State of the MInyan
Hey Toddo...isn't it time you opened a San Diego office? There's no market for frozen milk!
Good morning and welcome back to the city of critters. When we last spoke, Hoofy threaded the needle with a blink-and-ya-missed-it rally that seemingly caught traders leaning the wrong way. As is good discipline, our beefy bovine took his trade on Thursday's close and entered his long weekend with a flat book and anxious anticipation. Sure enough, the fleeting glimpse of green turned into painful buckets of red and nervous traders are left to wonder: is this the fear we need for a sustainable upside move or has the Minx shown her true colors as reality set in?
We often discuss the assimilation of our trading metrics as a basis of capital commitment and that remains my style of choice. However, we can be "on top" of the fundamentals (no clear visibility), technicals (breaking if not broke) and psychology (the fear of missing is morphing into the fear of losing) and still get smoked by the structural or geopolitical forces in play. That, my friends, is why this particular juncture is crossing up so many players. There's a ton of moving parts in the mechanism and, for the most part, many of these influences are evolving and ungamable.
I've opined that this year will be the most difficult trading environment yet and, as such, I'm looking for situations with an advantageous risk/reward profile. Inherent in that methodology is the understanding that yes, there will be moves that we miss and no, we won't be right all the time. Still, over the long run, the discipline to make proactive and intelligent decisions will (hopefully) raise our hit ratio and, in the process, our performance. I know much of this discourse sounds redundant to some Minyans but, trust me, it's important enough to repeat as it's a critical element of our pending success.
As I dip my toe back into the trading waters, a couple of thoughts stand out in my crowded keppe. First...WOW...what a wicked month this is shaping up to be! If you haven't subscribed to the "sell hope, buy despair" mantra yet, you're surely closer to doing so now. When the averages were up nicely nine sessions ago, the bears were ridiculed for not "getting it" and the bulls dutifully lined up for the world's most well-telegraphed breakout. Now, after a 8% dip in the BKX, 9% snip in the S&P, 10% clip in the NDX and 18% drubbing in the SOX, the mood has soured considerably--and it's the bears who've entered taunt mode!
Rather than getting caught up in the considerable emotion (emotion is the enemy) and incessant ramblings of investment "professionals," I prefer to look at the big picture as a series of little pictures. This helps me filter out a lot of the noise, identify a technical backdrop with which to trade and, perhaps most importantly, limit my losses to "trips" rather than "falls." It's a relatively labor intensive approach but, with so many crosscurrents daily, it offers me an applicable method to the madness.
In that vein, here's what I'm looking at. S&P 865 (former support) now becomes an inflection point as it's the near-term resistance. While it's surely a level of contention, it's also necessary to note (respect) the fact that, barring the one day wonder, this index is straight down from 935 (oversold). In bear (bull) markets, oversold (overbought) tapes can remain so for quite some time but, as field position is a huge component in our trading strategy, we must acknowledge that it exists. A move through S&P 850 (if and when) will pave the way for a re-test of the October lows (which, for the record, I think will be dust in the wind by the time we're through with the grizzly).
I'll continue to key off the SOX 280ish level as it's the neckline of that ominous head and shoulder pattern we've been discussing since December. Again, the short side is no longer a novel concept and the "easier" trade has likely occurred but, if we violate this zone, it will "confirm" this bearish pattern. For the banks, we're at an important juncture as the BKX 725-730 zone coincides with the November lows and the "head-fake highs" at the end of September. Through these levels and Boo will be pointing the banks towards, yep, the October lows (BKX 615ish).
With all that said, I will again urge you to exercise patience and discipline in your approach as we take our journey one step at a time. It's an important week for the market (aren't they all?) and we'll be getting fresh inputs daily. Beeks will be dropping by with Durable Goods orders at 8:30 (exp. .8%, .7% without a ride) and New Home Sales (exp. 1040k) and Consumer Confidence (exp. 78.3) at 10:00. In addition, there's the Israeli election, the Solly financial services fete, a Piper healthcare conference and, as you know, Dubya will be posturing and promoting during tonight's State of the Union.
In Minyanville news, nobody correctly nailed the Superbowl Fleece contest--with the possible exception of the Oakland offensive line who apparently indulged themselves all week. Here's a hint fellas...the next time you're pining for a vice, follow Warren Sapp's lead and grab a handful of Twinkies instead of a mouthful of tequila--you may not lose weight but you're less likely to lose respect. On a brighter (and healthier!) note, please be sure to swing by the special announcements section of the Gazette for the latest from our customs office. They're pretty jazzed up and they'd love for you to get involved!
Good luck today.
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