Tuesday's with Glory
With no scheduled catalysts, psychology should rule the roost!
Good morning and welcome to fat Tuesday. During yesterday's chunky spunk, the bulls got paid (as the gains were made) and the bears, more than ever, were quite afraid. While the lift has yet to crack the glass ceiling, the action and traction were somewhat appealing. Will a blow-off phase be the newfound craze or can Boo fight back and earn some praise? It's a frisky buffet in the minxy fray and the critters surely have something to say.
Hoofy: Let's see. Leadership from the financials and semis? Check. Healthy internals? Check. A breakout above technical resistance levels? Semi-check...we've gotten it in the brokers but haven't quite hurdled the hump for the S&P (1054 was resistance but 1060ish remains in play). Still, I'd say that Monday was just what the doctor ordered (looking at Boo). Unless, of course, you're Doctor Doom.
Sammy: It's hard to argue with his points, Boo. I mean, you've been leaning against--and waiting for--these levels for a while. Now that they're here, you've got some decisions to make. We know that S&P 1060 is the last "real" resistance until S&P 1075 (Fibonacci) and then 1150. Do you really want to get in front of that train? We've seen one bubble in our lifetimes and, with the agendas in play (Elmer and Dubya), the possibility exists that we're chewing through similar (albeit smaller) bubble gum fun.
Boo: (pulling the ice away from his lip) If we power through this level, a lot of technical types will towel toss and, well, I can't say I blame 'em. Still, I gotta throw caution to the wind here. First of all, as everyone is focused on the same charts, the chances for a false breakout increase in kind. I always like to allow for a little wiggle room anyway but, in this particular case, it may prove fortuitous. There's also a convergence of retracement (Fibonacci/Gann) levels directly above us and that, coupled an extremely vulnerable backdrop, continues to flash red.
Snapper: Shocker, a bearish rationalization! No offense, Boo, but you've been making the same excuses since March. When are you finally gonna admit that this engine has some juice? 7.2% GDP? Even if it was an aberration (as a function of massive stimulus), what's gonna turn the tide in the near-term? Perception is reality, you know that, and with year end quickly approaching, performance anxiety is gonna increase.
Daisy: Seriously, Boo, get over yourself. You keep pointing at the massive insider selling, multi-year low volatility (complacency) and the crowded bull camp--as if that matters on a day to day trading basis. Maybe you're right--maybe this is the biggest head-fake in the history of the markets--but it's been a profitable one for those that have kept an open mind. Never let an opinion get in the way of making money.
Boo: Whateva. Maybe it got too easy to short stocks over the past few years and, true to form, the bear market needed to weed out the bears. Remember, milkshake, the news is always worst at the bottom and best at the top. It'll show itself. In the meantime, I wanna operate with a risk profile that allows me to play and stay in the game (particularly with the Minx at a technical inflection point). With volatility this cheap, I can own a bevy of puts underneath the market and hedge myself with some cheapie calls.
Sammy: You don't have to be a bear to take advantage of the cheap vols. The bulls can benefit as well, either by replacing their stock with call options (of any duration) or hedge their holdings with fire sale puts. The point is, there are a lot of ways to skin the Minx and, if you so desire, you can take the directional risk out of your portfolio. Of course, it goes without saying that options should only be used by professionals who understand the derivative dynamic.
Hoofy: Just do me a favor and keep your eyes on the trading tells--they've served us all in good stead. The financials are particularly interesting as the brokers have, uh, broken out and the banks are banging up against the BKX 950 resistance. (turning to Boo) And don't look now, kiddies, but there's a snazzy looking reverse head and shoulders (S&P and NDX) on the one month charts (bullish). No more tears!
Boo eyed Hoofy nervously and pensively sipped his morning brew. He knew that the deck was stacked against him and his vaunted Burned Razor thesis was on thin ice. It was getting increasingly difficult to make a compelling downside argument and, while he kept telling himself that the bulls had the same problem in March, that offered little solice. For he knew that price was the ultimate qualifier and until the market was much lower, his voice would fall on deaf ears.
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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