Races and Aces
These technical levels allow for tight trading strategies!
Signs, signs, everywhere there's signs
Messing up the scenery, breaking my mind
Do this, don't do that
Can't you read the signs?
Good morning and welcome back to the horse track. The race for performance took a hard right turn yesterday as traders jockeyed for position into the quarter-end stretch. With June's protective paper brushed aside, the Minx whipped the bulls and rode them hard for the better part of the day and when they crossed the wire, the indices were a nose away from the all-important trendline support levels. It promises to be another wild ride, Minyans, so saddle up and let's head to the gate!
As we edge towards the two most important near-term catalysts (Elmer and quarter-end), this latest slippage has become the source of a rather spirited debate. We knew that after the wild climb, the averages were overdue for a correction of some sort. Now, after leadership groups (biotechs and financials) have corrected nicely and the broader averages are testing their support zones, there's a natural inclination for traders to turn buyer once more.
While that may prove to be the right stylistic approach, it's worth mentioning that the collective mindset almost always "morphs" near inflection points. When the Minx was probing for the duct-tape low, the herd could be heard saying "Please let them go up and I'll sell/short 'em." Naturally, as they went up... and up... and up... and up, the denial shifted to migration and eventually turned to a buying panic.
Despite the recent weakness, you could almost hear a collective sigh of relief as exposure was added at "cheaper" levels. The bulls will surely try to toe the line at these trendlines and if (big if) they can turn 'em, the manic panic may continue. If, on the other hand, the dip buyers (who averaged into positions because they "act well") lose their catalyst, we could see the bull camp get a little less crowded.
How do you play it? As always, there's no blanket answer for any one trading question. Each Minyan has a distinct time frame and risk profile and, as such, different strokes apply to different folks. If you're an active bull, you can "lean" against these trendlines (S&P 975ish, NDX 1185ish) by buying the underlying instruments and "stopping out" your exposure (if those levels are breached). If you're in a furry hurry, there are other defined risk methods to execute your chosen strategy. For instance, with vols still cheap (the VXN was down yesterday), put options can still offer some bang for the buck.
Where do I stand? While it's my belief that a Clubber Lang tape awaits (prediction: pain), I'm respectful of the trendlines and the power of perception. With Elmer sizing up his snippers and portfolio managers dusting off the keyboards, the next week is chock full of potential two-sided risk. I'm trading light, tight and with patience as I scan for discernable edges in our midst.
Watch the brokers for signs of traction (upgrades), the biotechs for signs of Ben Wallace (rebounds), the internals for signs of health, the semis for signs of leadership and our levels as a technical backdrop. Along with the major indices, BKX 855ish is key as it represents both a trendline (March lows) and neckline (head and shoulders). Also, be on the lookout for a 10 a.m. consumer confidence number (expected at 82) that will be a blinky event on the way to the snipfest.
Finally, a big Minyan shout out to grandpa Neil Glassman who, despite his moderate inebriation, stepped up to the tee on a 162-yard par 3 at a charity outing in Bah-ston yesterday. Little did he know that a spankin' brand new Jaguar awaited anyone who hit a hole in one. Sure enough, and despite his walker, he aced it! Being the class act he is -- and there's nobody classier -- my follicly challenged friend has opted for the cash payout and will donate a portion of it to The Ruby Peck Foundation for Children's Charity. If good things happen to good people, Neil, you've got a LOT to look forward to.
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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