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Freaky Friday Potpourri: A Tale of Two Tapes

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Use discipline to play both sides.

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"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way-in short, the period was so far like the present period, that some of the noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only."
--A Tale of Two Cities


This is a Dickens of a tape, eh?

Last week, spurred by noisy authority, financial shares enjoyed the single biggest rally in the history of the markets.

Yesterday, in the face of fresh housing concerns and shifting social mood regarding the safety of our savings, financial shares suffered the biggest fall since the turn of the century.

As our finance-based global economy is tied together with hundreds of trillions of dollars of derivatives, should we really be shocked that the broader market followed in kind?

The best of times, the worst of times. Somewhere out there in this nutty world of ours, Tommy Shaw has his fingers crossed.

We arrive at one of the freakiest Fridays in recent memory, a summer hummer with thinned trading ranks throughout the Street. Each and every player, bulls and bears alike, are asking themselves one simple question.

Did yesterday's malaise work off the near-term overbought condition and suck fresh shorts into the emerging bullish trend-which is not to be confused with an all-clear-or was the entire rally off the lows a brief counter-trend bounce that fried the fur on the late-to-the-party bears?

To borrow a quote from the fat man, "If I knew the way, I would take you home."

What I do know is this-bear markets are characterized by haphazard action that frustrates anyone with an opinion. Traditional metrics are challenged, nerves fray and capital drains, either through 1000 paper cuts or in one fell swoop.

The mechanics of the swing-disciplined, steadfast rules that aren't open to interpretation or hairs on the back of your neck-are paramount to effective performance. As we've learned through many years together, the onus is on us to adapt our style to the tape.

For me, that means switching from accumulation mode last week-layering into the massive oversold condition as a function of price-to a disciplined two-sided hit it to quit it methodology. I'll remind ye faithful that my trading account is distinct from my long-term savings, which remains in a money market fund backed by T-bills.

For when we finally phase through this multi-year malaise, opportunities will be plentiful for those with dry powder and preserved perspective.

Some Random Thoughts:

  • If you're feeling the heat of societal acrimony, don't stress and press-just remember the three little birds.

  • S&P 1260 is the level from where we broke out. Technical Analysis 101 dictates that the retest of an acne zone is where you wanna initiate risk. And yes, that line is often drawn with a crayon, not a pencil.

  • Is that tech dandruff? Not yet, but when I pulled up this chart I envisioned a bottle of baby shampoo. A break through NDX 1765, if and when, would confirm the pattern.

  • Drugs, not hugs! Duuuude, I'm talking about the DRG. I may be (cough) seeing things but it sure looks like a bullish cup and handle formation to moi.

  • Sweet potatoes don't get the snaps they deserve.

  • The action in the master beta stocks yesterday-Google (GOOG) and Research in Motion (RIMM)-should encourage the bulls. Apple (AAPL), not so much.

  • If you could be the best in any one sport, what would it be?

  • Regardless of direction, big cap stocks moving 20% in a single session is cause for concern.

  • Every time I snap my gum, I think of New Jersey . Every. Single. Time.

  • Trading smaller takes the pressure off in a volatile tape.

  • Once, during an Ambien induced sleep walk, I actually left my NYC apartment, went downstairs to the Duane Reade and bought peanut M&M's. Seriously.

  • Whatever happened to the dude from BJ and the Bear?

  • And WTF-it was a monkey!

  • If East Hampton is feeling the pinch, wouldn't it be safe to say that the "Have's" are no longer immune from the credit crisis?

  • After yesterday's punk action, expect to see-at the very least-a probe lower this morning.

  • THE levels, for those new to the game, are the recent lows across a litany of sectors. Hold, and we've got a double bottom that the bulls will point to and snicker. Fold, and it's game over in the city of critters.

  • Roy Munson can't be happy about this.

  • If we lived our life like that dude in Cowboy Mouth played drums, there would be no regrets.

  • Nuance, trend, phase, cycle.

  • If a Viagra gets caught in your throat, would you have a stiff neck?

  • I nibbled small on some Schering-Plough (SGP) calls. For what it's worth. No catalyst, per se, I just like the sector (one of our ten themes) and wanna have a small chip in that game.

  • When I spoke about our kids bearing the brunt of our largess, I never imagined it would come to this.

  • Lemme guess, you are not coming to work in the morning...

  • Speaking of our ten themes, The Wall Street Journal is reporting that private equity firms are eyeing capital hungry banks. Always early, right?

  • Not many firms are in a position to add capacity into a downturn. Those that do-in layers, over time-will have a massive competitive advantage when the worm turns.

  • Take a deep breath and think positive, Minyans. Profitability begins within.


R.P.

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Position in SGP

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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