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Climbing a Wall


Past resistance (S&P 1020) becomes future support.


"It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another."

--Gordon Gekko, Wall Street

Good morning and welcome to the new dawn. After considerable consternation and prolonged frustration, the bulls ended vacation with a new salvation. The celebration was a creation of a new formation and the acne sensation spurred widespread elation. Will the upside fascination exceed expectation or is trepidation and hesitation our next conversation? There's education in the explanation so let's shift our eyes to the new navigation!

The trading range of 2003 is officially in the rear-view mirror and the most discussed level in recent memory is behind us. After three months of Sammy's salsa, Hoofy emerged and staked his claim to upside fame. It wasn't a shocker, per se, as we knew each test of resistance removed a layer of supply. The money shot now becomes a question of if conventional wisdom can assert itself and becomes self-fulfilling.

That is the cross that the bears must,er, bear. Outside of a lopsided sentiment and widespread complacency (valid concerns), the technical metric is now pointing higher. If Boo is gonna zag and fade, it'll be a helluva ballsy call--if it works. If it doesn't, however, he'll be guilty of poor judgment and a lack of discipline. Therein lies the ursine dilemma and it's removing paws from the bear cause. It doesn't shift my big picture bent--it just adds upside risk (and potential opportunities) to the near-term.

How you approach this beast is dependent on your individual time frame and risk profile. There is no "blanket" answer to the questions you seek--the road signs you follow are a function of your vehicle and speed limit. For my part, I entered yesterday's session with a marginally short bias and placed some hedges intraday. I stopped short of adopting a naked long posture as I preferred to neutralize and establish gamma. Right or wrong, that was the course of action most consistent with my thought process.

Speaking of which, a faithful Minyan asked me how I reconcile my "perma-bear" status with a rising market. It's a valid question and one that merits an answer. My view that we remain in a larger bear cycle will grate on my performance in a continually rising tide. That is the first lesson we learn in Trading 101--one's reward is directly proportional to assumed risk (either way). After three years of blood soaked gains, the bears are sucking on the other end of the ugly stick. I still think they'll have the last laugh, but it'll likely be with a mouth full of humble pie.

There is a fine line between "never letting an opinion get in the way of making money" and "trading in a manner consistent with your thought process." That is a path distinct to each of us and my goal is to adapt and adhere (to discipline) as we edge through the process. At times, that means covering up to get out of the way. Other times it'll dictate renting longs and making hay while the sun shines. Still other times, it means building exposure as a function of price and unleashing the hounds. Knowing which style to employ (at what juncture) is half the battle.

In that vein, I wanna key on the financials today (Citigroup (C:NYSE)) as they continue to tell the tale. The BKX dandruff is still very much in tact (bearish) and that is in direct contrast with the S&P acne. The first piggy resistance was surmounted yesterday (50-day moving average) and the ability of this sector to assume leadership will remove a big thorn in Hoofy's side. As our resident bull wears rose colored glasses, you know that nothing would make him happier.

Good luck today.

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