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The Trading Draw

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Watch those brokers, please, as they should help shape sentiment.

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Good morning and welcome back to the ducks that quack. It's quiet these days in the township of critters as the Minx separates the hitters and quitters. "I feel like I'm back in the wild, wild west," said Sheriff Hoofy in his star studded vest, "The bovine continue to beat their broad chest as the bears walk around kicking dirt and depressed." Can Boo pull his trigger with renewed ursine vigor or will he fall prey to the posse that's bigger? It's now time to ride so saddle up Hoss, as we dip our big toe in the 'ol minxy sauce!

One of our primary trading commandments dictates that we adapt our style to the market. That means something unique to each Minyan but we all must respect the seismic shifts. Through the bubble, momentum investing was the E-ticket ride. When the party was pricked, a similar strategy (in reverse) was optimal. We then entered a prolonged period when "selling hope and buying despair" allowed us to make hay during the cloudy days. And when we finally got comfy with that stylistic approach, we launched into last year's liquidity driven given.

The most frustrating and often elusive element of successful trading is having the patience to await your pitch. In a land littered with hedge funds that are all trading the same stocks, watching the same levels and clouding the same catalysts, the dynamic has drastically changed from a few years ago. To be sure, if the current hedgie hot potato follows the fate of the day trading spate, there will be alotta blood on the streets by the time this phase finally passes. Welcome to the land of 1000 paper cuts, Minyans, where profits are scarce and mistakes are magnified.

I'm of the view that the market is ultimately dustola but am allowing for upside fits and spurts. I've been reading the Iron Horse for too long not to pay attention to his educational insight and he has helped me to better understand the intertwined asset class dance. Still, to my trained eyes, there continue to be overt warning signs that temper my upside enthusiasm including multiyear lows in the VXO (complacency), rampant optimism (sentiment surveys), insider dumpin', supply via new issues, low mutual fund cash levels, geopolitical risks, fundamental deceleration, higher rates (inflation) and structural imbalances that must come home to roost.

The application of an opinion (how we trade 'em) is as important as the opinion itself. That's why I've been choking up on the bat and tightening my risk parameters accordingly. I've got some longer dated positions--mostly special situations and alternatives to dollar denominated cash holdings--but I'm grinding it out and trying to see performance build one percent at a time. It's not as sexy as the monster days of ten and sometimes twenty million dollar swings in a day but this is a different world. And when push comes to shove, we're the ones who must adapt.

Good luck today.

R.P.

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