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Random Thoughts: Will Investors Sell the European News?


Digesting the global crosscurrents one day at a time.

It was just another manic Monday as we walked into a gap higher for stateside equities. For those who've never witnessed a performance anxiety-driven rally, where fund managers must pay higher prices or risk losing their jobs (should they underperform), that was what it looked like. We wrote yesterday, in real-time on the Buzz & Banter, to respect, but not defer to the price action, and true to the path of maximum frustration, anyone who bought the opening was licking wounds by the end of the session.

For my part, following a weekend full of Festivus, kids, birthday parties and house hunting, I entered yesterday's fray with a balanced book-some Bank of America (BAC) and Research in Motion (RIMM) on the long side (both battered and beaten this year) versus a dollar-neutral batch of S&P puts (added last Friday when chatter emerged that stateside Republicans would try to squash the IMF European backstop). On the opening gap higher-about 20 handles on the S&P futures-I "rounded up" the S&P side of my book (to reflect the delta change) and went home-and woke up today-leaning short with positive gamma.

The focus this week continues to be Europe, with an asterisk in the form of year-end performance anxiety. German Chancellor Angela Merkel and French President Nicolas Sarkozy have been pushing for a rewrite of the EU's governing treaties to tighten economic cooperation as yet another step in the debt crisis battle, which will presumably come to yet another head this Friday. Given Standard & Poor's warning last night that they may downgrade 15 euro-area governments if a viable solution isn't mapped, the stakes have been raised, as if that was possible.

I will again offer, as I did last week, that we all know "what" is happening, but we would be wise to respect the "why," much as we did in August 2007.

I often muse that one of the best lessons I've ever learned in business is the ability to turn obstacles into opportunities. It's the first thing I think of whenever I hear of an "issue," and it's applicable to trading as well as life. If you're mystified by the "animal spirits" in the marketplace-many of which are by those mandated to gain exposure into a lifting market-one could view that as a competitive advantage for folks who aren't bound by such constraints. Find the easy trade each day and attack; if you don't see it, remain patient; it's not necessary to trade every day, it's only necessary to win those you choose to play.

Keep your right hand up and your eyes wide open; in a few short weeks, 2011 will be dust in the wind, dude.

Random Thoughts
  • There's an old trading adage, "buy the rumor and sell the news." With the S&P up over 9% in the last six sessions heading into the European meeting of the minds, we must remain aware of that despite the growing chorus surrounding Santa Claus.
  • Gold never got out of its own way yesterday despite the lift in asset classes and the increasingly loud chatter regarding the potential for QE3 (which, in hindsight, may have been a tell that stocks would come for sale as the day progressed). The yellow metal is again trading lower today, so take that for what it's worth.
  • Technicians will note that the S&P traded right up to the 200-day moving average yesterday (S&P 1265) before coming off the highs. As a point of reference the Dow Jones Industrial Average ($DJI) is above the 200-day (DJIA 11945), as is the NASDAQ 100 (NDX 2291)
  • The banks have to rally or the S&P has to fail, right?
Click to enlarge

Twitter: @todd_harrison

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Position in BAC, RIMM, S&P
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