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Random Thoughts: Trading Low Vs. Market Bottom


Hangover from the bursting of the debt bubble will last a long time.

Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community. See also Investing in a Perfect Storm.

Morning Dew for Me and You - 9:17 am

Morning Minyans, and welcome back to the world's wildest reality show. Folks all around our grand land await the opening bell, popcorn in hand, as the financial script unfolds in real-time. Following some early morning segments on Yahoo TV--posting soon to the 'Ville--I settle into my seat with hat in hand and eyes wide open. Some early morning vibes:

  • What's a sadder song--It's Too Late by Carole King or Harry Chapin's Cat's in the Cradle? (Wow, I really am that old.)

  • Fund vs. Fund? Yeah, on the one side you have hedge fund redemptions (forced selling of winners and sinners) and on the other, peeking around the corner, the potential for performance anxiety in mutual fund land (that will only kick in if a rally sticks). Through their eyes, the only thing worse than losing money is under-performing.

  • Yes, I've adopted a more constructive trading stance and no, it doesn't feel right. Someone once said that the hardest fades are the toughest trades but that most certainly remains to be seen.

  • With two notable exceptions--March 17th and July 16th--I've "sold rips to buy dips" (as one should during a bear market). With regards to my current posture, I'm flipping my stylistic approach to buying dips (last week, yesterday) and selling rips (Monday...).

  • There is a difference between a trading low and a market bottom. The hangover from the poppage of the MOAB (mother of all bubbles) will last a long time but the destination pales in comparison to the path.

  • Three things remain on my near-term radar. Credit lubrication (nascent signs but a ways to go), the dollar (equity bulls don't wanna see a stronger greenback) and the tenor of the current test (breadth, the reaction to news (Citigroup (C), Merrill (MER), United Technology (UTX), UBS (UBS) and Friday's intraday lows at S&P 840, INDU 7880 and NDX 1200).

  • As discussed yesterday, my sense is that Hank will try to pull a bunny from his magic hat before Friday's expiration (perhaps another globally coordinated 50 bip snip). The market seems to sense that too so we'll need to watch the reaction to NO news.

  • Is the "easy trade" the first fade lower? Perhaps. Either way, remember that each day has a P&L unto itself and don't press to make up for lost ground. The mechanics of the swing are more important than the results of the at-bat.

  • Fare ye well Minyans and remember, discipline over conviction as we find our way.


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