The Technical Tightrope
Watch those financials, cookie--they hold the key to the entire marketplace!
Caught up in a whirlwind, can't catch my breath
Knee deep in hot water, broke out in cold sweat
Can't catch a Snapper, in this rat race
Feels like I'm losing ground, at a breakneck pace
(Stevie Ray Vaughn)
Well, friends, here we are. Everybody in the free (and otherwise) world has been waiting for today as the most important secretary in the universe, Colin Powell, will take center stage at 10:30. After fetching coffee for the U.N Security Council, the big guy will likely document Iraq's weapons of mass destruction and it's "intersections with various and sundry terrorist groups," according to U.S Deputy Secretary of State Richard Armitage. How the Minx reacts to it, however, is still very much up in the air.
As the slightly stunned Hoofy said this morning, trading doesn't occur in a vacuum, it's about the three dimensional juxtaposition of news, field position and psychology. My particular style has always been to use technical analysis as an initial backdrop with which to formulate a strategy. We all know that S&P 870 is a rather imposing upside line in the sand--we've discussed it ad naseum. However, as I was walking through Dorsey Wright this morning (as I like to do to start my day) I pulled up a chart of the S&P and saw a rather ominous triple bottom forming (will confirm at S&P 840). What this means, quite simply, is that we now have a defined range with which to trade. If we tick at 840, we confirm a new break that points, potentially, to the October lows. If we can hold this level, there's no fresh resistance until we get back to daddy's nemesis (870).
Once we've identified discernable levels (and assigned a method to the madness), we can begin to assimilate the news and mood. The big story last night was Cisco and while Chambo continues to view the world through rose-colored glasses, I'm not sure that there was too much to get excited about. There's no "smoking gun," so to speak...it's just more of the same 'ol, same 'ol. It's very tough, no visibility, IF and when the economy turns...yada yada yada.
In a quick check of other news, Solly upgraded CB while punting ROH and PPE, the mighty Bear defended DELL, Pru upped AA, Morgan upped WM while downgrading MYGN and FNF, TWPT upgraded QLGC, Monty upgraded CNXT, UBS Warburg upgraded EMMS and JPM Chase was cautious on XLNX and ALTR.
Where do I stand? These are the (humble) thoughts flying by behind my eyes at this early hour. I don't sense that this latest slippage qualified as the "Sham" (sell off) in our Shim Sham thesis--but I'm quite conscious of the coiling stochastics (still) and the many unknowns that remain in our midst. My predication, as it stands, is to continue to fade (read: sell) rallies. Could there be a strong spike nestled in here somewhere? Sure...that would probably catch most people off guard. However, a tremendous amount of technical damage has occurred in the market (triple bottom break in the BKX, head and shoulders in the NDX and SOX, bearish wedge break in the BTK, violation of S&P support) and, until I see some leadership from the financial complex, I'm gonna keep my right hand up and my risk parameters tight.
Remember, for the more active traders among you, it's not necessary to map out the rest of your entire financial life right here, right now. If you're unsure, take a step back and don't feel compelled to press an unresolved issue. Our daily tea leaves offer guides but, with so many balls in the air, the Minx can change on a dime. Small, baby steps may not get us to our destination as quickly as we'd like, but we're likely to arrive safer. And in the end, that's the most important aspect of any journey.
See you after the opening.
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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