The Triangle Offense
The Bank of England stands pat and the ECB snips 25 bips--is that enough?
It's raining cats and dogs in Minyanville this morning which, I suppose, is apropos--we are a city of critters. Despite the inclement weather, our critters got an early start--we discussed some potential strategies out of the gate, I dragged the Menagerie to the gym for a quick schvitz and, when I'm done with this column, I've got to take the felines to the v-e-t. I'll surely be strapped into my seat by the opening but Fokker will have the con in the interim (gulp!).
I'll like to draw your attention to something Sammy spotted in the opening post. If you pull up a six month chart of the S&P, there's an very interesting pattern forming that warrants our attention. First, draw an uptrend line from the October low through the February 13 low (we held it yesterday)--that will give you the bottom of our pennant. Next, draw a downtrend line from the January 29th top through the consecutive lower highs--that's the top of our pennant. You see how the range is narrowing each day? It illustrates what many of us are feeling: this market is coming to a head and is readying to make her move.
Not surprisingly, the same pattern exists in the all important bank index (BKX) and, to a lesser extent, the NDX and SOX. Historically, pennant (flag) formations are "resolved" in the direction of the prevailing trend--which, in this case, is clearly down. However, with a binary event in our midst, we can't blindly trade the technicals. We can surely factor them into our mix and use them as a backdrop with which to trade, but we must not defer to them (or any one metric) with the geopolitical landscape as it is.
As it stands, my (humble) sense is that there's potentially 40 S&P handles upside risk and 100 handles of downside risk in the near-term. If the pennants are resolved on the north side, I'll likely step aside and play spectator. Until that happens, however, I plan to hold my defined risk April puts and keep (at least) one leg in my bear costume. I'd be much more comfortable giving Hoofy the nod if Snoop Tone's intermediate ducks started quacking and some of my measures registered a downside disconnect. They're a ways off--as a matter of fact, Tony's work shows that, on the aggregate, more NDX stocks are overbought vs. oversold.
Intel delivers it's mid-quarter update tonight and the lion's share of opinions I've heard have them chopping off the lower end of their range (positive). I have no insight, per say, as to what they're gonna offer but I continue to look at the SOX stochastics with a wary eye and scrunched nose. Can they rally? Sure. Would it surprise me? Yeah...but I've been surprised before. Either way, it's on every trader radar out there and it should be on yours as well.
I've got to run and collect the animals--they hate the v-e-t with a passion and I'm about to become their least favorite person in the world for taking them there. Hey--regardless if your a critter or a trader, sometimes you gotta bite the bullet and suck it up. I'll be back in the saddle by the opening, Mon Frere, so enjoy the rest of your morning and remember to breathe. Emotions are high and we must remember to remove them from our process and think positive.
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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