Blocking and tackling, baby!
Good morning and welcome back to the sand trap. Yesterday's late day action was a textbook example that past performance is no guarantee of future results. As traders loaded the boat in anticipation of another upside jam job, the Minx stopped on a dime and morphed it into a nickel. Has the tide turned for those once burned or is this a simple rest before another upside quest? Settle in and settle down, Minyans, for a new day of fun has only just begun!
As the election injection continues,the lines of distinction between a bullish phase and a cycle turn have blurred. With euphoric optimism dripping from every media outlet, it's easy to forget that we've yet to see signs of a discernable pick-up. Glance away from your screens and take a good look at the world around you--there are no jobs, no pricing power, no end demand and no way out. There is a ton of hope, ample liquidity and some decent looking charts but at the end of the day, there's gotta be business if we're to trough through the business cycle.
I know it's cumbersome to hear a bearish bent during a bullish vent but I must remain true to my forthright view. While the long side has been the strong side, there's no way to sustain it absent the reflation of Mini-Bubble II: Revenge of the Herds. That's not out of the question--Elmer is clearly pulling out all the stops--but you've gotta ask yourself if you wanna roll those dicey dice. It's Risky Business, that's for sure, and before Joel gets off the babysitter, you'd better make sure he's got a place to sit.
With that said, and while I'm a grizzly (more comfortable trading from the short side), I'll occasionally swing long intraday to "catch a move." I generally prefer downside exposure overnight but being a bear doesn't mean you've got to be always be short. Sometimes it means biding time and patiently awaiting your pitch. It's a tough skill to master but one that's essential if you're to have longevity in this business. Which brings me to my next point.
There are times when "s)" target=_blank>scaling" into exposure is warranted and other times when "tight stops" are more appropriate. Knowing when to apply a particular style is half the battle when fighting the war. For a few years, selling hope and buying despair (zagging, or fading) was money trade. I still believe this to be the case although the phases have elongated and exacerbated the scope of the move. For a period in March and April, I (wrongly) applied this methodology and ended up biting the bullet. It happens to the best of us and any trader who claims they haven't lost money at times is full of schnitz (and tough to stomach!). When I adapted and adopted an approach with disciplined "stops," it mitigated my risk and allowed me to stay and play.
As I wrote yesterday, I'm currently operating with a methodology that allows me to augment my risk profile as a function of time and price. I've got my "longer dated" paper on (read: out of the money puts expiring in the fall) but have stayed relatively tight on the (intraday) meaty stuff. I can see, smell and taste the looming pain but it's obvious that there are powerful agendas in play. It's simply a timing issue and my goal is to be in a position to capitalize when the music's over and they turn out the lights.
Looking forward, Yahoo! (YHOO:NASD) boosted it's full year revenue forecast last night and dutifully sold off a few handles. That brings us to yet another point. The "bar" (of expectation) has been raised for all of these companies and unless Elmer's hydration can sustain the train, robust outlooks will be needed for the joyride to continue. There's a whole heckuva lotta good news priced into this market and during these next few weeks, the metrics will collide and the earth will shake. Play it anyway you see fit but respect the beast and remain humble--or the Minx will do it for you.
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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