May peace be with you!
Yeah, I know nobody knows
Where it comes and where it goes
I know it's everybody's sin
You got to lose to know how to win
The afternoon fray is finding its way as Hoofy attempts to delay the decay. The opening gap wasn't as robust as the Matador Crowd had hoped but they circled their wagons and defended the inevitable probes. Now, with minty breadth and staunch leadership, the bulls will look to put some stank on the Monday sucker punch. My sense is that they'll end the session with a "W" (no pun intended) but the real test will emerge in the sessions ahead.
It's human nature to look at positives when the screens are green and focus on negatives during crimson tides. The trick to trading is being able to ascertain what matters and, more importantly, when it'll manifest. The reasons for the Red Dye cry haven't dissipated as a function of perceived electoral clarity. Inflows are still anemic, sentiment is still complacent and the fragile fabric of a rate-dependent environment still sits underneath us. The media will surely assign reason for the upside rhyme but the onus is on us to maintain perspective and manage risk.
With that said, there will be a camp that points to the recent test of the dual downside ripcord levels (S&P 1164/NDX 1468) as reason enough to slap on exposure. Perception is reality and while the fear of missing never morphed into the fear of losing (in my opinion), the relative performance crowd can't stand to watch markets rally without them. Perhaps that would be different if they were betting their own chips but as long as they manage OPM (other people's money), they'll fire as many bullets as they have in the chamber.
My main concern with the legitimacy of a sustained lift is that most folks seem to need this rally to dig themselves out of the January hole. Volatility levels remain near all-time depths and sentiment is skewed towards levels associated with market tops (not tradable bottoms). That doesn't mean we can't run for the roses but the attendant risk shouldn't be discounted.
We still have a ton of earnings to digest and the supply/demand dynamic (redemptions/offerings) isn't as friendly as the bovine would like. Define your risk, see both sides of the coin and balance yourself such that your self-worth and net-worth aren't one and the same. It's hard but not impossible, my friends, and we'll get there together.
Fare ye well into the bell and have a pleasant night.
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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