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Freaky Friday Potpourri: Market Tries to Dance Out of Corner

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Tough tape yesterday, but not everything went sour.

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"You can't always get what you want. But if you try sometime you find you get what you need." Rolling Stones


Good morning and welcome back to the flickering pack. The final fifth of our freaky week has arrived and not a moment too soon. Following the Rolling Bones breakout performance last night, there are hushed tones, extra coffees and a slew of bacon, egg and cheese sandwiches at the hallowed halls of MVHQ.

Noice.

Speaking of stellar shows and rabid wrinkles, Hoofy and Boo have been sporting tux and tails since the holiday stretch. They've taken turns at taking the lead as monster supply mingles with an occasional Ritz.

Seriously, let's think about this for a moment.

Three weeks ago, following a 15% drop since Christmas, the front page of the New York Times proclaimed the end of our innocence. That day, the tape started a rally that tacked on 10% in eight sessions, turning doubters into chasers right into resistance. They were rewarded with a mouthful of supply and 500 DJIA points of pain.

And Here We Are…

Yesterday, despite the swings and things that make up our life, the worthiest nook of news was the ability of the banks to hang tough. That planted the seed of positive divergence as they put in a higher low as the mainstay averages probed a double bottom.

This is one of those observations that will be obvious with the benefit of hindsight should the market rally. If structural and psychological forces push our tush lower, the price action will quickly invalidate this action. Either way, keep a close eye on the piggies. If that bacon gets shaking', it'll speak loudly as to whether this low will hold.

The Reverse Newton !

I nibbled on some Apple calls yesterday for the first time in a long time as the stock dipped below $120. I am powder heavy and exposure light, so I'm afforded the opportunity to take trading stabs. Not big, and with defined risk.

So where can it go? A pure technical read finds the first zone of resistance in and around $147, which is the 200-day moving average and a triple bottom break. Whether or not it gets there is a multi-linear equation (systemic risk, planetary alignment, psychology) but I wanted to toss it out there.


Click to enlarge


I'm currently using yesterday's low as my sell-stop and will roll it up, if and when given the chance.

As always, just sharing the process with hopes that it adds to yours.

Between the Leaves

I'm all for volatility-trust me, it's a better environment from a trading perspective-but the recent price action, and I'm talking about the manner in which prices are moving more than the movement itself, warrants attention.

I alluded to this yesterday when I wrote about "the volatility of volatility." It's not healthy for large, institutionally held stocks to gap dollars at a time either way. In my experience, that typically precedes watershed moves.

Whether or not that happens is a function of numerous variables that remain to be seen. One thing is for certain, however, and it's the need to trade smaller when there is more movement. That's my modus operandi and it's directionally independent.

Part of the "trap" when the VXO hovered near single digits for years is that it sucked in volatility sellers and income funds scrambling for incremental performance. When vols upticked, they were caught leaning the wrong way. Many of them still are, adding to the underlying compression in the marketplace.

I'm not smart enough to know which way the next few percent will blow. I'm seasoned enough to pull back my risk reins, however, playing to win in the context of capital preservation. It should never take something bad to make us realize we've got it good.

In business, or in life.

Random Thoughts

  • The lead story in today's WSJ is that "credit card delinquencies are rising nationwide and could lead to a sharp pullback in consumer spending that would further weaken the U.S economy."

  • Shocker, eh?

  • The Justice Department's U.S. attorney's office in Manhattan has notified the SEC that it wants to see information the agency is gathering in its investigation of Merrill Lynch.

  • Another shocker, eh?

  • The leadership during the yesterday's intra-day spikes were hated sectors such as financials, retailers and homebuilders. Again, if Hoofy wants to find his sea legs, he needs to broaden the breadth of his constituency.

  • Nobody puts music in a corner.

  • I mean, seriously, what do we make of Patrick Swayze? He always seemed to sit in the seam between legitimate actor and the wrong side of respect. I don't think about it much, really. Obviously.

  • Watch beta today. The S&P futes are off ten handles and Amazon (AMZN), Google (GOOG), Research in Motion (RIMM), Apple (AAPL) and Baidu (BIDU) are all trading higher.

  • I'm not offering this because I own some Apple calls, I'm noting it because someone has an agenda. Whether or not it's bell-to-bell remains to be seen.

  • Hit 'em hard Minyans-we're almost there


R.P.

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