It's Make or Break for Technology Stocks
NASDAQ 2000 is the most important level of the year.
Maybe something, maybe nothing-and it maybe good money after bad-but as trading is all about identifying the highest potential reward per given unit of risk, the Snazzy Nazz is at a critical technical inflection point at COMP 2000. See it, please.
Click to enlarge
You can do anything as long as you're disciplined and for my part, given the proximity of this level, I scooped a slew of Powershares (QQQQ) puts. Stamp a ticket-the NASDAQ is at 2007 and the NDX is at 1630. Should we push through this zone, I'll cover up for a small loss. If we don't, this juncture will be an obvious inflection with the benefit of hindsight.
We often say that the mechanics of the swing trump the results of that at-bat and if you're proactively patient and disciplined, advantageous risk-reward will show itself. I don't profess to know if this particular trade will pay off in spades-the animal spirits seemingly want the tape higher-but I do know, based on my set-up, that this was phenomenal risk-reward.
It's not so much that NASDAQ 2000 is a nice, round number. If you pull up that chart, you'll see a rare occurrence-a multi-year downtrend intersecting with meaningful resistance (past support) at a precise pivot point following almost 60% of gains in less than five months. I haven't exactly been en fuego of late, but I can look ye faithful in the eye win, lose or draw and say this was a worthy effort.
While I've traded smaller of late-hitting and quitting-this bet is more substantial. If I were still dressing in those silly metaphorical costumes, I would be 50% in the bear suit, right here, right now. Given those outfits are at the cleaners, suffice to say I'm taking a decent size swing and will stop myself out if we push through to the upside.
I don't know if S&P 1000, a round number itself, plays a hand in the equation but I scooped back some puts there as well. Given the tone of the tape and the tenor of our tells (NYSE internals remain 5:1 positive), understand I'm not making a blind bet. I'm simply leaning against a critical technical inflection point and I'll be disciplined enough to cut bait should it-and I-get violated.
Not advice-I don't know your time horizon or risk profile-I'm just sharing the process. And please note that Citigroup (C) flipped the downside switch as well.
Engine room, more steam!
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 firstname.lastname@example.org.
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