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The Purge Urge

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Bear market rallies typically end on good news.

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Good morning and welcome back to Judge Minx. You could almost hear a collective burp yesterday as the market digested her recent gains and took a breather. After last week's impressive climb and two fresh breakout signals (BKX, Dow Jones), she graciously allowed the catch-up crowd to climb aboard an already crowded bus. Will the path of least resistance continue to reward the bulls or is this particular journey destined for Red Dye Junction? It's Tuesday in Minyanville, ladies and gentlemen, so collect your tokens and lets take a ride!

There's no shortage of opinions regarding the stock market and, as is usually the case, the forthcoming price action will validate (or invalidate) our individual thought process. In a world where performance doubles as a badge of honor, we're only as good as our last trade and memories tend to be short. Such is the life we've chosen and if we're to attain the consistency necessary for longevity, we must learn from our errors while humbly (and graciously) taking our gains. It's a tedious process at times but as the bubble so viciously taught us, financial frailty is a risk we all share.

I was too cautious during this rally or, put another way, I've been wrong. I've adhered to a stylistic approach over the years and while my downside ducks lined up at times (during the past two months), the ability of the market to ignore bad news was a telling sign. I own that -- it's the cost of doing business and any trader worth his or her salt understands that it's part of the game. In the vein of viewing the big picture as a series of little pictures however, we can't dwell on what was -- we must identify what will be.

If stock market moves are characterized by three phases -- denial, migration and panic -- my sense is that we're in the latter stages of that trifecta. If warrants a mention that I DON'T subscribe to the notion of a new bull market and, if I may be candid, I'm more concerned with the eventual move to new lows. Whether or not that warrants the term "crash" I don't know -- it very well might -- but that's (likely) not today's business. My hat reads "trader," not prognosticator and, as such, I've got to walk that journey one step at a time.

My current strategy was discussed yesterday. I'm accumulating June out-of-the-money puts at (what I deem to be) attractive volatility levels and renting stocks intraday as a trading vehicle. All the while, I'm scanning for actionable "situations" where I perceive an edge. I appreciate the potential for one more blow-off type rally (perhaps on a "good" Cisco (CSCO:Nasdaq) report?) but I'd rather use that strength to get more aggressive on the short side. I've got enough gamma on now such that if it happens, I'm well represented. If we get the upside give-up, however, I'll look to unleash the hounds.

The focus today will be on the Elmerfest at 2:15 and Sir Chambo after the close. Intraday, watch the dollar (weak again), the BKX (must hold 800) and the semis (faded hard into yesterday's close). The stochastics, meanwhile, are twisted thin (bearish), vols seemingly have SARS (coiled) and the bulls are frothing (again). A "down-up-DOWN" trade may be in the cards (looking ahead) but IF we get the blowoff higher first, I'll dive into my bear costume faster than you can say WASABI!

Have a good day.

position in dia, csco

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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