Not all witches are evil!
Good morning and welcome back to the critter shack. Yesterday's skit was a quite fitting split as the bulls and the bears were both scared to commit. After the whip that slipped, flipped and then ripped, the rudder was flat on the big minxy ship. The crew gathered late for a beer and some hoops and the bar was divided into two distinct groups. On the left were the bears and they felt pretty good as they're ready to pound the sharp nail in the wood. On the right were the bulls and their eyes they did shine as they're darn pretty certain that everything's fine. Fokker, on a J-Date, was nearby and picked up the following chatter. It went a bit like this:
Boo: I'll tell ya, I had 'em dead to rights yesterday until Bloomberg reported that SKY news, citing AP sources that heard from a friend's sister's uncle's cousin, that they had someone "big" trapped in the foothills of Afghanistan. Nobody hates terrorists more that I do but does the tape really have to trade on every headline and innuendo? I'll tell you what it is, it's the hedge funds that are making this thing so whippy--everyone is chasing the same news.
Snapper: (sitting near Hoofs): It wasn't just that, Boo, it was partially due to the gaps that filled (from Wednesday's opening). The news happened to coincide with a number of technical fills--including QQQ $35--and there's a shot we woulda bounced anyway. Toss some fear in the hearts of the burnt bears and, well, it didn't take much to spark the shark.
Hoofy: And you're forgetting about the constructive stochastics and fundamental inputs. Industrial companies are tellin' ya that things are fine, we're seeing upside guidance in a bevy of sectors. To top it off, there are more bears around these days and we want that element of fear if we're to power higher. You know the drill, right? (looks at Boo).
Boo: Thefundiesarealwaysbestatatop what? (pauses to let it sink in) Look, that news squeezed the bejezus out the newbie shorts, filled the opening gap and failed right where it had to (S&P 1125). And I don't mean to be a downer but even if OBL was strung up by his toes, do you really think that it'll serve as a minxy panacea? I mean, aside from the fact that he's not gonna help Cisco (CSCO:NASD) sell servers or Caterpillar (CAT:NYSE) sell equipment, his vaporization won't sound the all clear signal either. To be frank, I'm quite concerned about what could happen WHEN they catch him!
Daisy: (wearing a Minyanville baby tee) You can't live your life in fear. If you did that, you'd have missed alotta upside.
Boo: (eyeing her) And you would know about "upsides."
Sammy: Daisy makes a good point, Boo, but I would like to qualify her thoughts a bit. There's a difference between trading in fear and respecting the risks. This is a unique time in the world and in the markets. Risk premiums--and option volatility--went from one extreme (last March) to the other (last month). Now we're meandering through a period of price discovery as our metric base rejiggers.
Daisy: You male critters are all the same. Why do you have to figure out the rest of the world all at once? The technicals always provide a good backdrop with which to formulate a strategy and they're relatively defined. We know the near-term S&P situation--1125 is resistance and 1100 is support. For the four letter freaks, NDX 1430 is first resistance and NDX 1450ish is a more formidable barrier (NDX 1395 remains support). Monitor those, watch the financials, semis and breadth and respect the fact that alotta witches will be banging on today's door with their broomsticks.
Hoofy: You are such a biscuit!
Boo: (rolling his eyes) I'm playing the tape this way--I'm short with a stop above S&P resistance (allowing for wiggle room) and I'm playing the tape for a meaty move back into the mid S&P 1000's. If I'm wrong, my risk is uber-defined. If I'm right, I've got great reward relative to my risk. That's a good trade set-up and while I don't know if it's today's business (expiration may provide stickiness), that's the plan Stan!
The snow fell outside the window as Gerry McNamara rainbowed three-pointers on the big screen. The critters continued to banter about the crosscurrents, talk about the net outflows (-$22M) and qualify their comments as a function of expiration. The smart money in the bar was quietly enjoying the company of good friends and the college hoops. For if nuttin' else, they knew the importance of appreciating what we've got while we have it. It was March Madness and they were surrounded by those they cared about. It just doesn't get any better than that.
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 firstname.lastname@example.org.
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