The Snowy Show
With traders snowed out of the city, liquidity is gonna be an issue today!
Good Morning and welcome back to the mind plow. With last week's late snappage planting the seeds of hope in the Minxy mindset, we enter today's session with the great debate wide awake. Over in Matador City, the bulls finally have a hoof to stand on--they've managed to hold their ground, the coiled stochastics are overdue and they're looking to duct tape the bears to a wall of worry. Over in Camp Boo, the ursine uglies argue that the (light volume) rally (to resistance) alleviated the oversold condition, the historical fear guages are far from compelling and the geopolitic landscape has become more tenous. What's a critter to do?
There are numerous methods to cope with the madness and how you approach the tape is unique to your individual skill sets and circumstance. For my part, I look at the big picture as a series of little pictures with hopes of finding a safe path and limiting my missteps to trips rather than falls. It's a relatively labor intensive process that requires steadfast discipline, constant patience, occasional luck and respectful humility. In other words, we can play the game--we've just got to remember that we're just pawns in the Minxy scheme of things.
For the better part of last week, the bulls looked like they were going down for the count. They were flailing and failing as sellers sold and rumors ran. There was chatter of an "upgrade" to code red, rumors of an imminent Iraqi attack and low level whispers that OPEC was threatening to back oil resreves with Euros (rather than dollars). Obviously, I had no edge, per se, regarding the validity of those stories but, coupled with the field position of the tape and pervassive negativity, my interest was piqued on the long side. Sure enough, the zig zagged, the tape tickled and the bulls spent the entire weekend giggling.
We've discussed the Shim Sham for three weeks and, for the most part, we've been trading from the short side and bangin' with Boo. When we flipped our lid and gave Snapper the nod on Thursday, Hoofy was admittedly excited. It'd been a long time since he rock and rolled and he was only too happy to shake his bones. Emboldened by DELL earnings (solid vs. expectations) and (firmer) economic numbers, he stampeded higher and set the stage for today's trading.
With the averages reversing a four week slide, the debate has already begun--was that 'a' bottom or 'the' bottom? Was it 'the' bottom or THE bottom? Well, let's start by eliminating THE bottom from the mix. While it's hard to know for sure (without the benefit of hindsight), I'm fairly certain that the entire bear cycle bottom wasn't put in on Thursday. It's my (humble) estimation that the rally was technically oriented, the path of maximum frustration was higher and it simply got too jittery. Could the squeeze morph into 'the' rally? I suppose. Do I sense that will happen? Not yet.
From a pure trading standpoint, the rally back towards resistance was somewhat intuitive. Textbook technical analysis dictates that a stock (or market) should retest a breakdown (breakout) level before resuming it's decline (advance). After a series of continual breakdowns (S&P 870, S&P 840, BKX 725, SOX 280), it was a matter of time before a counter-trend rally ensued. However, with the fear guages never reaching compelling levels, resistance traunched on the upside (see above) and the world issues continuing to linger, I (humbly) attempted to fade the fade's fade after Friday's close.
Admittedly, this could be threading the needle and I'm quite consicous (and respectful) of the upside risk. However, if we're to get (bullish) confirmation from the intermediate indicators, the ducks seemingly align for one more meaty downside trade. I continue to be of the opinion that the October lows are suspect and, quite honestly, I sense that they need to be broken if we're to find sustainable jig. IF (big if) that happens, there will likely be a compelling disconnect and an excellent entry point for the bulls. Of course, when (if) that occurs, buying will likely be the LAST thing on our minds--but that's what it feels like during 'a' bottom.
Will that be THE bottom? I'd have to say no--but it could be the start of a bullish phase within the context of a bear cycle. I continue to feel that time is the only thing that will cure our big picture ills and we remain in the earlier innings of the bear market. With that said, my job description dictates that I focus on the journey--not the destination--as we find our way along the path. As such, it's incumbant upon me to keep an open mind, assimilate the metrics and take our path one step at a time.
Due to the snow job in the northeast, all flights to New York have been cancelled and I'll be holding court down here in Rubyville. As it stands, I'm scheduled to depart this evening and, weather permitting, I'll be back in my digs tomorrow. In the meantime, I'll be operating with makeshift systems and will do my best to get timely, value added posts to my fellow Minyans. Thanks so much for understanding and, as always, remember to think positive--we'll get there.
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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