Random Thoughts: Adjust Accordingly to the Turnaround Ticks
One step at a time and let's make sure that each of them is on sure footing as we stick and move through the minxy groove.
Editor's Note: The following is a collection of Toddo's morning thoughts from Buzz & Banter, recollected here for the benefit of the Minyanville community...
Gate Sniffage - 9:49 AM
- After buying some BIDU near $300 into yesterday's close, I've sold half of my position and slapped a trailing stop on the leaves. While the trick to trading is letting your winners run and cutting your losers, $25 overnight points warrants some "in between" trading in my humble view.
- Other than that, I'm trading with lose grips and open eyes. If HSBC (HBC) gets to $92, Morgan Stanley (MS) to $60, the S&P to 1490 or the BKX to 101.50, I'll likely kick Boo in the shin and tell him to sharpen his claws.
- That Legg Mason (LM) news yesterday is spooky stuff. How many folks do you think believe that their cash is safe in a money market? That's precisely why I made the call this summer and took the 50 bip hit on my money market and made sure it was 100% backed by T-Bills.
- Red beans in the green seas? Home Depot (HD), Fortress (FIG), Amgen (AMGN), eBay (EBAY), Altria (MO) and USO (oil). If they can't rally during huge gaps....
- Lemme get this out to y'all before these words stale or stall. Good luck Minyans and play like a Bonnie today!
The screen door slams, Mary's dress waves... - 10:42 AM
- Professor Bennet Sedacca and I were musing last night about the heavy put buying of late. "Whataya make of it?" he asked as we talked tape. "I can make a hat or a brooch or a pterodactyl," I mused as I weighed the question, "And I can also make a case that a reflex rally is in the offing. Whether or not that lasts through expiration-or, dare I say, year-end-I'm surely not smart enough to know."
- One step at a time, my friends, and let's make sure that each of them is on sure footing as we stick and move through the minxy groove.
- Speaking of steps and skips, I'm calling an audible and selling the last tranche of the BIDU (that I bought into yesterday's close) as it trades up 10%. It could go a lot higher--or it could go much lower---but for puposes of my position, it's academic. I rarely traffic in these names and was simply looking for some bang to my Bonnie Tyler buck. Next...
- Keep an eye on the energy complex here---Exxon Mobil (XOM), Chevron (CVX), Transocean (RIG)... they're coming for sale as crude puts on a rude 'tude. And watch the dollar---if it catches a bid, the tape could hit the skids. It hasn't yet, mind you, but it's an important tell to keep on ye radar.
- Meanwhile, I'm trying to set an all-time personal mindmeld record today so lemme hop and chop. As always, I hope this finds you well and using price to your advantage.
Lunch Meat! - 12:07 PM
Stepping out of a midday meld, the following are the first things to flash behind my eyes as I strap into my chair and observe my eight screens:
- Man, Morgan Stanley (MS) trades heavy. What goes on there?
- A'ight, so we've gotten our Turnaround Tuesday bounce, complete with the lower dollar, 2:1 positive breadth, firm financials (BKX and XBD both +3%) and rockin' beta.
- So, do you remember how you felt during the crimson tide? Please do so and adjust accordingly. Hope is never a viable investment strategy.
- I'm not saying that this can't continue---perhaps through expiration, maybe into S&P 1490, quite possibly beyond---but it felt equally as good last Tuesday, right?
- A few weeks ago, I offered that I would be more worried about crude if it precipitously dropped (through the lens of asset class deflation vs. dollar devaluation). I was reminded of that fact as I peeked at oil off 3.5%.
- The November 15th FASB 157 "deadline" is a few days away. That won't matter in the near-term but it'll most certainly be something we'll revisit on a later date.
- Before I sat down--after passing the TV and seeing the green arrows--I fully expected to put a fork in my arm for making sales earlier. Then I thought to myself, "Self, as soon as you lament about making money, you're setting yourself up to fail." Sure enough, they've thus far turned out to be good decisions.
