I've always considered myself the strong, silent type!
Good morning and welcome back to the edge of your seat. With yesterday's yawn-fest in our back pocket, we enter today's session hoping to resolve the great debate. Everywhere you look, traders are chewing on the importance of these levels and wondering if the rally is getting long in the tooth. Will an upside surprise on the earning's front provide a sweet spot for the bulls or will Boo's bitterness (once again) sour the mood? Pull up a chair and get ready to feast, cookie--Fat Tuesday is about to begin!
The tape is flirting with more breakouts than a prom queen but, considering the press the acne has gotten, we must ask the question: have the bulls become too complacent? Almost every sentiment guage known to critter is flashing red, the stochastic sell signals are starting to line up and the crowd is (seemingly) leaning long. With a series of important catalysts coming down the pipe and expectations high (read: hope), we can't help but wonder if we've seen this movie before.
The market operates as a forward looking animal and, as such, the news is often worst at trading bottoms and best at short-term tops. This disconnect often trips up the saviest of traders who are conditioned to pounce on the "numbers" as soon as they hit the wires. The ability to assimilate the news relative to expectations (and field position) is what differentiates the trading ranks. In other words, it's not enough to know the fundies--you've got to anticipate the aggregate reaction and climb inside the head of the Minx. Saucy!
At the risk of redundant redundancy, I'll ask you to please identify a time frame before initiating risk. While I've little doubt in my mind that we remain entrenched in a multiyear bear cycle, there can surely be bullish phases (and trends) nestled in the muck. Often times, at inflection points, traders lose sight of their overall investment objectives and get spun around. Knowing what you're looking for--and when you're looking for it--can often taking the perverbial gun away from your head.
I enter today's session with both legs in my metaphorical bear costume (50% conviction on the short side) and I'm quite conscious that it's not a popular view. While it surely seems that I've been fighting an uphill battle (pun intended), the major averages are (more or less) exactly where they were when I initiated this posture (beginning of last week). I'm not rationalizing...I'm simply pointing out that, while Hoofy and Boo are vying for your attention, Sammy continues to be the stud du jour.
As a result, option volatility has been slowly dripping away and, as such, there may be a way to take advantage of it. If you're of the view that the Minx will either bust out (higher) or fail (lower), one way to play it is to set up some gamma. This allows you to bet on a move--up or down--while limiting your directional exposure. For the professional Minyans among you, it also may be a good time to look at some stock replacements. These are sophisticated trading strategies (NOT for everyone) but, when executed properly, they can offer an advantageous risk/reward. If you have no idea what the heck I'm talking about, fear not--the University of Minyanville (coming soon!) will have plenty of beginner classes!
Deep breaths as we roll up our sleeves and find our way. Remember, our goal is to be in a position to view prices as an opportunity (not a hindrance) so do yourself a favor and remove the phrase "performance anxiety" from your vocabulary. As my good friend John Brett used to say, "take care of the minutes and the hours will take care of themselves." Truer words have never been spoken.
Good luck today.
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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