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Random Thoughts: Trading is a Function of Time and Price

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The risk is that the oversold condition is worked off as a function of time rather than price.

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  • The standout action today is in the financials, which, it should be noted, significantly out-performed the broader market on Friday. BKX 90ish remains the level of lore for piggies so sore.

  • Hot shots in the early trot include beta (Google (GOOG), Baidu (BIDU), Apple (AAPL), Amazon (AMZN)), industrials (Boeing (BA), Alcoa (AA), Deere & Co (DE)), energy (Transocean (RIG)) and select pharma (note the DRG is testing the downtrend line).

  • Consumer non-durables and big cap pharma make sense as slowing economy plays. Much more so than energy and metals, which will be quite vulnerable if and when the dollar finds a sustainable bid.

  • I just got off the horn with Jeff Saut, the savvy soothsayin' strategist from Raymond James, and he's jacked up for next Friday's Festivus. He really is as good as it gets, both as a professional and as a person, and I'm so looking forward to this fete.

  • I'll have the 400-pound lobster with extra butter and the jaws of life please.

  • Newsweek, along with the Economist and BusinessWeek, is waking up to the fact that the underlying issues are underfoot. This article in particular talks about the dying dollar crippling power.

  • Fair 'nuff, we've been all over this for years as we've watched the greenback plunge 37% and spark virtually all asset classes higher (asset class deflation vs. dollar devaluation). It's now down 97% since 1913 at a time when 96% of money managers polled are bearish on the buck.

  • Is it any surprise to ye faithful that I've nibbled on the other side of that crowd for a trade? I'm using UUP (Powershares US dollar bullish fund) as a vehicle but I would warn Minyans that it's VERY thin so be uber-careful).

  • How much confidence did I have in my bank longs? Enough to try with extremely tight risk, be it BKX 90ish or Citigroup (C) $30.50. I've been trading around that latter matter (both ways) under the working assumption that I would risk up to a buck to potentially make three. Whether or not that pans out, it's a decent bet through the lens of risk-reward.

  • And yes, I wanna turn around and short the financials if and when they find some jig. Morgan Stanley (MS) $60 and HSBC (HBC) $92 are on that ursine wish list.

  • I've also some Schering Plough (SGP) calls with a stop below $28.

  • Note how the Minx is drawn to DJIA 13,000 like a moth to a flame. That's where we broke and textbook technical analysis dictates that's where we should fail. Yet another reason to be oh-so-tight with upside exposure.

  • As we were eyeing the "double top followed by a lower high in the S&P," we openly wondered if "selling rallies as opposed to buying dips" was the money shot into year-end. It certainly seems to be playing out that way, which is in stark contrast to how I've traded 'em the last few sessions.

  • The risk to my "trading the banks from the long side" schnitzel is that the oversold condition is worked off as a function of time rather than price. If you recall, I started this process as we probed BKX 90 the first time (precisely where we are now).

  • If we don't hold, I'm cutting bait faster than a fly fisherman ("fly" in the slang sense, not in a River Runs Through It sense). Emotionless, defined and the other side of conventional wisdom. Just the way I like it.

  • Discipline over conviction.

  • Cisco (CSCO) (-4%) is quietly breaking down on some chatter of weakness in their domestic enterprise business made (September quarter) made this morning by Morgan Stanley and Pacific Crest. See it please.

  • This is a big close for the market as Hoofy attempts to show the world that Friday's holiday lift wasn't a one-day wonder (in the context of some meaningful levels) while Boo takes the mirror image of that nutty scrimmage.

  • I've been stopped out my Citigroup position and have unwound that risk. I might be selling the low tick in that stock but discipline over conviction has saved me too many times in my career to ignore the necessity of it. I traded it aggressively, buying dips and selilng blips, but it's a small loss no matter how you slice it. Sometimes right, sometimes wrong, always honest.

  • Good luck Minyans and remember to just be yourself, sir. No matter what happens, they can't take that away from you.


R.P.


Holiday Festivus is here! Come join us and support the Ruby Peck Foundation For Children's Education at an old-fashioned Southern-style hoe-down in the heart of New York City on December 7th. Click the image below to learn more!

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Position in SGP, UUP
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