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The Evolution of Energy


Good morning and welcome back to the Electric Ladyland. Before we moved over (Rover) and let the weekend take over, the Minx ended expiration week with some upside electricity. Ironically, despite the recent charge of optimism, the major averages are in precisely the same place as they were two weeks ago. Is this a lot of wasted energy or is the tape simply recoiling before she springs higher? The power struggle is about to begin, my friends, so stay grounded as we plug ourselves into today's action.

The dynamic nature of our business requires us to constantly factor new inputs into the trading formula. Over the weekend, a friend of mine asked why I'd undressed from the bear costume if I had 75% conviction at these precise levels two weeks earlier. I explained that while my bearish view hasn't changed, each new juncture (of the tape) has a unique set of relative data points. When we were last at these levels, the short-term internals had a different composition-one that begged a more aggressive short-term posture. That condition was alleviated by the meaty pullback and, while my bias remains negative, discipline dictated taking a fresh look.

We enter today's session with potential catalysts on the horizon (Lehman Brother's Semiconductor Conference and COMDEX) and seminal technical levels above (and below). Junctures like these define markets and, by extension, those of us who trade them. I penned a column late Friday that walked through some salient thoughts (I hope!) and, for your convenience, I've reposted it below.

The NDX and S&P are both flirting with inflection points and, until proven otherwise, we continue to trade under resistance. The Macro bullies will surely try to push the tape higher (to trigger a short side capitulation) and, as a function of that, the psychological and technical metric will be intertwined. Keep that in mind as we merge into this week's traffic and look to establish a groove.

We often talk about "trading to win" versus "trading not to lose" and that subtle point bears repeating. Good trading is laced with confidence and your odds of success will improve if you have the right attitude. If you're constantly on your heels and focusing on avoiding losses, you're not paying attention to potential opportunities that might arise. It's all about keeping the mojo flowing and maintaining the right perspective. Think positive, be true to yourself and leave the negative energy to others. The results will be enlightening.

Have a great week.
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