Giddy up Toddo!
Baby please, squeeze me tight
Now don't you want your baby to feel alright?
I said Baby, now it's for sure...
I got the fever, Baby, but you've got the cure
Holy Cow! Somebody call Daisy and tell her to pick up some milk! After much consideration and considerable consternation, I'm thinking of dusting off the (are you sitting down?) Bull costume and dragging it out of the closet for a trade. Why, you ask, would I even dream about an upside schnitzel if I'm such a big picture bear? Lemme 'splain Lucy.
Effective trading is a function of balancing our three primary trading metrics: fundamentals, technicals and psychology. While the fundies have been 'alright' for the most part, the outlooks have been a complete mess. That, for the most part, is going to weigh on the "outer half" of our timeframe curve (nuances, trend, phases, cycles). With that said, the market has been getting waxed for a string of sessions and, just as the blind ambition crowd dominated the rallies, the nervous nellies are starting to get loud. As this (near term) psychology gets skewed too far in one direction, it's typically worth a peek for a fade . Finally, and the key to such a trade, is identifying the technical backdrop (while hopefully defining your risk) and setting parameters.
Yesterday, I spoke about the value of Dorsey Wright (www.dorseywright.com) and how I always liked to use that as reference/guide to my larger work. I've been eyeballing these levels for a while now and, just as there was upside resistance at S&P 930 and BKX 800, point & figure work shows a similar downside levels of S&P 870ish, DJIA 8250 and NDX 975-1000. The caveat to this fade trade is two-fold. First, levels get weaker with each test as the supply (demand) is soaked up. Second, and perhaps more important, is that I firmly view the upside as the "cute" side-it's just a matter of time (before we're lower).
While I have a predication to play from the short side, trading one-way is akin to boxing with one hand behind your back. In other words, while my "left" may be suspect, I've got to jab with it once and a while to keep the Minx honest. As such, and because I think the tape is getting a tad glum/oversold in the uber-near term, I'm gonna keep that bull costume close. If I choose to suit up, please know that I will be setting tight stops through the above mentioned levels. Remember, you can do anything as long as you're disciplined and, as a function of my long-term fur, I keep a tighter leash on Hoofy.
In any event, I wanted to walk through my morning thought process with the hope that it adds value to yours. Obviously, I want to watch our daily tells-internals, financials, semis (neckline alert!), retailers, horsemen-and, as you know , I don't want to trade just to trade. If the worlds align and the ducks line up, the fade trade may be the Hump Day special. If the Latin America chatter continues to get loud (as I've been saying, WATCH THIS REGION), it could be the straw that breaks those level's back.
One day at a time, fellow Minyans, as we wade our way through the Bucs, er, muck. These are important times and serious levels and, if you're not careful, the Minx will pick your pocket clean. Define your risk, trade to win (never "not to lose"), and allow for a margin of error...and if you're not seeing it, don't force it. Patience will bring profits.
See you after the opening.
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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