I've had some trapped bulls in my day!
Good morning and welcome back to the Minyan shack. Yesterday's script was a whippy trip as the critters edged through the rips and dips. While Hoofy got fatter on the economic data, the bears made a case that it no longer mattered. "This stuff is rear view," said a frisky fried Boo, "and it's not what you did, it's more what you do." The bear may be reaching in his attempt at teaching but, as it stands now, there's been no level breaching.
There's no doubt that the GDP number was snazzy, even considering that the FED has pumped in more liquidity than Hugh Hefner. The bitter critters will argue that despite the robust growth, too many bellwethers just aren't "seeing it." If that's the case when we're firing on all cylinders, they argue, what happens when the massive stimulus abates and we're back to business as usual (if there is such a thing).
Such discussions are academic until they permeate the mindset and spur a psychological sea change. Remember, perception is reality in our world and the market doesn't trade on what is, it discounts the probability of what will be (which makes the GDP hype a bit ironic). Still, yesterday's action was interesting on a few levels. Late in the session, with the S&P fluttering above 1050ish, it felt as if they wanted to rip 'em to the moon. The bulls had the motivation, the bears were on their heels and it seemed to only be a matter of time.
Just as I was about to give Fokker a "Buy 50 Intel (INTC:NASD), if you can't beat 'em, join 'em" order, I stopped myself. If I'm feeling the upside angst to this degree, I thought, the entire street is likely doing the same. I looked at the clock (it was about 2:30) and said to Greg "You know, everyone and their sister is trying to break out this tape but if they can't, there's gonna be a lot of trapped bulls heading into the close. Hold off on those buys. As a matter of fact, let's round our puts up." Sure enough, the bid fell out of the market and it looked as if it could get a little fugly.
Of course, the Minx chose instead to gyrate and jiggle towards a nonevent session. Thus, the obvious question is begged: what happened to the trapped bulls? I didn't see the fast money sellers (into the close), so that leads me to believe that they're still in the market. The more important issue, for purposes of our trading, is what type of hands is this merchandise in? Are they holders? Do they have "more (ammunition) behind?" And what can possibly spook them as we edge through Halloween?
This morning's economic reports will help shape psychology and, after that, you can expect the tug-of-war to begin anew. Hoofy's modus operandi, for those who have been away from the fray, is to effectively push the market through these (resistance) levels and create an upside vacuum. If he can remove that "crutch" from the bear camp, he figures the S's will have an 11-handle and the NDX will look like 1500 faster than he could say "broomstick."
My risk profile remains relatively intact. I'm happy to build my book with cheap paper--mostly November/December out-of-the-money puts and a handful of front month upsides (as a hedge). With that as a backdrop, I can augment my risk profile on a daily basis via trading with tight stops, identifying relative edges and--most importantly--knowing when not to trade. Patience generally brings both price and opportunity.
Finally, I've got a late afternoon flight to Rubyville and will likely collect the critters around 2pm for the airport caravan. While my business endeavors require me to be there Sunday and Monday, I'm gonna spend the weekend with the hottest redhead in all of south Florida. Fire up that blender, Grandma, I'll be down there faster than a Ruby wink!
Good luck today.
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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