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Fitts for a King


I sure hope that my morning shower isn't the highlight of my day.


"It was one of those days when it's a minute away from snowing and there's this electricity in the air, you can almost hear it. And this tape was, like, dancing with me. Like a little kid begging me to play with it. And that's the day I knew there was this entire life behind things, and... this incredibly powerful force, that wanted me to know there was no reason to be afraid, ever."

--Ricky Fitts, American Beauty

Good morning and welcome back to the Hump Day shack. The new year arrived ready to run and the Matador Crowd had them some fun. After an initial probe tickled the top of S&P support (1245), Hoofy and his lovable band of bruisers held tough and focused their fury on the metals (XAU +6%) and energy (OSX +6%, XOI +5%). That seemed to be the theme of the day--and, quite possibly, a precursor for the year--but the FOMC minutes, coupled with a relatively relaxed risk grip and a spate of inflows, removed the red velvet rope and the bulls bum rushed the show.

While the rally simply served to offset last week's slippage in the mainstay averages, the slight (but potentially significant) difference is that the current assault on S&P 1275, BKX 106 and XBD 200 (resistance) arrives sans the overbought condition. Indeed, the extended field position and lopsided lean (into the perceived year-end ramp) made that fade slightly more digestible from a contrarian standpoint. Now, as agendas procure and portfolio managers reposition risk, the next-step nuances are a bit less clear. How the tape reacts to this trifecta of levels will offer subtle hints as we ready for the next step of our journey.

As most Minyans know, my risk profile is divided into two buckets: Longer-term holdings (energy and metals) and short-term trading (making hay when the sun shines). That's a marked shift from how I used to play, which is a function of both where I sit and what I see. The game has changed as capacity crowds out edges and clouds the landscape. That doesn't mean we can't succeed, it simply means that we gotta adapt and be extra sharp in what we do and how we do it. And contrary to the prevalent immediate gratification mindset, I'll maintain that capital preservation is the first step towards prolonged profitability.

As discussed during last year's home stretch, I'm open-minded on the prospects of a strong first half. The combination of cheap capital, debt "elasticity" and a belief that Boom Boom will keep his paws on the faucet may indeed spur the herd. While I respect that side of the trade, however, my sense is that the disconnect between perception and reality is perhaps the most egregious that I've ever seen. My Grandfather always told me "never run scared" and I don't--not in life and not in the market--but I am most certainly conscious of the risks as I put one foot in front of the other.

I've got my list of potential caveats (Iran, Dubya), conditional elements (compression) and "obvious in hindsight only" clues (General Motors, Google, tauty teletubbies) but I know that, generally, they're not actionable catalysts. As such, I'll exercise proactive patience with an understanding that I don't have to make every trade, I only have to win a high percentage of the trades I choose to make. It's not as sexy as swinging for the fences, I know, but it'll surely keep us in the game.

Good luck today.

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position in metals, energy
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