Prayers to our friends down south!
Yes, 'n' how many times can a man turn his head,
Pretending he just doesn't see?
The answer, my friend, is blowin' in the wind,
The answer is blowin' in the wind.
Good morning and welcome back to the stormy smack. August is quickly approaching an end as the bears try to press the monthly downtrend. They've been in control since we last saw July and have buried the tape in a spate of supply. "We sensed that the Minx would throw 'em a curve," said Boo to the crew with his usual verve, "it's now time to see if the ursine hold serve on the heels of the news from the Federal Reserve" Will he keep his foot on the throat of the tape or can Hoofy pull off yet another escape? We'll know soon enough as we shake off the jitters and ready anew for a romp with the critters.
It's been a pensive few weeks for yours truly as we flied through Ojai and set our bets on the next sunset. I spent a fair amount of time noodlin' the state of the tape as I wanted to put my best mountain foot forward. In my keynote, I touched on a few themes that have crystallized in my crowded keppe and, after an expected pullback (that's yet to materialize), I expect both energy and metals to thrive in the years ahead. The question that I've been wrasslin' with is what happens between now and then and, perhaps more importantly, how can I best position myself?
For purposes of pure trading, I've walked through a consistent process that began (at the end of July) with some fur near S&P 1250, shifted my focus to BKX 100 and, most recently, opined that BKX 98 (support since May) could provide a more defined risk for short-term players. That approach remains in tact as we digest a tough talking Elmer, endure mother nature's wrath and wade through a seasonally tough coupla days. Any time that we can continually define risk, take some chips off the trading table and maintain our desired position, we're a half a step ahead of the game.
Something has been lurking in my head, however, and I wanted to take a quick moment to put it out there. The eye-popping action crude-which touched $70 in overnight trading-has finally started to freak out some market observers. It's a bit odd, I know, after we've watched the stealth tightening but perception is a funny thing. It may not have "mattered" at $30, $40, $50 or $60 but it "matters" at $70? It's seemingly setting a trap for traders that may, in fact, pave a new path of maximum frustration.
If we must choose between dollar devaluation and asset class deflation-which is something that seems intuitive yet not widely accepted-please be conscious that crude's inevitable pullback (which seems more likely given this morning's blow-off) may be more of a knee-jerk bull trap than a sustainable catalyst for higher equity prices. We've seen alotta excitement each and every time Texas tea drips but that, in and of itself, may be one of the devil's greatest tricks.
I've got two sides to my approach-active trading and longer-term positioning-and with many of my mainstay stochastics twisty and oversold, I'm comfy with my newly defined short-term risk. I'm balancing that discipline with eyes that are watching for entry points in my long-term wish list (metals) and a patience to wait for set-ups and situations that provide an advantageous risk/reward.
Remember, Minyans, capital preservation is the first step towards prolonged profitability.
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 email@example.com.
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