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Thursday Potpourri

By preservation is the first step to prolonged profitability.

  • What a difference a day makes! Boom Boom zoomed on the scene yesterday to pull some doves out of his hat and the tape out of a funk. While we noodled this notion on Monday, the difference between saying it and seeing it is all the difference in the world. We awake today to find a whole lotta smiles and renewed optimism, which is par for the reactive mindset course. We haven't felt this good since...let's see, the quarter-end mark-up? That faded fast and inquiring minds wanna know if we've turned an upside cusp or if we'll look back and say "Geez, the sharpest rallies really do occur in the context of a bear market!"

  • "If we hold around here into the close, it will mark the fourth time in 40+ years that we've seen up volume on the NYSE trump down volume by a 10-to-1 ratio three times within a 30-day window (with no intervening 10-to-1 down days). The other three times, the S&P was positive each time across nearly every time frame up to six months later. Three months later, the average return was +10.0%. After six months, the average was +16.6% with all three showing a return over +10.0%." Jason Goepfert on yesterday's late day Buzz.

  • For my part, I respect the Matador Crowd (and Jason Goepfert , for that matter) and remain open-minded and agile with my risk. I continue to watch the greenback (weakness is necessary for an asset class rally) and monitor my "tells" on a trading basis. While I remain relatively balanced, I opined late yesterday that there were a few reasons to keep our right hand up. S&P 1264 (50- and 200-day moving averages), overnight uncertainty (Apple +12%, eBay +6%, Intel -2.5%), the 20% thumpin' in the VXO yesterday (traders puked out puts) and a still fragile geopolitical landscape come to mind. I'm all about edges and defined risk in this tape as we walk the talk every day on the Buzz.

  • I pared my energy and metal trading positions yesterday, which is either premature evacuation or proactive positioning. Why? My eyes adore you but they weren't diggin' the action in the drillers (they couldn't lift during the first few legs higher) and the dandruff in commodity land seemed a bit more ominous (on a weekly chart, as discussed on the Buzz). I held some metals in the long-term side of my pad (and reserve the right to revisit the long side as trades) and nibbled on some JP Morgan September puts with a stop slightly above current levels. Just makin' to take 'em as we edge through the rather chewy dew.

  • I was talking with John at Succofest last night about the geopolitical dynamic. "You know, there's a 70% chance that things will be fine. But people are focusing on that 70% and assuming the best." That launched us into a discussion about risk management (or lack thereof) in a reward-based financial operating system. Hedge funds get paid for performance and money has always been a magical motivator. We saw spates of this "unwind" in June and we'll revisit this discussion in coming months. I will simply remind Minyans that capital preservation is the first step to prolonged profitability. I may be entirely too cautious in my approach but that, in my view, trumps the alternative.

  • Expect a probe higher today (after yesterday's gigglefest) and then watch our tells as the tape rounds the 10:00 AM corner. Boom Boom is again on stage and, while we think we know what he's thinking (what he thinks we want to hear), we'll be wise to keep our eyes on the headlines. My coverage guys tells me that they saw a lot of macro funds getting long (S&P) index futures yesterday and, if we mount the S&P 1264 hump, they'll likely pile into more exposure. As I said earlier, I respect the upside but given the world we live in, "offsides risk" may be shifting back to the bulls.

  • Good luck today.

  • R.P.
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Positions in JPM, financials, metals, energy
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