Visualize a market up or down 5%. If you're uncomfy either way, you're not properly positioned.
"Do you understand the difference between dying for something and dying for nothing? The only reason I fought so hard to stay alive in China was because I didn't want to die for nothing."
--Jack Bauer, 24
Man, it's been a pretty intense 24 hours, eh?
The good news for Hoofy is that market breadth remained constructive for most of yesterday's fluxy session.
The not-so-hot news was that occurred in the context of anemic volume (which is understandable, given the holiday weekend) and under dual resistance (in both the S&P and the all-important banks).
Boo would also note that, given the Merger Mon, er, Tuesday tape, the bovine "should" have responded more favorably.
But what was the tell? The ursine wink? The heads up that something fugly was a flutter? It was the FXI (i-shares China), as highlighted by the firing-on-all-cylinders Coops De Ville on yesterday's Buzz...
Position in FXI, EEM
Y'all noticing how the FXI was positive by a big 0.07 this morning despite US strength?
Now it's down on increasing volume. This DESPITE a new record in China. Anyone else smelling Train Tracks over there, i.e. a reversal of the new record tonight?
Looks like a Grail Fail, a failure at the 20 day moving average.
Why, you ask, was that such a noice, stealth tell? Because China is the dog that wags tails and tongues around the world.
Again, nobody is debating that
Some other, random, Hump Day vibage…
Some folks were surprised that the market didn't act better given the 3% hiccup in crude. Those folks likely aren't Minyans.
Yesterday, Pep highlighted FCX, FISV and GTRC in Matador City and MBLX, SRE and RHD on the Red Dye side of the tracks. So ya know, lest you're not reading the Buzz on a daily basis.
Everyone, and I mean everyone, is conditioned to buy dips and "trade from the long side." I don't blame 'em as it's worked like a charm for the last four years. I don't know if right here, right now, is the time to flip the switch but I'll offer some thoughts that should help mitigate risk.
A paired book, or keeping some shorts vs. your longs. I still favor energy and metals over tech and financials but 1) the OSX is roughly 20% above its 200-day moving average (read: extended) and 2) an Asian slowdown will tap the commodity complex as well.
Remember, you can't spend relative performance so invest accordingly. If you wanna buy dips, make sure you have the dry powder to do so. Visualize a market up or down 5%. If you're uncomfy either way, you're not properly positioned.
Use options to your advantage. With vols low and lower in front of the anticipated summer slowdown, stock replacements and married puts make a ton of sense for those versed in the risk (and only those versed in the risk). Professor Succo scribed an awesome six-part tutorial, for those interested, so be sure to check it out.
Define your risk and practice patience. If you don't know, don't "go." And if you do "know," trailing stops or set levels help remove emotion from the mix. You always want a game plan before you step on the field. If you're trying to craft a play while the clock is running and traders are gunning, your chances of getting blindsided increase in kind.
Is it Wednesday already? Be sure to check out the latest segment of Hoofy and Boo's News & Views!
There are other, fundamental guidelines---such as the Ten Trading Commandments-but alas, we're tick-tocking into the trading day.
I'll see YOU on the Buzz, Minyans, and I'll see you there with style.
Good luck today.
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 email@example.com.
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