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The Fly Trap


I'll likely try my hand in the morning, but I'm not sure I wanna stick around into the close.


Good morning and welcome back to the swan song. While yesterday's final tally wasn't much of a move, the intraday flail and fail sucked some wind outta Hoofy's sail. The bulls surely won't give up without a fight -- they've worked too hard and waited too long -- but some potentially somber seeds have started to emerge. Was that a classic "blow off" top in the biotech and brokerage sectors? Will the stochastic sell signals at neckline resistance (S&P 980) matter? Are the longs trapped and crowded? We'll know soon enough, Minyans, so settle in, settle down and let's get this party started right!

One of the most important lessons in trading is not to be penny-wise and point-foolish. There's a tendency in our business to take a trade and walk away once a profit is realized. That's not necessarily bad (taking profits never are), but the trick is to remain adaptive and proactive with regard to future movements. In other words, there's nothing wrong with buying (selling) a stock higher (lower) than you sold (bought) it if you think it's gonna continue to rise (fall).

I bring this up because I sense that we've approached a potential inflection point in the market. I'm not calling a top (that's too dangerous a game in a manic and emotional environment), but conditional elements are present and they warrant respect. We sniffed out a similar juncture when the tape acted "dry" near S&P 800 and made some nice covers/purchases. After the initial surge, however, the reticence to "buy high" to sell higher was a mistake. If (big if) we're tickling the mirror image of that turn, we must learn from the past or risk repeating it.

The IBM (IBM:NYSE) story, in and of itself, may not be a huge negative. It does, however, serve as a reminder that potential flies exist. Further, it's important to juxtapose any and all news flow against the field position of the tape. When the Minx is on her heels and oversold, bad news (that isn't horrid) can rally the market. When she's extended and vulnerable, good news (that isn't great) can be cause for pause. Trading comes down to one very simple premise: Identify and capture the relative disconnect between perception and reality.

Our job at Minyanville isn't to call the market -- we're an educational community and offer our thoughts with the best of intentions. Still, our goal is to provide value at some level and if that assumes the role of "risk reminder," that's entirely alright. Many Minyans have juicy profits after this recent run and the last thing we want is for you to give it back. Identify and define a time horizon, establish price points and risk parameters and, above all else, keep it all in perspective.

Good luck today.
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