Dancing in the Street
As it stands, the series of higher highs (and higher lows) has continued for a second day!
Hold me closer tiny dancer
Count the headlights on the highway
Lay me down in sheets of linen
you had a busy day today
The pitter patter of tiny ticks continues as we edge through this slow, Monday session and traders (thus far) can't seem to make up their mind. Is this the proverbial wall of worry that stocks historically like to climb? Is the short side a "lay up" in front of an almost certain (and messy) Middle East conflict? Will Toddo ever achieve the type of discipline in his diet that he enjoys while trading? These are all very good questions, my friends, and each of them merits a dose of attention. Let's take a look.
I've often opined that when something seems too easy in the market, it likely is. Think about it...we're on the brink of a major conflict (that many of our allies don't condone), there is rising tension with soon-to-be nuclear capable countries, Latin America is a forest full of dry leaves (awaiting a spark) and, for the most part, there's Corporate invisibility (with regard to the outlook). Factor in the recent technical breaks in the market and, well, oofa loofa!
It's sooo bad (how bad is it?!?) that it's almost too obvious for the bears. However, if you try to zag to the upside, you're exposing yourself to a potential "DOH!" if we do, in fact, trade appreciably lower. It's a tricky catch-22, to be sure, but this is the life we've chosen and, as such, we've got to play by the house rules. Nobody said it was gonna be easy!
Any trading outcome is a function of time and price and, if we adhere to our discipline, the definition of an investment should never be a trade that's moved against you. As such, you'd do well to quantify your approach and set parameters in which you define your exposure. That means, quite simply, that you should identify an applicable horizon and/or price point in which you'll fish or cut bait.
Those playing via the option market may achieve this by choosing a particular expiry (I've always liked the "out month" or, in this case, March paper). When the time comes and the paper is set to expire, we can always "roll" our position and buy ourselves more time. The conventional "vanilla" traders among you can set similar parameters but you've got to stick to your guns when the time comes. Rationalization may work if you're blowing off the gym from some Grey Goose apple martinis, but it's a cardinal sin when risking your hard earned capital.
The other option (no pun intended) is to stick with our price points. If your catalyst is, say, a breakdown at SOX 280 and the group subsequently rallies through your level, you've got to ask yourself some serious questions. What is my catalyst? Am I hoping? Am I wrong...and if so, how do I cut my losses? I've always felt that good traders know how to win but great traders know how to take a loss. It's one of the hardest things to learn but, over time, it will set you apart from your brethren.
Focusing our attention back to the tape, I've started to see some sizable QQQ call buyers and (as I'm sure you know) I tend to view that as "contra." Meanwhile, the Nasdaq breadth is negative (not confirming), the S&P breadth is starting to even (9:7) and Hoofy and Boo continue to trade jabs in the banks and semis. It's generally a recipe for doing less and, after slipping my leg in my metaphorical bear costume a tad higher, that's pretty much what I've done.
I'd like to make one last observation before I go and polish off this chicken (no bun). This is a hairy business and there are plenty of times that DEFCON stress is warranted. The key to longevity, in my humble opinion, is the ability to relax when it's quiet while NOT losing your relative edge. If you play every down like it's 4th and 10 at time's running out, you're not going to be in a position to summon your energy when you really need it. Controlled aggression, fellow Minyans, as we find our mojo and make our mark.
As always, I hope this finds you well.
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