Wait for your set up and then trade to win!
The city of critters was hopping last night as the animal kingdom digested the latest rally and the menagerie gathered at the Birdland for some Jazzy brews. As Snapper wailed on the sax, the rest of the fearsome fivesome sat in their favorite booth and bounced to the tunes. It wasn't long before the conversation turned to the Minx and her daily dance.
Hoofy: (a little woozy) Otto, another round ova here! We're celebrating, baby, and the drinks are on me!
Boo: (staring dejectedly into his empty glass) Make sure you order enough for the iguanas, they've gotta be really thirsty by now. Bonds up, stocks up. Bonds down, stocks up. Dollar down, stocks up. Dollar up, stocks up. Bad economic news, old news. Good economic news, new news. The pen is blue!
Sammy: (slithering over to the young bear) Boo, pick your head up, will ya? Feeling sorry for yourself isn't gonna help your situation. It's not like yesterday was a huge shocker, was it? If the biotechs and semis are leading indicators for tech and the banks lead the big board, you can't be surprised by the sparkage. Remember when we discussed the down/up/DOWN thesis a few weeks ago? For all you know, we could still be in the guts of that trade.
Hoofy: Don't encourage him, Sammy, he'll start asking if "this time is different" again, the same shtick he's been hanging onto the entire rally. Or perhaps he'll offer that this is simply a bullish phase in a bear cycle... like that matters! (spilling his beer) All that matters at the end of the day is whether the screens are green and, jeez Louise, they've been evergreen!
Daisy: (wiping up the mess and smiling) Yes, Hoofs, the drinks really are on you! Please don't let the intoxication of higher prices cloud the message -- those who don't learn from the past are destined to repeat it. Yes, we're in rally mode but different folks use different strokes. Not every Minyan is an active trader. In fact, most are longer term types looking to better understand the mechanism of the market.
Hoofy: Alright, Daisy, toss on some greasy overalls and lets talk mechanism. Fundies? The last input was earnings and until proven otherwise, they're constructive. Technicals? If the banks are a leading indicator, doesn't S&P 950 equate to BKX 800 on a breakout? Structural? Oops, there it is... the dollar is rallying vs. the Euro (chatter of an ECB rate cut). And psychology? Puh-leeze, the buyers are always higher when performance anxiety is involved -- particularly in front of month end.
Sammy: Yes, Hoofy, and it's hard to argue with performance. The bears have clearly been rationalizing. Why? Because the market is higher. Keep in mind, however, that there are always two sides to every coin. If Boo had any voice left, he'd counter that the fundamental valuations are lofty for a "cycle turn" and there are other warning signs as well. The Investor's Intelligence bull/bear survey, despite a slight correction, is still at historically manic levels (bulls 53.8 vs. 56 last, bears 22 vs. 20.9 last, correction 24.2 vs. 23.1 last), insiders are dumping stock and there are signs of speculative excess.
Boo: I have a voice, Sam... it takes more than this to shut me up. I'm just trying to be patient and wait for my pitch. I remember when grandpa Neil Glassman used to sit around the campfire and tell me stories of bubbles and troubles. Smart shorties, who were dead on with their directional call but early in their timing, were squeezed out of their positions by the time the cows came home. (Looks at Daisy) No offense. I don't wanna be THAT bear -- but I'm tellin ya, I'll have the last cowlick.
Hoofy: Time will tell, Mr. Furman. Just remember, please, that Minyanville was created as an educational tool and our job is to teach. That's why I'm staring at these levels in the S&P -- we're tickling the trendline from January 2000 and if they can push through, that could lead to the much anticipated 'blow off.' It all depends on the supply/demand equilibrium. There was a notable absence of sellers yesterday and that, as much as anything else, contributed to the upside surge.
Daisy: (standing up) Alright, Serge, enough tape talk. It's bad enough that I lose you each day to your job, I refuse to lose the nights too. Get up here and treat me like the cow I am! Dance, I say!
Hoofy stumbled to his... hoofs... and joined his shapely heifer on the dance floor. He knew that Hump Day was gonna be a doozy and there would be plenty of work to do in the morning. Snapper continued to wail away, Sammy and Boo took a lap around the bar and the rest of the critters lost themselves in the music. They knew, above all else, that they worked to live -- and life's too short to take any time for granted.
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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