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Randoms: 100% Bear Costume for a Trade


The risk-reward may be the most compelling of the year

  • I walked through my current positioning at this juncture in the market in my opening missive and it provides a valuable context for this particular column.

  • The high tick thus far was NASDAQ 2002. Drawing our inflection points with crayons rather than pencils, my game plan is to use "buy stops" above my entry level to "cut bait" on my current bet, if and when. Remember, the risk-reward remains the most compelling component of the trade.

  • What is that cut bait level? As a rule of thumb, I'll use a one percent move, which in this case would equate to roughly 20-something NASDAQ handles.

  • Where is the meat of my "paper?" October.

  • S&P 1000, in addition to being a 'nice, round number,' is a 50% rally off the March lows and an intuitive place to take a rest.

  • Given the catalyst for my bet is "tech-centric," my trading pad reflects that tracking risk. In a nutshell, my tech exposure vs. the S&P is roughly 20:1.

  • That doesn't mean I slapped it on and took a nap. As I'm trading around the set-up, I nibbled into Thursday's slippage (off the highs, where the bet was initiated) and layered inventory back out (read: initiated fresh shorts) into today's hot popper of an opening.

  • Our super-tell trifecta of Bank of America (BAC)-Google (GOOG)-Goldman (GS) are eyeing the sky, market breadth is 3:1 positive, the tenor of the tape is snazz and snazzier and Elmer himself hammered a nail in the ursine coffin.

  • What did I do? As written in real-time on the Buzz & Banter at 10:09:

    Given the proximity of my defined risk, I'm jumped into my full bear costume for a trade (100% conviction on the short side) with my stop set immediately above (as discussed earlier). This is a function of risk-reward, which doesn't make it right but it certainly makes it honest.

  • I'll say this again because it's critical: If the NASDAQ meaningful pops through my technical inflection point (shown below), I will cover up my bets. I've learned through experience that good traders know how to make money but great traders know how to take a loss. Discipline over conviction as we find our way.

    Click to enlarge

  • I was once asked if Alan Greenspan knew about the dormant toxicity in the financial machination and my response was that the chef in the kitchen typically knows the ingredients of the meal.

  • Forgive me if I don't blindly subscribe to his assertion that the end of the recession is in sight. We've seen this movie before in various iterations and it rarely ends well.

  • This morning, HSBC (HBC) announced first half profits, and It is interesting to me that some in the media are now criticizing the firm for not following Barclays (BCS) lead in purchasing a US investment banking firm "at the bottom". Kind of like Morgan Stanley (MS) being penalized for not taking enough risk during the second quarter (as opposed to Goldman Sachs. I cannot emphasize how important these kinds of market messages are. At bottoms under performing managers are criticized for taking too much and at tops under performers are criticized for taking too little" Minyan Peter on today's Buzz

  • Memoirs of Minyan has officially gone global. As I can't read Chinese, I am unable to monitor the translation but the persistent front-page coverage in the Wall Street Journal on the other side of the world is somewhat surreal.

  • I'm slammy here on this summer Monday so lemme hop. Please remember that while I'll always be forthright with what I'm doing, it's never intended as we don't know the time horizon and risk profile on the other side of this screen. We're simply sharing the process with homes that it adds value to yours.

  • Let's roll, Minyans, and let's be careful out there.


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