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Camelot Awaits!


This is SO exciting--we've never had company in Minyanville before!


Good Morning and welcome to our metaphorical joust. With Friday's late spurt, Hoofy's heroes secured their second straight winning week and officially put the bears on notice. They were tired of being lanced by the ursine uglies and, armed with green seeds, they converted some of the once hostile crowd to their side. Was this the beginning of the revolution that will break the bulls free from resistance? Or is this simply a last gasp for freedom before they face their inevitable fate? Saddle up that steed and sharpen your marbles, my friends--it's a new week in Minyanville and the games are about to begin!

We often discuss critical junctures for the market and these current levels are shaping up to be just that. The purist would argue that, after the S&P slid 130 handles in a month, this latest lift was intuitive. Conventional wisdom dictates that the October lows weren't in jeopardy from such an oversold state and the first test was the "easier" trade. Now, with that bungee condition all but a memory, we must once again project our metrics and take a lay of the land.

Technical analysis has always been a linchpin of my methodology because it offers a backdrop with which to formulate a strategy. During early February, we discussed the difference between churning and basing and how perception would dictate reality. At the time, the market broke major support at S&P 870 and traded sideways for a week. That action was the only (brief) respite during the straight slide from S&P 935 and, absent an exogenous shock, the market rarely flows that far without intermittent ebbs.

I bring this reference to light because we're quickly approaching that same price congestion and one of two things is occurring. Either this is a textbook retest of the breakdown level and the new found enthusiasm is a bull trap OR sideways action (from here) will set the stage for a reverse head and shoulders (bullish). Yes, two separate patterns with two entirely distinct implications but, regardless of which camp you're currently in, you must respect and acknowledge both scenarios.

Quite possibly and most probably, the Minx herself isn't sure of which path she'll choose to take. The perception of the geopolitical situation is clearly influencing psychology which, in turn, will dictate the price action. Everywhere you look, there's an opinion on whether there will be a war, how it will impact the tape and what the best trading approach is. To complicate matters, you've got zaggers like me trying to ascertain the mindset of the masses so we can take the other side. It's quite messy, really, and the stakes have never been higher.

There are several strategies for navigating this beast and the one you choose is unique to your particular risk profile and time horizon. For my part, I've chosen to fade (read: sell into) this rally as we approach resistance and alleviate the oversold condition. However, I'm acutely aware of the upside risk and I've set defined parameters on my exposure (via option plays and/or levels). In other words, I have a view that I feel warrants playing--but I am humble enough to know that we're all wrong at times and while I may trip, I certainly don't want to fall.

Either way, we likely won't have to wait too long to find out who's gonna win this battle and this week should offer insight as to which camp will take control. We will have to contend with some post-expiration hangover flow this morning but after that, we'll see what she's got. IF (big if) the bulls can hold these levels early, they'll likely attempt one more push towards S&P 870. Then? The REAL games would begin!

On an entirely more important note, The Ruby Foundation for Children's Education and Jacob's Cure are proud to announce that our charity auction will begin today! We're (humbly) offering a full day in Minyanville from soup to n-v-t-s nuts. We'll begin with some bagels and schmear, walk through my entire morning process assimilating the metrics, spend the day trading, fading and writing, break for some Sushi (wasabi!), spend some time on the floor of the New York Stock Exchange (optional) and, finally, cap off the day with a gaggle of Grey Geese! Click here for more details! You'll leave Minyanville with a signed critter poster, some great insights and the knowledge that your donation bettered the lives of children. That, my friends, is awesome!

Good luck today.

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