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Random Thoughts: Aren't The Toughest Fades The Best Trades?


Remember, setting stops removes emotion.


The following content appeared on the Buzz & Banter earlier today and is reprinted here for the benefit of ye faithful.

Gate Sniffage - 9:47 AM

  • Deal... or no deal? The tape opens with furious thunder as Freddie Mac (FRE) trades off 25% (not a typo) and Fannie Mae gets thunked for another 20%.

  • So what did Mr. The Writings Been on This Wall for Years do? I nibbled on some Citigroup (C) as an upside schnitzel. I know, I'm a glutton for punishment but with fitty-odd cents worth of risk and the banks hanging on to BKX 90 for dear life, I deemed it a decent risk/reward.

  • And I'm trying to type as quickly as possible such that I can share the process, thought or otherwise, before my stops are elected. I have no interest in being a hero---or a martyr, for that matter--but I'll always share with hopes that it adds value at some level.

  • Away from my bank-centric focus? Beta, energy and metals, oh my, along with the emerging market plays (remember, these are ALL the same bet on the other side of the dollar ride).

  • I'm watching (BIDU) for potential dandruff, so you know, it's one of the reasons I didn't double dip my chip.

  • Will the banks pull down the tape or the other way around? I'm watching Goldman (GS) and Bear (BSC) and BankAmerica (BAC) flip the Matador switch but I'm far from comfortable... which is typically a good thing. Stay tuned... and fare ye well.

Six the hard way, baby! - 10:36 AM

  • Splitting aces or the 7-10 split? I'm not sure but as I doubled down into the initial downside probe, I paid homage to the trading gods by making a token sale into that first Snapper. It's still dicier than the Wynn but if there wasn't risk, they'd call it winning--not trading.

  • Speaking of the City of Sin, have you seen Hoofy's bender?

  • Is Turnaround Tuesday (ie: straight up) too easy? That, my friend, is my single biggest concern regarding the sustainability of this lift. Well, that and Freddie. And Fannie. And credit contagion. And carnies. Circus folk. Nomads, really. They've got small hands and smell like cabbage.

  • Setting stops removes emotion. Setting stops removes emotion. Setting stops removes emotion.

  • I'm getting a LOT of emails saying "Whataya nuts? You think the dollar can bounce? There is absolutely NO reason for the dollar to bounce. Dude, stop sniffing glue."

  • Naturally, this could be considered bullish (no salt intended), as Jeff Saut so saliently said yesterday. And that, as much as anything, is the risk to the tape (and commodities).

  • Is that inconsistent with my current positioning? Time is the arbiter of all fate and price is the arbiter of variant views. I remain concerned with the DNA and respectful of a downside disconnect. I'm simply trying to make some hay while the sun shines, whatever that means.

  • Don't blink but NYSE internals are hanging tough at 2:1. That can change quickly in a "futures led" tape but it's worthy of a mention as we try to piece together this minxy puzzle.

  • OK, random thought. Given the emerging societal acrimony and the tendency to point fingers, how long will it be before someone casts a stone towards Goldman Sachs (GS) and begins to ask questions between its proprietary positioning and its official firm recommendation?

  • Will that Chinese Wall crumble at about the same time that the Chinese bubble bursts?

  • And finally, why does Fannie and Freddie "matter?" The elasticity of debt and the velocity of money have been Hoofy's aces in the hole. They're not "there" anymore, at least in any capacity near where they once were.

  • When and how that will manifest? Welcome to the most interesting juncture in the history of the financial markets. Hang on!

Answers I Really Wanna Know... - 11:28 AM

  • Has the market really only been open for deux hours?

  • Do you see the red sprinkles starting to show up in the semis?

  • If Citigroup can't rally with the futures up fifteen...?

  • Aren't the toughest fades the best trades?

  • Or are we tempting fate as we witness Freddie hate?

  • Do you think Cerberus is having GMAC buyers remorse?

  • Are you watching NYSE internals (still 2:1 positive) during (what feels like) another downside probe approaching?

  • Is the VXO (-7%) gonna hold this "higher low?"

  • Mother Morgan still trades heavy, eh?

  • But isn't $60 a better short-side entry than $50?

  • How thin is it gonna be on Friday? (Answer: thinner than me!)


Lunch Meat - 12:13 PM

  • If I knew my Cobb salad came with turkey instead of chicken, do you really think I would have ordered it this week?

  • Speaking of which, I'm sorta toggling between the two as I watch the midday exhalation in Morgan (MS) and Merrill (MER).

  • The BKX and DJIA are still both above our aforementioned support zones---as is Citi, for those keeping score at home--but the current probe will likely cast the die as to whether the bulls will get carved up.

  • I can "see both sides" so, while I'm leaning long, I'm staying uber-defined. I will say this: Win, lose or draw, I'll bet 60 cents to make three bucks seven ways till Sunday. I won't always get paid but over time, the mechanics of the swing are more important than the results of the at-bat.

  • I'm going back to Cali, to Cali, to Cali. I'm going back to Cali. Hmph, I don't think so. While I was slated to jet west on Thursday for a Left Coast feast, I've called an audible and will stay put for Thanksgiving. So, you've got me through Friday, for better or for worse.

  • I would imagine that giving birth to MV Kids is similar to the real life experience. Alotta effort, a dose of pain and trucking through with visions of pride and joy.

  • Gotta hop--I'll be back as soon as I can figure out how to type, trade, eat, map, plan, meet, talk, watch, listen, chew and manage at the same time.

Itchy Owie! - 1:01 pm

As I usher a young and impressionable soon-to-be college graduate from my office---Hey kid, do you really wanna work at Minyanville?--I'm reminded of myself when I was a similarly strapped Syracuse Zete looking for a role on the Street. I was sure I wanted to be a trader, from soup to nuts and wing tips to guts. That's where the money was and societal norms helped dictate my chosen path.

I have no regrets although I've sometimes wondered why someone would actually choose such a lifestyle. The answer, quite naturally, is that the greater the risk, the more profound the reward. That applies to life and it goes double for the tape.

Why am I rambling on about years gone by? Because our current juncture--the right here, right now--encapsulates the risk-reward dynamic. BKX 90 on the nose, DJIA 13,000 nary a hair away and the entire world watching, waiting and dare I say hoping that we hold. It's pressy, stressy and potenially messy.

Man, I can't quit you.

I can't foretell the future but I can manage risk and that's what I'm doing as I nip-tuck towards the turkey. After fading (read: buying) the opening probe and fading (read:selling) a snivlet into the Snapper, I'm leaning long above our aforementioned levels. With that said---and with a cork right next to my fork---I won't hesitate to cut bait should Aunt Fannie (FNM) and Uncle Freddie (FRE) ruin our Thanksgiving feast.


Want to read more? Catch up on Todd's afternoon Stream of Consciousness here.

Holiday Festivus is here! Come join us and support the Ruby Peck Foundation For Children's Education at an old-fashioned Southern-style hoe-down in the heart of New York City on December 7th. Click the image below to learn more!

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