Trading from WHOville
Good luck into the close and fare ye well!
But my dreams, they aren't as empty
As my conscience seems to be
I have hours, only lonely
My love is vengeance that's never free
The grifty drift continues as we eye the final turn and I've been using the down time to make some calls. Outside of the obvious (performance anxiety, negative gamma, action in big cap pharma), the chatter on the street is focused on Coca-Cola (KO:NYSE) (informal S.E.C. investigation), Microsoft (MSFT:Nasdaq) (monster call buyers around), energy (hasn't found a bid yet), the put/call (quite low) and Yankee baseball. Yeah, it's pretty slow out there and summer seems to have officially arrived in the city of critters. Hey Daisy, how about a little bikini action?
The dilemma for the tape and, by extension, those of us who trade it, is clear: The recent rip has left many behind and the need for speed is sucking in fresh capital as a function of price. The bulls aren't making enough (after the bubble drubbing), the bears are shadows of their former selves and there's a compelling case to be made both ways. While I continue to believe that this will end painfully, the liquidity injection and horny infection is inflating the collective psychology. As perception is reality in our business, that's clearly been the right side of the brain.
The onus is on us to adapt (not the other way around) and, as such, I've been scouting for rotation plays and relative bets. The migration to pharma is one such example as the PPH (pharma HOLDRs) offered a clear breakout signal on point & figure. While technicals remain a single metric in the bigger brew (see OSX), they offer a framework with which to trade a broader thesis. In hindsight, BKX 800 offered a similar "wink," and while I didn't honor it, per se, I certainly learned from it.
Looking forward, the earnings parade kicks up tomorrow with Bear Stearns (BSC:NYSE), Morgan Stanley (MWD:NYSE), Best Buy (BBY:NYSE), Jabil Circuit (JBL:NYSE) and Micron Technology (MU:NYSE) all releasing earnings. Everyone and their sister is expecting blowout earnings from the brokers and, after the run they've had, they'd better get it. Regardless, it's worth a mention that stocks that have huge moves into earnings (either way) typically have those results "discounted" to a degree. In other words, be on the lookout for a "sell on the news" reaction by the investment community.
Away from that, expiration remains a focus and that adds an element of uncertainty (and volatility) to an already jittery tape. Take some time to examine your risk (and the relative edge associated with it) as we wade forward through the muck. It's entirely alright to play any way you choose to stay, but understand that there's "room" on each side of the coin. Be smart: It takes a lot of energy to make money, and a simple error in judgment to give it all back (and then some).
That's about it, my friends, and I'm juggling hats and tickling ticks into the closing bell. As Livy and I discussed over a cold brew and under the warm sun, it's entirely easier to say we'll "work to live" than actually abide by that simple mantra. Do yourself a favor and treat yourself well -- it has to start within.
Have a peaceful night.
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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