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Tuesdays with Minyans

By

Don't forget, the Cisco kid rolls into town tonight and he's gonna paint the tape!

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Raven hair and ruby lips
sparks fly from her finger tips
Echoed voices in the night
she's a restless spirit on an endless flight

(The Eagles)


Good morning and welcome back to our daily sit down. A full-fledged debate has emerged between Hoofy and Boo regarding how to approach this current juncture and it feels as if the rubber will soon meet the road. While both of our heroes offer salient arguments for their respective posture, it's become increasingly evident that one of these critters is gonna go home in tears. It's a high stakes game of financial chicken and he who blinks first, sinks first--and there's no points (or sympathy) for second place!

I've always said that the best trades are the hardest trades and, as it stands, neither posture is enjoying a free ride. The bulls must contend with corporate invisibility, geopolitical crossfire and technical cracks in the foundation. The bears, meanwhile, are backed up against a wall of worry and staring at stochastic buy signals (which will, at some point, will kick in). It's truly one of the trickier periods in recent history and, as it hasn't exactly been a cake walk to this point, that's saying something!

Trading is an evolving process and we must constantly weigh our inputs and assign a probability of outcomes. At times, our "better" tells will offer conflicting signals that contradict each other. When that happens, as it is now, it's prudent to reign in our risk a bit. That doesn't mean we can't play, mind you, it just means that we should respect the process and stay tight (via defined parameters or lower levels of exposure).

Intuition and hairs on the back of our neck are low rungs on our trading totem poll and, taken in isolation, don't offer sufficient reason to risk our hard earned capital. However, when synthesized with the other trading metrics, they'll often seep into my methodology as a tie-breaking device. In other words, there IS a good argument either way here...but as a function of my big picture (bearish) view, I've chosen to lean against S&P 870 (where we broke) and view the recent action as churning rather than basing. It's a judgment call, really, and when it works it's "nice feel cookie!" When it doesn't (and it's bound not to at times), it opens the door for second guessing and "what the heck was my edge?"

Put another way, if we hadn't broke significant support in the major indices and my stochastics were coiling (as they are now), I'd be dancing with Hoofy and packing a knapsack (to climb the wall of worry). That still may be the money trade--only time will tell--but, as it stands, I sense that we'll be able to add cheaper exposure. Is it too cute to play the nuance down? Only you can answer that question, my friend, as you're the only one who knows your time horizon and risk appetite.

Finally, and perhaps most importantly, understand that if you're not mandated to trade everyday, DON'T! Many of us have been conditioned to believe that our role is dictated by what we trade and how often we do so. That mindset has weeded out a lot of players and don't kid yourself--it's only just begun!

Depsite the meltage in the averages and the increasingly difficult dynamic of trading, our industry is still mired in overcapacity. The goal, in case it hasn't been tatood on your forehead yet, is longevity and consistency. Slow and steady wins the race, cookie, so focus on the minutes. The hours will take care of themselves.

Good luck today.

No positions in stocks mentioned.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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