You wanna run? I'LL show you a run!
Good morning and welcome back to the Schvitz City. These are difficult times, to say the least, and the trading dynamic seems to get a bit harder each and every day. Last night, after another aggravating session, the Menagerie laced 'em up, stretched 'em out and joined me for a run in Central Park. After a few miles, we pulled up at Sheep's Meadow for a water break and, shockingly, the conversation turned to the tape. It went a little something like this:
Daisy: What's with all the stares? You'd think that these people have never seen critters before! I mean, honestly, this is New York City--we should be the one's staring at these characters!
Toddo: Take it as a complement, Daisy--you're udderly hot in your spandex body suit! Besides, everybody's going through their own thing these days and a little empathy goes a long way. Take Hoofy for example, he's been beaten more than Pee Wee Herman in a movie theater but he's still chuggin' along. He knows that adversity builds character and despite the grizzly market, he's not letting his performance define his existence.
Boo: What existence Toddo? There's a difference between existing and prospering--there's money to be made here if you're trading sharp. You, more than anybody, should know this. You're the one who's been harping on the technical failures, the fundamental malaise. the European Meltage and the huge issue of U.N/U.S discord. Yet, you're running around like a scared bear. I don't get it!
Hoofy: Easy there--you know what happens every time you get smug! For the most part, you've been the critter of choice ever since we violated S&P 870. That's a fairly meaty trade, young cub, and there ARE huge unknowns out there that can shift psychology on a dime. Granted, the lion's share of the flow we've seen (until yesterday) implied a fear of missing (rather than a fear of losing) and that's historically been a flag. However, my buddies will defend S&P 775-800 as they know how important it is.
Boo: Hold on a second. First it was S&P 870, then S&P 840, then S&P 830, then S&P 820, then S&P 806, now you're wary of S&P 775-800? I don't understand...does that mean you'll turn negative if we trade through those levels? That's silly! I'm not sure I understand how technicians do it if, by definition, they are bullish higher and bearish lower. That's a recipe for some serious whippage!
Sammy: You make a good point, Boo, but it comes down to a question of style and methodology. There are Minyans out there who trade from the short side and others who play long only. The techncial metric is simply a framework with which to operate. Surely, and I don't mean to call you Shirley, the bears have had the wind at their backs ever since the January reach at S&P 930 and BKX 800. We're no longer toppy, though, and while the path of least resistance seems to be lower, the field position isn't at an extreme (either way).
Snapper: What about this U.N resolution, Toddo--the White House said that they'll put it to a vote this week?
Toddo: I'm far from a political analyst, Snaps, but I've gotta think that IF (big if) the U.N doesn't back military action and IF (big if) the U.S invades Iraq anyway, we could see some serious slippage. The key here, in my most humble opinion, is unity. This isn't an endorsement or indictment of what we should do, mind you, I'm simply trying to climb inside the collective psychology. If Dubya thumbs his nose at the U.N, I'd carefully monitor the dollar. If it comes for sale, it'll likely take equities with it.
Hoofy: But that could be a good thing, right Toddo? You and Snoop Tone have been harping on the importance of his intermediate ducks. If we take out the October lows and real despair sets in, isn't' that the precursor for the bullish phase you guys have been eyeing?
Toddo: Potentially, Hoofy, but we can't project our risk profile that far ahead. Besides, nobody can consistently outthink the Minx and we must always allow for a margin of error in our approach. Discipline trumps conviction and you should never bite off more risk that you can comfortably chew. We've got to take our journey one step at a time and keep our right hand up. Now, can we PLEASE put it to rest for the night and continue our exercise? I said on the site yesterday that I was 200 lbs and, as I don't lie, I don't wanna have to chop my right hand off to make weight!
The critters let out a quick chuckle and turned their attention to the road ahead. They knew that Hump Day loomed and they'd have the rest of the week to digest the flickering ticks. Daisy led the pack, Hoofy closely followed while Sammy, Snapper and Boo filled in behind them. Me? I counted to ten and tagged along at a safe distance. I was getting a kick out of the various expressions from the other runners and, in this environment, I'll take my smiles where I can get them!
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 email@example.com.
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