I knew that the slither was too good to last!
Yes I'm stuck in the middle with you
And I'm wondering what it is I should do
It's so hard to keep this smile from my face
Losing control, yeah, I'm all over the place
Good morning and welcome back to the ducks that quack. The soft Tuesday drift was a short gamma gift as the bulls and the bears both continued to shift. "I remember the days when the market was hopping," said Daisy the cow from Main Street while shopping, "but yesterday's tape was flippin' and floppin' and dicing up traders with all of its choppin'!" Can Hoofy step up and rescue this beast or is the Minx dead, washed up and deceased? Relax, my good friends, and shake off those jitters 'cause Hump Day is here in the city of critters!
We've been doing this daily dance for quite some time and watched alotta shvitz hit the fan. There have been momentum driven "greater fool" environments, tapes that begged us to buy hope and sell despair, structural deficiencies and imbalances, invisible hands, unforeseen catalysts, cycles, phases, trends, nuances, spikes, dips, blips, flips--the list goes on and on. Throughout it all, the single most important determinant of consistent profitability was the ability to adapt, remain "proactively open-minded" and feather discipline throughout.
There isn't a day that goes by that I don't learn something new from watching the tape. Perhaps that's why Wall Street attracts so many eager young minds and, as an extension, spits most of 'em back out. There's an old saying that if you want to make money, you gotta stand near the cash register. The problem is that when the register constantly rings, as it did throughout the bull run, a complacent expectancy builds in the mindset of the masses. That sentiment was surely shaken during the first (dot.com) bubble but we need only to turn on the television to view the forbidden fruit.
Anyone who comes to battle every day will tell you that the dynamic--whether it's the guts of the tape or the tails of the return--has gotten increasingly difficult. The proliferation of hedge funds surely adds capacity to an already crowded industry which, when coupled with the shrinking margins (decimals), acts as a microcosm for business in general. Wall Street stagflation? That's the ultimate destination, in my view, but the path will be littered with false hope, empty promises and alotta head fakes along the way. No way, you say? Look at it this way-if everyone knew it was coming, it probably would have already passed.
We awake this morning to find the world a seemingly safer place on the heels of a massive two day Asian rally. That far out, er, far east optimism spread to Europe which, in turn, filtered into the overnight stateside mechanism. Remember, please, that Friday's expiration is likely exacerbating the price action (both ways) and swings will be moodier than usual. That's difficult to game but necessary to respect as we edge ever-so-gently into Friday's derivative funeral.
Is this rally sustainable? We know a few things are simultaneously in motion. First, a handful of respected technicians (and technical services) stepped up last week and slipped into their hoofs. As perception is reality--and the S&P 200-day held anew--that view will be emboldened with each uptick. Please be conscious that the entire trading community has placed their stop-loss orders under last week's low (and will be using that as a backstop). On the upside, the techs will have the double-edged sword to contend with as the 200-day (NDX 1418) and 50-day (1436) await in the attic above.
Lots going on so I'll letcha hop and chew through the spew. Good luck today, my friends, and just remember--you're a Minyan.
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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