Field of Dreams
You ever hear of the rope-a-dope?
Ooh dream weaver
I believe you can get me through the night
Ooh dream weaver
I believe we can reach the morning light
The early firestorm has morphed into a quiet morning grind (higher) and, through objective eyes, the action (thus far) has been constructive. The banks hold their gains, the semis shrug off Novellus (NVLS:Nasdaq) and the breadth has improved in kind. All of this leads to the natural question: If bad news can't hurt 'em and "ok" news rallies 'em... what happens if good news emerges?
It's a valid question and one that I've been kicking around a bit. Let me be perfectly clear, Mr. Nixon, I have very little doubt that this is gonna end with red tears. What I'm struggling with is the timing aspect of the trade and, as we know, timing is everything. As an extension, I'm trying to identify a strategy that marries my view with the discipline necessary for longevity.
A couple of thoughts on our current juncture -- the S's over N's trade, while still in motion, is due for a break. The SOX stochastics and BKX stochastics are at the opposite ends of the playing field, and at some point, they'll likely pass each other on the 50-yard line.
How am I incorporating that into my current strategy? I've got 1000 QQQ April 26 puts on (bought near the close yesterday) and, when I saw that the semis were in shrug mode, I rented 50,000 QQQ against them to set up the gamma goblin (pure trading vehicle).
That addresses the tech (tape) exposure but what about the financials? I've seen short-covering mixed with rotational buying in the group and, while I respect the action, I still want trade around those cheap (vol) puts and attempt to use prices to my advantage. Again, my issue is simply one of timing and as I've got May puts, I don't have to make that decision right here, right now. As it stands, I'm methodically scaling into exposure as per my stated strategy. Right or wrong, but always honest.
I've still got two legs in the fur and I'll rethink that posture if the S&P powers through 905. In the meantime, it's business as usual in the city of critters as I prepare for tonight's big events.
As always, I hope this finds you with some jingle in your jeans and a smile on your face.
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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