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VIDEOThe Perspective Directive
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One of the major mistakes market participants fall prey to is not fully understanding why their in the market. I know, wiseguy…you’re in the market to put some jingle in your jeans! What I meant was, are you a trader or an investor? What are your goals when assuming risk in the marketplace? Are you a casual trader or playing with the house’s (mortgage) money? What do you need the money for and, more importantly, can you afford to lose it? Once you’ve answered these questions, honestly, we’re ready to take the next step.
I like to characterize movements in the market as four basic categories: Cycles, Trends, Phases and Nuances. Once you understand what your time horizon and risk profile are, you can attempt to ascertain where we are in the process and approach the tape accordingly. The further down the investing food chain you are (yes, traders are at the bottom), the more direct relationship you have with the corresponding category. In other words, if you’re an active trader, you make your living in the guts of the price movements and focus on the nauances (short term action). If you’re a longer term investor, you should be paying more attention to how far along the cycle we are so you can deploy your capital intelligently. That’s not to say traders can’t have big picture thoughts and investors can watch the action everyday, but for purposes of capital commitment, you’re better served in your own element. Just a thought as we enter the new day and peek around the corner at the earning’s avalanche next week.
Yesterday’s session unfolded somewhat intuitively as the early liftage (led by the oversold banks) gave way to some stern testage (led by CSCO and the semis). As discussed, the early pressure was needed for the Snapper thesis to unfold and, indeed, our young turtle took a quick spin around Minyanville. Alas, the tech heaviness and the pending overnight uncertainty cooled Snapper’s heels into the bell and we enter hump day pounding our glove, on our toes and scanning our trading metrics.
On the technical front, I am weighing two “potentially†conflicting crosscurrents and wanted to pass them along. My trusty stochastics, which is an oscillator that measures a securities price relative to its trading range, are starting to “line up†in the bullish camp. They haven’t “crossed†yet (confirmed) and cannot be anticipated, but the ducks are certainly starting to align. I’ve always found these signals to be great guides (when confirmed) but they are not timing measures. In other words, over time they generally “work†but they’re often early. The wildcard at this particular juncture is that many of the seminal sector bases are abyssful and dangling at yearly lows. The purist would say that the market needs to resolve this period of price discovery before money should be put to work.
Checking the psychology metric, the angst in the market place is starting to approach intriguing levels. Remember, from a contrarian standpoint, selling “hope†and buying “despair†has been a profitable endeavor and increased negativity (coupled with further “give up†) would be constructive, in my view. The telltale sign will be when the “fear of missing†is completely replaced by the “fear of losing,†much like we saw in July. Finally, the fundamental metric is bad, but what we need to figure out is how much of that malaise is reflected at current levels. Further, we’ll be listening closely to the pending earnings reports for signs that the rate of degradation is abating and some stability has re-established itself.
Deep breaths as we double down on that cup of joe and prepare ourselves for another day of muck fishing. Keep your head up, your eyes forward and never let the definition of an investment be a trade that’s gone against you. Most importantly, as my dear grandfather Ruby used to say, “Think positive.â€
Have a great day.
R.P
No positions in stocks mentioned
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 todd@minyanville.com.
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