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Freaky Thursday Potpourri: Trap Doors and Market Floors

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Respect -- but never defer -- to the price action.

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Do you remember the oh-no-you-didn't double-digit decline in Research in Motion (RIMM); the one that clipped 20% of the market capitalization just like that? It was only a few short sessions ago so if you don't, you're more A.D.D. than I am!

Oh look, a penny!

I can't help wonder if that trap door was evidence that downside vacuums exist (and complacent longs won't get the memo to sell) or proof positive that broader market resiliency remains (the tape hung tough despite a primary proxy getting picked off by Private Daniel Jackson).

I've discussed this with a few of the professors, along with other debatable dynamics like "deflation vs. hyperinflation." While the "easy" answer is that the market has spoken-the government will inject inflation-the nagging question is whether that is sustainable without legitimate end demand (before foreign holders throw a flag).

I see what you see-thin pullbacks, performance anxiety and healthy rotation-and don't wanna fight the tape anymore than I wanna fight for the last shrimp at a Bar Mitzvah reception.

As a size seller of "new paradigms," I'm aware that arguing "this time is different" regarding the DNA of this market (370% total debt-to-GDP) versus other secular bull market births is potentially flawed, although I continue to believe this move is cyclical, akin to the four rallies of 50% or more in Japan since 1990 (and the tricky Nikkei is still down 70% almost 20 years later).

As recently discussed, I've seen my fair share while staring at these eight screens over that same span and know enough to know I know very little. As such, I'm operating with a tight risk leash and searching for advantageous risk-reward.

I am long December puts (I've recently added to that position) and will reduce risk (rebalance my gamma) should the "lower highs" get taken out in the S&P and NDX. S&P 1070 and S&P 1120 (the downtrend from 2007 and a 50% retracement of the entire decline) offer alternative options for those with a heartier risk appetite.

Do I wish I held on to my inventory from when I was one of the few bulls on the street in late February and early March? Yes.

Do I wish I stuck to my guns when everyone all-of-a-sudden hated the banks after we panned them for years and then flipped our lid? Sure.

Do I wish Jamarcus Russell could buy a clue? Absolutely.

If wishes were knishes, I would weigh 300 lbs (like Jamarcus) but they're not and I don't (although I'm making a run at it). My point is that "wouldas, couldas and shouldas" have no place in the trading lexicon and if I have one regret over the course of my career, it's the countless hours spent thinking about what was and pondering what will be when I should have been entirely more mindful of the journey.

Identify a style that works for you and position yourself in a manner that allows you to enjoy a life not bookended by bells. And make no mistake; the market script remains unwritten. While I humbly believe the crisis hasn't magically disappeared-it's simply changed shape and will manifest in another form-there are no guarantees in this world.

And anyone who tells you there is-particularly if they say so with certainty and stand to profit if it does-warrants, at the very least, deep discussion of the "other side" of the trade. I'm not rubbing salt-in fact, I enjoy hearing variant views as they allow me to see the full probability spectrum-I'm just balancing the crosscurrents as we together find our way.

The following text was originally posted on the Buzz & Banter yesterday by Minyanville's Mr Practical:

GDI (Gross Domestic Income) is the theoretical equivalent to the GDP, but it is not followed by the popular press. Where GDP reflects the consumption side of the economy and GDI reflects the offsetting income side. When the series estimates do not equal each other, which almost always is the case, the difference is added to or subtracted from the GDI as a "statistical discrepancy." Although the BEA touts the GDP as the more accurate measure, the GDI is relatively free of the monthly political targeting the GDP goes through.

The discrepancies between GDI and a "handled" GDP are growing. GDI was revised to a 2.6% quarterly contraction. Annually GDI contracted an important 4.7%.


Fare ye well and trade 'em swell.

Random Thoughts:

  • I'm southbound at high noon for an early morning meeting and some quality vibe time with the savvy soothsayin' sommelier Jeff "As good as it gets" Saut. Seeing old friends is good for the soul.

  • Will "write-ups" bolster the financials?

  • My first thought when I heard Ken Lewis was stepping down at Bank of America (BAC)? I don't blame the guy-if I was strung along by puppeteer policymakers (I still believe he "got the call" on Countrywide and was strong-armed on Merrill), I'd probably punt too. The other, entirely more conspiratorial take, is that something lurks in the shadows, although my gut is that it was a function of the former storm.

  • I'm watching S&P 1040 and NDX 1690 as near-term support levels (which, if broken, could lead to another leg lower.

  • When I pinged Mr. Practical with the above-mentioned blurb that the Dow will "double for sure," he responded:

    "The null argument for buying stocks: there is no where else to put your money. This is a function of perverse economic policy that encourages excess risk taking. It creates bubbles in assets that are extremely dangerous. The only question is where are we in the scale of creating/destroying a bubble in stocks. I believe we are smack in the middle of the bust process."

  • Does crime pay? Hoofy and Boo offer their always-entertaining Emmy Award winning take!

  • Having spent yesterday with my dear friend MJ paying proper respect to her wonderful father, I was reminded of the fragility of life and that time is the precious commodity. We have one shot at this thing called life and at the end of the journey, we're an assimilation of our choices; let's make them count.

  • Finally-please remember to lock your spot for Festivus before we again stuff the pup. Call me a bad trader or say I have horrid taste in football teams but don't say Minyanville can't throw a snazzy soiree! This is 100% for the kids and giving back is at our core-join us, and let's cut some rug!

  • Good luck Minyans and remember, let's be careful out there!


R.P.

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Position in ndx, s&p

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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