we have a huge FOMC meeting this week, and the action into that meeting, which promises to be dovish, will create the next tradable catalyst. One step at a time as we continue to find our way.

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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