Sloe Gin Fizz!
The "pop and drop?" Sounds like Chad Pennington!
Another session springs to life and, almost on cue, the critters (draped in black pirate flags) rambled into my office, crashed onto the couch and politely asking Fokker to make himself "scarce." There's obvious concern among "certain" members of the menagerie and, as communication is the key to all healthy relationships, I thought a group session might be in order.
Toddo: All right guys, what's on your mind?
Hoofy: Honestly, Toddo...you're on my mind. The bulls have clearly staked their claim in January and, while you seem intent on hanging with Boo (shoots the bear a 'look'), the market continues to rack up gains. You're missing the boat, kid!
Toddo: I understand your stress, Hoofy, but I can only call it as I see it. I started my year last week and, in that time, the tape has clearly had a constructive tone. That being said, I'm not going to subscribe to the blind ambition thesis solely because the market is rallying--that's never been my style. With the stochastics getting toppy, the complacency rampant and the bears scarce, I want to be patient and pick my spots on the short side. I've learned that the fear of missing is a costly emotion and I won't stand for it--not on my watch.
Snapper: That's admirable, brother, but when do you say uncle on a thesis? For a guy who preaches discipline over conviction, there has to be a method to your madness, no?
Toddo: Of course there is, Snapper. I'll typically either define my risk in one of two ways--options or stop levels. Through the former, I can scale into positions and attempt to view price as an opportunity. That's generally my preferred methodology. When I'm fishing intra-day, however, I'll usually set a level where I'm "wrong " and cut bait.
Daisy: Well, how do you approach situations like the one we're in now? The major averages are seemingly breaking out and all the pundits are screaming that the train has left the station. I'm starting to schvitz ova here!
Toddo: Listen, Daisy, if I had a dime for every time somebody screamed "new bull market," I'd be a wealthy man. YOU are the one who has to live with your investment choices so YOU are the only one who can make these decisions. Balance our lessons learned with a proactive decision making process and always--ALWAYS--allow for a margin of error.
Boo: I can't believe you guys are having this discussion again! Look--every time we get some jig, someone declares that the bear market is over and it's tulip season!. The only reason that January looks so good is that December ended so bad! By the time Santa had looted the stockings, the tape was seriously oversold and due for a pop. It just so happened to coincide with the calendar resetting the market gauges to zero and, as such, the bounce looks like a bull! It's bull, alright...but not the kind you guys are talking about!
Sammy: Ahh, but perception is reality cookiepuss. If enough people think we're going higher, they'll put money to work and it'll become self-fulfilling. What say you, Toddo?
Toddo: I continue to be "open minded" on the yearly prospects...but I'm bearish for a trade. I've got two legs in my metaphorical bear costume (50% conviction on the short side) and I'm going to fade the breakouts for a schnitzel. As you know, I'm openly debating the notion of a "pop and drop" (needs to break out before it can break down) but, for purposes of marrying my risk profile and market view, this is how I'm choosing to approach it.
Hoofy: Hmmph...one of these days, I'm gonna get you in hoofs big boy--convert you over to the "good" side.
Toddo: The only good side is the side that makes money, Hoofs, and yes...I surely will play from the long side at times. But not here, not now.
With that, the clan popped up and filed out of my office--nearly knocking over Fokker in the process! They're admittedly tired and a bit grumpy after the redeye but I told them to suck it up--we've got a big week ahead of us.
Hit 'em hard, baby...and play like a Raider. I'll be back.
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 email@example.com.
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