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Wheel of Fortune

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One of the most integral aspects of risk management is tracking risk...

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The wheel is turning and you can't slow down
You can't let go and you can't hold on
You can't go back and you can't stand still
If the thunder don't get you then the lightning will

(Grateful Dead)



Good morning and welcome back to the Hump Day flack. There's a lot going on so forgive the terse vibes as I'm up to my ears with trading and scribes. As we've dutifully chewed through the slew of bad news, I wanna keep today's opener relatively short, sweet and to the point. We understand the wobbly wheels and, given the combination of compression, derivatives, emerging unease, quarter-end angst and invisible expiration flow, I'm not gonna dwell on the dark side. Instead, I'm gonna discuss a spate of optimism that tickled my fancy late yesterday with hopes that my process, at some level, adds value to your process.

The following Buzz appeared at 3:43 PM:



Dressed myself in green
I went down unto the sea
Try to see what's goin' down
Try to read between the lines

Oh, the irony! Here I am, the man branded a bear amongst my weekend buddies. The negative nabbie who urged my friends at MIM2 to be wary of the housing bubble. The furry freak that has been fighting a collective perception that Minyanville is, how shall we say, a tad negative?

And I'm bullish? Yes--selectively--for a trade--and with defined risk.

With Pat Benatar ringing in my ears (and a conscious, respectful nod to the potential that the structural smoke will usher in forced selling), I'm entirely more constructive on the notion of buying dips (particularly in the drillers and metal equities). That doesn't preclude me from selling blips--balance has always served me in good stead--but my I'm more positive than I've been in quite some time. Again, just trading.

Two legs in the bull costume (50% conviction on the long side) with a stop below the S&P trendline (let's call it today's lows).

Engine room, more steam!

R.P.


In the interest of full disclosure, I'll admit to sometimes sharing my thoughts before they're fully baked. In the above instance, it's not the bovine try I regret, it's simply the stop loss I chose to communicate. One of the most integral aspects of risk management is tracking risk or, in layman's terms, making sure your trading vehicle is apples to apples with the complexion of your risk profile. And as the meat and potatoes of my exposure is metals (and energy), the S&P isn't the truest harbinger with which to gauge my appetite. So, while I'm keeping my feet in that silly bull costume, please allow me to shift my stop level to below XAU 110 (acne support from 2003, 2004 and 2005).

As per my stylistic approach, I've got an active trading bucket and a longer-term "let's just put this away for a while" bucket. As Minyans know, I've been a bit early to the latter matter and have been scaling into some faves while keeping plenty of powder dry. I've been offsetting that with short financials and while I wanna rebuild that side of that book on future blips, I pared the lion's share of those piggy puts into yesterday's poke lower. Why? Price, for one, and vols, which are now 100% higher than they were in May when we discussed the many ways to win with options. I might soon suffer from premature evacuation but it's a decision I'll have to live with. Besides, I can also toss a fresh set of puts on my book if I sense further slippage.

Cute? Short-sided? Dancing between the elephants? Perhaps--I've been wrong before and I'll surely be wrong again. But I'll always be honest and, in that vein, I'll share that I own (among other positions) Weatherford (WFT), Golden Star (GSS), Newmont (NEM), Pan American (smaller but still there) and yes, with HGX 202 holding triple top 2004 acne, I tried my hand at some Centex (CTX) calls. I share this not for piggy back purposes--we don't "do" advice in the 'Ville--but rather to communicate why I shifted my stop from the S&P to the XAU. And, as long as we're putting it out there, I'll offer that I've got very quick fingers and often trade in and out of names, particularly the pure trades, as volatility dictates a scaling slide of risk management.

The other side of that trade, of course, is outright meltage, which has a higher probability than most people would assign. There is definitely blood on the hedge fund streets and the question is one of containment vs. contagion. With quarter-end thirteen short sessions away, there's gonna be a lotta posturing before those missives get penned. And as some in the buy-side bubble will be writing their last letter, the potential exists that forced selling will render technical tactics obsolete. I "see" it, trust me, but if we're to toggle rather than tip, there will be opportunities on both sides of the minxy ride. Color me humble, hungry and constructive--for a trade.

Good luck today.

R.P.

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position in metals, energy, wft, gss, nem, paas, ctx
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