- Toss Applied Materials (AMAT), El DuPont de Nemours (DD) and Broadcom (BRCM) as heavy Betties in a very strong tape. Someone has a sell-side agenda.
- Setting goals are great but remember, by the time you reach your desired destination, the journey will have already ended.
- We'll talk about this--and a lot more--with the smartest folks I know in finance at the December 7th Festivus. Be there or be...
The Squeeze is on. The Squeeze is on (Baby, can you feel it?) - 12:52 PM
Where you be, Level 3? Not on today's radar, that's for sure! As verbiage seeps out of the Merrill Lynch financial conference, that deep breath you hear is a sigh of relief.
Lloyd "I thought there were blanks in that gun!" Blankfein said that he doesn't believe Goldman (GS) will need to take a significant write-down. POP! That's good for six percent.
Bank America (BAC) is writing down a paltry $3 billion? ZING! Four percent for you.
Left and right, up and down, soup to nuts, the financials are firm today. So we must be in good shape, right? Well, yes....for today. As goes the piggies, so goes the poke.
A few points of perspective, however, in no particular order and with no ax to grind:
- FASB 157 will matter. Just not yet.
- There's a lot of short covering in motion (2,000,000 XLF printed on the offer).
- The banks and brokers, on the aggregate, are still down 17% for the year (for those who believe that financials are a leading indicator).
- The sharpest rallies occur in the context of a bear market.
- BKX 101-ish remains the first of a few layers of resistance.
- LLOYD! said that Goldman is shorting CDO markets. So while he has a "good grip" on level three assets, you're only as good as your last trade. Just ask Morgan Stanley.
- Speaking of which, that stock is trading funky. $60 is resistance, we know, but it sure doesn't feel like it's gonna get there. In fact, I may try some puts for a quick schnitzel.
- Long-term and big picture, I think there is still a ton of risk in these stocks and better risk/reward today. That's not a call to short 'em---it's simply one man's most humble opinion.
Isn't that like kissing your sister? Or taking a bath with your socks on? - 1:27 PM
I see the group hug and mas love for the financials today and, so you know, have been flat to the share in the sector for a few days. And while I've fingered MS $60 as THE level of ursine lore, I'm not digging the way it's trading as I read headlines that they won't repeat revenue and ROE growth in 2008.
In a different tape through a different lens, that could be viewed as a pre-annoucement, although I'll stop short of offering that here for fear of Trading God retribution. Still, and so it's said, I've taken a (small) put position in the name and will keep a tight leash on this beast.
I'm NOT going to ride and build it into $60. What I WILL do is trade it with discipline and, if I'm stopped out, give mama a hug for trying as she does.
Mini Minyan Mailbag: MO Support?
I have been trying to learn from your posts. I read this morning your Buzz about how Altria (MO) is red in front of a giant gap. I have more than a passing interest as I have a position in MO due to the recession I see over the horizon.
I have learned to look at stocks that are heavy/jiggy in a buoyant/sloppy tape as both an indicator of the tape's health and potential trading vehicles. With respect to MO it has held up well in the sell off of late and is a few percent off the yearly highs set two weeks ago. I am guessing MO is supported by a combination of a recession trade and general fear of beta (of very late).
Now as to your comments I am thinking perhaps slippage in MO could presage an unwind of a very early recession trade, source of funds for beta dance, or selling "relative" winners now that "the worst is over."
Am I missing anything? I have no intention of shifting my position in the next few months.
Trying to learn,
It's all about time horizon and risk profile. Yes, MO has held up, as consumer non-durables and drugs tend to when an economic slowdown is perceived. And today, as money flies back into riskier bets such as beta and banks, these names are an intuitive source of funds. Is it a one day wonder or a broader migration? I'm not of the opinion that we're entirely out of the woods (which is different than saying we can't rally further).
For what it's worth, I like to use technicals to help shape and define risk. Along those lines, please be aware that MO $72 is a pretty big level and one you might wanna watch as you craft your thesis in the stock.
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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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