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Monday Morning Quarterback: Bulls Fight Back From a Tight Spot


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


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


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