Hussein in the Membrane!
Field position should be factored into any trading decision!
Good morning and welcome back to the upside attack. With the bearded man now in the can, the flames of the fire are sufficiently fanned. It's not like the Minx needed a spark (the bears have been stumbling alone in the dark), but with this news from the Middle East, Hoofy is looking for a newfound feast. Is it up, up and away for the Minxy fray? Or can the bears claw back and keep the bulls at bay? It's a brand new week in Critter Creek so let's saddle up and take a peek.
The question on everybody's lips this morning is simple: do you close your eyes and buy 'em? The path of least resistance has been on the upside, the Dow is five figures large, S&P 1075 has been the glass ceiling (now shattered) and there hasn't been this much performance anxiety since Bob Dole's wedding night. With technical resistance acting as newfound support and liquidity thin (and thinner) into year end, who's gonna stop Hoofy into the home stretch?
We often talk about field position and its influence on investor perception. Bad news (that isn't horrible) is usually greeted with buyers if the tape is oversold and, conversely, good news (that isn't great) is typically sold when the market is extended. Thus, our task at hand is identifying how "good" this news is relative the recent action and when juxtaposed against the technical backdrop. That, as much as anything, will tell us if this beast will have legs.
Unless you've been in a cave (be it Red Dye Junction or Tikrit), you know that 2003 has been the revenge of the herds. The Saddam capture--while overtly positive on a human level--comes on the heels of a monstrous rally that has already produced outsized gains. We'll surely see a "blow-off" type squeeze this morning as the bears scramble for their sanity. When the dust settles, however, this isn't a shocking development for the global community and, by extension, the markets.
While it's true that we're officially broken out and vacuum potential exists, it's worth noting...no, it NEEDS to be noted...that panicky action often accompanies turning points. That, in a nutshell, is the basic premise of the "denial-migration-panic" trifecta that defines trading moves. There isn't one prognosticator out there who thinks that this fails. Given the calendar and the potential of emotional exacerbation, it very well may not. When identifying the spectrum of potential outcomes, however, it would be a mistake to discount it entirely.
There will likely be an initial pullback as the knee jerkers sell the news. If you're bullish and wanna play that way, that may be a better entry than the immediate opening. If, on the other hand, you don't believe the hype and wanna fade 'em like a pair of jeans, the second (or third) rally may prove to be a better entry point. The key will be "controlled aggression" and the ability to define risk regardless of your view.
One thing for certain, Minyans, this morning will be wild, it will be emotional and it will be hairy. Be calculated in your approach, identify a game plan before risking capital and please, if you're an active trader, put limits on your orders. A (relatively) truer tenor will emerge midmorning after the freakers freak and the ursine shriek, so pay particular attention to the internals and leadership sectors. Also, as past support in future resistance, watch how the Minx reacts at S&P 1075 if and when its retested.
While a quick sniff of the morning whiff shows green screens across the globe, I'm a bit surprised that the London is up less than a percent. Japan flexed, mind you, and Germany is trading at its yearly highs but be wary of blind ambition. That doesn't mean the Minx can't sustain (or build on) her gains, you just need to understand that there's trappage risk--particularly when the market is this emotional.
Finally, as philanthropy waits for no critter, there's only two days left in our charity auction. The winner (and a guest)--Neal "the real deal" Minyan is currently atop the leader board--will join the Minyanville professors, Mike Santoli, my very best sell-side coverage and your favorite menagerie for Wednesday's holiday dinner. There will be something magical about this night--this I promise--and as the proceeds will be donated to the Ruby Peck Foundation for Children's Education (a 501C3 non-profit organization), the real winners will be the kids. Take the time to share some rhyme and be my guest come party time!
Good luck today.
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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 email@example.com.
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