The goal is to be in a position to take your cuts when they should be taken
Good morning and welcome back to the funhouse. Yesterday's bump and grind ended with the averages marginally higher and investors holding their collective breath. With the entire tape waiting to exhale, Microsoft (MSFT:Nasdaq) and Intel (INTC:Nasdaq) reported earnings that, juxtaposed against expectations, were greeted with unbridled enthusiasm. Is this the spark needed to ignite a dry forest, Gump, or will the Minx exhaust herself trying to get over the hump? Saddle up your pony and get ready to ride, for the trail is bound to get twisty!
With everybody focused on the same technical levels, we've been wondering aloud if they've lost their effectiveness to act as tradable guides. Indeed, if the Minx is destined to travel the path of maximum frustration, chances are she's gonna give technicians every reason to bite before biting back. As the S&P and NDX flirt with their downtrend lines from November's top (915ish and 1185ish), we're left with the obvious question: When is a line THE line and when is enough enough?
If discipline is to truly trump conviction, there have to be discernable levels (or premium) that defines our risk. I've said it before, good traders know how to make money and great traders know how to take a loss. That's certainly easier said than done but it's a medicine we must learn to take if we're to stay in the game long enough to find our way. Just remember Minyans, strategy is our strength and not disaster.
While I remain steadfast in the belief that these breakouts (if and when) will prove to be another in a string of broken upside promises, we must continue to take the journey one step at a time. I want to maintain my downside gamma but I'm conscious of the "constructive" field position of tech (relative to the S&P). As such, I've been eyeing S&P 905 (last Monday's exhaustion top) as an initial line in the sand. If elected, I will pare my S&P short or look for some NDX (defined risk) upside rentals (and attempt to capture the relative disparity between the complexes).
I'm conscious that "real" resistance will be found at the upper end of the range (Tony's ducks) and, if/when we get there, the internal mechanisms will likely line up for a compelling trade. Opportunities are made up easier than losses, however, and we'll cross that bridge if and when we get to it.
Keep an eye on S&P 900 and as it has a large open interest (expiration) and it'll act as a magnet. If (big if) we get any discerable jig away from the strike price (up or down), the volatility may be exacerbated. Also, and this is an important point, please remember that bear market rallies typically end on good news (rather than bad). Often times, the "upside" confirmation is the last gasp of the collective breath.
I want to be clear -- I don't trust this market and I believe that the combination of complacency and bullishness has the potential to fuel a messy spill. However, if I've learned anything over the years, it's to respect the process and, if nothing else, maintain the humility necessary for longevity. For if we don't remain humble, the Minx will do it for us.
Good luck today.
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