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Eve's Reprieve

By

Fare ye well into the bell!

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You take my hand, I'll take your hand
Together we may get away
This much madness is too much sorrow
It's impossible to make it today.


(Neil Young)



It's been a while since we discussed the three phases of a trading move and the current juncture is a perfect time to circle back. As most old school Minyans know, I've always felt that denial, migration and panic were the psychological hallmarks of each minxy move. This can be applied to both the intermediate-term and longer-term trading cycles and understanding our placement on that curve can be a profitable observation.

I bring this to your attention as we are at a critical juncture for the financial markets. In short, we're either firmly in the denial phase of a bear cycle (bulls continue to buy dips on faith) or remain in the migration phase of a larger trade to the upside (and this is healthy fear). The smell test for where we are is simple if not always easy: Are traders rationalizing their positions in the face of metrics that are pointing in the opposite direction?

Think back to March '03 when the markets began their ascent. The bears--and there were a lot more of them--looked at every bounce as an opportunity to put out more exposure. The technicals were turning up and upside momentum was gaining traction. Still, the folks from Red Dye were resolute in their belief that it was only a matter of time before the previous trend asserted itself. Now hold this column up to a mirror and please tell me if it looks familiar.

I don't know which way the next few percent will play as there are reasons to be cautious (technicals, fundies, reality) and pangs of optimism (pressy, credit spreads, stochastics). I simply want to plant the two-sided seed such that Minyans appreciate that if, in fact, we've entered into a period of denial, it has the potential to last much longer than the current complacency expects. It all comes back to identifying the disconnect between perception and reality and capturing that spread.

We've got a slew of earnings this evening (Int'l Business Machines (IBM:NYSE)) before a sleepy summer expiration Friday. Boredom doesn't qualify as an actionable catalyst so please take this down time to look at your book and your attendant risk. We remain in the early innings of the weeding out process as the overcapacity in the financial industry remains outsized. Bummer? Sorta, but accepting you have a problem is the first step towards dealing with it.

As always, I hope this finds you well.

R.P.
No positions in stocks mentioned.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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