If past resistance is future support, watch BKX 800 as THE inflection point in the days ahead.
It's a chilly morning in Minyanville and the critters are frozen--in more ways that one! With a truckload of news hitting the wires at every turn, they're trying to balance themselves as they walk the technical tightrope. They understand the importance of this juncture and, as they digest their financial breakfast, I wanted to take a walk through some morning thoughts.
The Empire State Manufacturing number is building confidence in the economy as it came in better than expected (20.72 vs. expectations of 13). This has caused economists to speculate that the Philly Fed numbers may be better (tomorrow) and some expectations are being nudged up as we speak. More importantly, the Producer Price Index was releases and, ex-food and energy, the numbers were negative.
Longtime readers know that, big picture, my sense is that capital preservation will be the single most important investment thesis in the years ahead. While I've never claimed to be an economist, my feeling is that, as we navigate through the multiyear bear market, money will become a scarcer commodity. I surely hate bandwagons of any kind but, truth be told, I have to admit that I'm in the deflation camp. I think that one dollar today will be able to buy "one plus x" in a few years. So you know...and if you care!
We can wipe our nose with that thought because, for purposes of our job, the journey matters more than the destination. In that vein, we've got to roll up our sleeves and map out a game plan that incorporates all potential scenarios for the days ahead. We know that the Minx wants to break out...but we also know that a lot of traders are gaming it that way. What's a Minyan to do?
The answer to that question is completely subjective and, while I'd like to provide as much value as possible, I can't possibly know your individual time horizon and risk profile. For my part, I'm operating under the assumption that the market will breakout--but that it will prove to be a false breakout ("pop and drop"). It's a saucy thesis, I know, and I haven't resolve the timing aspect in my mind. If Microsoft and IBM deliver, the last bear standing will likely be sucked into the upside vacuum (ie November) for the exhaustive blow off top.
With vols cweeping down the curve, defined risk puts are my preferred vehicle of choice. This way, IF I want to play the upside (within the context of a negative thesis), I can schnitzel in (read: buy) some common stock on a ratio vs. the puts (to kick out at higher levels). It's gamma, pure and (not) simple and, while it's surely not for everyone, it's how I want to play it.
One step at a time, my friends, as we edge through earning's week. There remain plenty of reasons to keep your right hand up so, while you must always respect the price action, you should never defer to it. Identify your time frame, attempt to define your risk and, above all else, think positive. It all starts with your attitude!
On a side note, be sure to tune in to CNNfn's Market Call for the next few days as his royal Snoopness, Tony Dwyer, will be guest hosting the show with the lovely and talented Rhonda Schaffler. He'll be on air from 9:30-11:30 and then, in a rare Minyanville move, he'll be joining me for a special edition, back-to-back encore edition of SushiWednesday. Wasabi!
See you after the open.
Daily Recap Newsletter