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Buy the Dip or Sink the Ship?

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Taking the pulse of the early morning market.

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Some day we'll look back at this and it will all seem funny but for now, it's simply busy in the Hallowed Halls of MVHQ. If I told you I had a slated schedule for 11AM (video), 12PM (office space), 2PM (conference call), 4PM (documentary segment on the Federal Reserve), 5PM (conference call) and 6PM (business dinner), would you take this content as intended (communication) or have mercy, mercy on me (and point me in the direction of four tickets for the Giants-Raiders on October 11th)?

Either way and anyway, let's get this party started right.

Following yesterday's pop & drop, a probe lower was intuitive given this morning's higher opening. Given we've discussed Shallow Hal for almost a month, it's safe to say the "buy the dip" mentality isn't just ingrained in the mainstream mindset, it's seemingly set in stone.

That, coupled with the widespread perception of a quarter-end mark-up, makes this slope particularly slippy. Nobody will "care" on the first, second or perhaps third dip but thereafter, should it come to pass, we'll see the weak hands get shaken from the tape.

For my part, while I reduced exposure as a function of discipline (always honest), I continued to trade 'em with a negative bias as I get back to basics and re-find my feel. A few thoughts in that regard, other than a broken clock is right twice a day.

First, my sense has been that there will be better entry levels for Hoofy and exit strategies for Boo, should either be so inclined. Whether that's the heretofore 3% reversal (in the last three trading hours) or something more profound remains to be seen. Given the "first move is the false move following the FOMC," I've got some inventory with which to operate.

Second, we've finally gotten a market to trade, as opposed to the steady one-way grind. That's a blessing or a curse, depending on your stylistic approach but I embrace the "sell the rips to buy the dips" methodology. Hit it, quit it, sit it, with defined risk and trailing stops.

Trading, in that regard, is very much like a diet. Everyone trips at times, but we must never fall.

Finally, everyone and their sister, their brother Darol and their other brother Darol is keying off the credit markets and looking for an echo bubble. The uniformity of opinion is perhaps the single largest red flag so I continue to view the dew through the lens of risk management over reward chasing and opportunities being made up easier than losses.

There are some green beans in the Red Sea this morning, including JP Morgan (JPM) and Citi (C), the consumer non-durables and select tech, such as Microsoft (MSFT), Oracle (ORCL) and Qualcomm (QCOM).

With the tape this extended, however, market internals 3:1 negative and the dollar 90 bips higher (remember, bearish sentiment is extreme for the greenback), Boo has the ball for the time being.

I'm operating accordingly with an eye towards hitting for average not power. Remember, you can trade 'em seven ways till Sunday as long as you're disciplined.

As always, I hope this finds you well.

R.P.

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Positions in S&P and NDX

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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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