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Monday Morning Quarterback: Bulls Fight Back From a Tight Spot

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Following a freaky week of valleys and peaks, we power up this five-session set with fresh eyes and uncertain skies.

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She cuts you once, she cuts you twice
But still you believe
The wound is so fresh you can taste the blood
But you don't have strength to leave
(Billy Joel)


Good morning and welcome back to the flickering pack. Following a freaky week of valleys and peaks, we power up this five-session set with fresh eyes and uncertain skies. Indeed, after a multitude of triple digit swings, the pre-market futures are curiously tame. Suck down that joe and get ready to go, Minyans-we won't be flat for long.

By now you know the twisty turns of the recent squirm. Boo had the bulls on the ropes, pummeling 'em with hedge fund redemption chatter, concerns over hidden risks in money market funds, Countrywide Financial bankruptcy chatter and, just for good measure, a moody 'tude from Mother Nature.

While we've been monitoring many of the current risks for a mighty long time-and trading them accordingly-we asked the question Thursday afternoon, with the DJIA off roughly 300 points, whether the worst was over. I was trading 'em from the long side with a stop below BKX 101.50 (the obvious-in-hindsight double bottom) and, well, it's sometimes better to be lucky than smart.

A few hours later, we wondered aloud what would happen (and which sectors would benefit the most) when the "surprise rate cut" arrived. While I flattened my trading longs into Thursday's close (discipline over conviction), I faded (read: sold) the opening during Friday's gap higher with a stop above the S&P 1455 (200-day) or BKX 111.50 (which I believe to be the more important level).

Finally, and to bring the swing full circle, I punted half my puts when the S&P filled that gap (and tried to sell more as that was likely the "easy" trade of the day). Alas, the bulls held their ground (which was massively important from a Fed credibility and collective sentiment standpoint) and we drifted higher to close out the week.

As I eyeball a second cup of coffee and take a look around the world, I'm operating under two assumptions. First, this rally will ultimately fail as history and mystery will offer a rhythmic downside rhyme. Second, I don't profess to know the timing of the decline so I will continue to use technical levels as a context for risk definition.

I enter the session with a partial put position, the intention to add to my downside exposure (with defined risk) and the humility to know that I know very little.

Random Thoughts



R.P.

No positions in stocks mentioned.

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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