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Randoms: The Pop & Drop

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Early optimism fades to red.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community. See also Sitting on the Widow's Peak.


As intimated--and in all fairness, not clearly communicated--yesterday, I wanted to stay light and tight with my exposure heading into the stress tests. After getting stopped out on half my short financial exposure (by a penny!) yesterday afternoon, I punted my leaves at 3:59 EST with an eye towards enjoying my night and coming in with a fresh head.

I awoke this morning to that stunning $34 billion number for Bank America (BAC) and immediately reached for a fork. When I pulled into MVHQ and saw the futures--and BAC--indicated higher, I stuck a cork on the fork and blessed the dynamic of discipline. This is one strange world, I'll tell ya, and the margin for error is razor thin.

As I whispered to myself that reaction to news is more important than the news itself, I double dipped my schtick and re-initiated short-side exposure into the opening pop. I respect this rally but I'm playing for a fade lower.

Why, you ask? Let's reflect on last week's five reasons for caution:
  • When Pigs Fly: Fresh infections in Europe has the W.H.O. on the verge of declaring an outright pandemic, which would be the first such time since 1968. To be clear, I am not a media alarmist--and I most certainly hope this proves to be a non-event--but at a point, investors could connect the dots with regard to economic disruption.

  • The Pop & Drop: We broke out through S&P 875 and as discussed, got the whoosh higher. While this rally has room to S&P 950, it's long in the tooth through various metrics, including Jeff Saut's buying stampede lens, which has worked quite well through the years.

  • Pakistan: This nuclear state remains on the radar as the president of Pakistan heads to Washington and militancy spreads towards the capital of Islamabad.

  • He Said, She Said: On top of the Ken Lewis-Ben Bernanke-Hank Paulson love triangle, news last night that a judge ordered dissident lenders in Chrysler to reveal their identities adds angst to the societal spectrum, like tossing chicken wings to the pitbull public. What was Chrysler's crime? Exercising fiduciary responsibility on behalf of its investors.

  • Stress Test: Buy the rumor, sell the news? Perhaps--we've seen more leaks than a rusty pipe of late. While "total system meltdown" has seemingly been averted, the capital market construct is only as strong as it's weakest link in a finance based derivative laced financial fabric.


I'm not going hog wild--pun intended--I established partial positions into this morning's hot popper in select financials and the S&P. I also eyed Apple (AAPL) on the short side but the simple truth is that I spent the time I would have used establishing that position writing this content. That may be a good or bad thing, time will tell, but I know that above all else, opportunities are made up easier than losses.

Great luck today!

R.P.

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Positions in S&P, financials
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