Good morning and welcome back to the track. Yesterday's jig (a fat bovine pig) drove the ursine to drink and the shorties to swig. Despite the bold gold and the greenback's new mold, a much needed pullback just didn't unfold. Will the green screens continue to put up a fight or can Boo (sporting tread marks) delight and excite? Last night, while at their most favorite diner, the critters collected and it couldn't be finer. The conversation went a bit like this:
Hoofy: Early January and there's already performance anxiety. Gotta love it!
Boo: (holding out his pinkie) From what Daisy tells me, it's much deserved.
Sammy: I don't know if it's performance anxiety as much as a combination of inflows, acne and relaxed risk parameters. It is a new year, after all, and with stuffed pockets, traders seem to have a heartier risk appetite. It's kinda like pressing the hard eight.
Hoofy: Help me out here, Sammy. The semis were up almost 4%, there were two winners for every loser, we're making new highs daily and we continue to shrug off negatives. You know as well as I do that the most important determination when trading is identifying the salmon from the stream. It makes the fishing much easier if you're riding the current.
Boo: That's fine, but you know--or should know--that the herd will eventually crowd themselves out of that stream. Just because the negatives have been ignored does not mean they've disappeared. Granted, I've been too cautious but my role in Minyanville has always been to point out potential problems. In my view, the backdrop is getting worse, not better, both in the short- and long-term. The pied piper may be singing a sexy siren but lest we forget, the piper always gets paid.
Snapper: You can trade 'em seven ways till Sunday, Boo, but remember that the casino has the staying power. Trading is a function of time and price. There were some pretty smart players who were short stocks in 1999 and never made it to see their horse come in. They were spot on and dead right but, alas, timing is everything. Before you step onto the field, you better have a playbook (complete with audibles) and don't get stubborn!
Boo: I hear ya, trust me--there's a fine line between fighting the tape and using price to your advantage. I know that you don't wanna hear it--you never do when the tape acts great--but think about it. Do bull markets ever start when everyone is invested and positioned correctly?
Hoofy: It started last March, Boo, and if memory serves, nobody was positioned correctly. The key now is where we stand on the denial/migration/panic curve. From my perch--and while I admit we're pretty overbought by several measures--there's no real resistance until S&P 1150. I don't wanna chase but absent an exogenous shock, the dip shtick should remain thick.
Boo: I'll tell you one thing, I sure wish I didn't get shaken out of the vaunted Burned Razor thesis. I'm not sure what's worse--getting it wrong or nailing a call and not following through with it. That's one of the hardest aspects of disciplined trading--sticking to your guns while remaining adaptive and proactive. If that thesis continues to pan out, we're setting ourselves up for some kinda nasty spill. Earning betta deliver!
Sammy: Well, volatility measure remains cheap and as such, you can place bets (either way) or adjust your risk profile accordingly. February paper should capture most of the earnings and regardless of your posture--and only if you're well versed in the risks of derivatives--that may prove to be a decent alternative to naked exposure.
Daisy: That's my cue. Hoofy, let's go put those horns of yours to good use. Remember to balance--if you stare and despair night and day, you'll lose perspective in a hurry and that's never a good thing.
With that, the dairy diva took the bountiful bovine by the hoof and led him out the door. The rest of the critters, having seen this movie before, barely blinked. They knew that in this game, fortunes can turn on a dime and when they do, it's every critter for themselves. As the check hit the table, Boo hit the door. He didn't have the pocket change to participate but that's alright--drinks would be on him soon enough.
Good luck today.
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