Good morning and welcome to the shark bark. With the entire free world focusing on the range change, Minyanville's fab five gathered last night for a little fish fix. Over a stash of sashimi, the critters talked ticks, tape and tuna as they unwound after the frazzly fray. The conversation went something like this:
Boo: Alright, who's the joker who snaked my knife?
Snapper: Precautionary measures, friend, you've got that glazed "Private Pyle" look goin' these days. We thought that plastic utensils might be prudent for a bit--particularly with the Minx breakout clout.
Boo: You mean the most talked about acne since the Olson twins? I'm actually glad it's out of the way. It was the last stand in ursine land and the breakout has served to clean house of any remaining shorts. I see the momentum--I feel the momentum--but watch out for the voodoo that Boo do!
Hoofy: I don't mean to beat a dead bear, brother--we've all been there--but what's the point of keying on technical levels if your immediate reaction is "beware of the false breakout?" Even if it does prove to be a vicious head fake, you know that perception is reality and the gorillas will initially migrate.
Boo: You mean the monkeys?
Hoofy: I mean the fund managers who are eyeing quarter-end in 19 trading sessions. The tight summer range served to frustrate everyone. Now that it's officially resolved and all three major indices have confirmed the bullish technical signal, the relative performance crowd is paid to play. Remember, this is the first year in four that the mutual funds can crow and they're gonna milk it for all it's worth.
Daisy: I resemble that remark! Gentle...
Sammy: (looking at Boo) Sometimes it's easy to over think the wink. It's true that the technicians needed to bless and caress before any potential mess, but pure discipline warrants an augmentation of that temptation. The slick trick is identifying actionable upside levels and, for the S&P, real resistance doesn't come into play until 1050-1080. On the flip side, the bulls can now lean against S&P 1020 (previous resistance) and use that as a backstop. That risk/reward, in a nutshell, is what every trader and portfolio manager is sizing up. The NDX is a little trickier as it is currently sitting at a level that served as a support/resistance inflection point in 2001 and 2002. Through there and it's got some room.
Hoofy: What do you think I've been saying for the last few days? And, to be fair, that's what Tony "Hair" Dwyer has been saying.
Daisy: He's such a stud!
Sammy: He is a stud, Daisy, but remember, technical analysis is only one leg under the trading table. The fundamentals appear to be improving but some (if not a lot) of that is why the market has already rallied. Structurally, the liquidity flood has Noah eyeing his Ark (he still hasn't found two bears). Psychologically? That's the trickiest metric right now. It's manic--and that'll either build on itself and further the momentum driven environment OR it has unbalanced the boat to the point of potential capsize.
Snapper: It sounds to me like an assimilation of those metrics point to a more constructive environment than it was a few days ago.
Sammy: Well, remember that the mechanics of the swing are as important as the result of the at-bat. Active types can define their risk via stop levels (the most obvious being below S&P 1020 for the longs) or via options (premium levels still low). If you think there's gonna be a big move but you don't know which way, there are option strategies that allow you to stay delta neutral with positive gamma. Options aren't for everyone, that's for sure, but it's an, er, option for some.
Boo: It's been a pretty rough year for me but you know what's awesome about our business? Each day is a new day, fresh with opportunity and promise. I've been pretty sour lately guys and I know I've weighed on the group. I'm sorry 'bout that--I promise to be more objective, selective and have a better perspective. 'Aright? Now will somebody please pass the salmon!
The crew began to chew and the conversation shifted to the upcoming football season. There was a spirited debate regarding which quarterback you'd want if you were starting a franchise today. Perhaps the Minyans have a thought? If you do, send your top three selections to firstname.lastname@example.org and we'll tally 'em up. In the meantime, smile for a while--today is the first day of the rest of your life.
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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