Random Thoughts: The Mechanics of the Swing
Hit for average, not power.
When I awoke this morning and saw the S&P futures up 5-half and the Nasdaq futes 10 points higher, I felt an uncomfortable twinge in my innards. For the second straight session, I failed to fully follow the discipline that has served me so well throughout my 20-plus years of trading.
As discussed yesterday morning, I never got lifted on my S&P and NDX puts late Friday and entered Monday with a downside bet that was entirely too large for my liking. I got bailed out on that -- and yes, it was luck, not skill -- and punted 85% of my exposure into the deepest throes of yesterday's woes. The last 15% was held for sale with a stop above Friday's close, as I said at the time. But instead of sticking to those defined parameters, I opted to shift the buy-stop above S&P 1375.
That, in and of itself, isn't necessarily wrong -- audibles often work, and trading is dynamic. What was wrong, and entirely inconsistent with my personal approach (as anyone who has read me for the better part of the last decade knows), is that I failed to communicate that slight shift in posture. All you have is your name and your word and I don't like to mess with that, even if that means that no words were shared.
A few random thoughts, in no particular order:
I enter this session with my buy-stop set above S&P 1375, and will adhere to that if triggered (no, seriously). It's only 15% exposure, mind you, but the mechanics of the swing always trump the results of the at-bat.
Did I suffer from premature evacuation in my short positions? Don't know -- I'll tell you in 5%. Either way, profits reside in the ride ahead.
VERY interesting article on Bloomberg this morning about how ECB Special Lender Status Threatens Backlash. And I quote, "It’s the subordination of capitalism... governments raise money to grow their economies; if that fund-raising is subject to governments changing the rules as they see fit, then that’s a subordination of the capitalist system.”
Two items immediately come to mind; first is the article we scribed last week on this very same topic, and the other is an early but goodie, The War on Capitalism.
As you know, I've been waiting for the sovereign sequel to play through as I foresee unbelievable generational opportunities on the other side of that ride.
Given the rally we've seen since March 2009, I sometimes ponder whether that ship has sailed, but deep down, in the innards of my intuition, I sense that we've still got to go through that to get through it, with "that" assuming many shapes and forms (price and time being only two of the variables).
With that said, I've got 1999 tattooed on the back of my mind. The panic over Y2K mobilized policy -- some of which we saw, some of which we didn't -- and while I don't think we'll see a repeat performance, it is nestled within the probability spectrum. That's why I'm keeping my risk leash tight; I'm happy to dance while the music plays (both ways), but shame on me if I don't find a seat when the music stops.
I've still got a placeholder position in Research in Motion (RIMM) -- which is much smaller than the sizable upside exposure I held from December into the fast-money January euphoria -- but that doesn't mean I can ignore it (to you, or to me). My stops are still set below the December low (let's call it $12-half), if and when, and I reserve the right to add back some risk as it becomes more defined.
- The homies stuck out like a green thumb yesterday (Lennar (LEN), Toll Brothers (TOL), Ryland (RYL)) and I'm watching these for obvious reasons (they were the first sector to fall out of bed before the crisis). I'm not reading too much into the day-to-day action but I am monitoring the aggregate action for signs of a (bullish) rounding bottom.
The financials are again testing BKX 45, which is resistance until proved otherwise, as Goldman (GS) and Deutsche Bank (DB) remain my twin tells in that area.
- When I suggested to my fiancée that we pick wedding bands this past weekend, should I have clarified that I was referring to the music?
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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 firstname.lastname@example.org.
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