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Random Thoughts: Trading the Magic Beanstalk


Traders may need to sell hope and rotate risk.


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 Salvation Lies Within, Unleash the Hounds, Character Witness and Is It Real?

Tailor Made - 12:02 pm

  • As I strive to share forthright insight in real-time, I feel compelled to communicate that I've made a slew of sales into S&P 960.

  • As such, I slipped one leg out of my bull costume, which leaves one leg (25% conviction on the upside) with the trailing stop in tact.

  • One of the catalysts for my "audible" was the sluggish action in Schlumberger (SLB). You can learn a lot just by watching and that bears watching, particularly if you're in that space as I am.

  • I've still got some Weatherford (WFT) and Transocean (RIG) (along with the QLD, with a trailing stop) but I took my trade in the oil service index (OSX). Why? Two reasons. First, good traders make money but great traders know how to take a loss. Second, it was one of my few pieces of November paper and I hate ticking clocks when I'm trying to focus.

  • I do believe this could run further (expiration) and I've got a two-sided plan of attack when it does (as well as further inventory to parcel out should Snapper scoot higher). I'm simply trying to respect the process with the understanding that the mechanics of the swing are more important than the results of the at-bat.

  • Sometimes right, sometimes wrong, always honest. This you know, my friends. As always, I hope this finds you well.

Answers I Really Wanna Know... - 1:29 pm

  • Is the action in the homies telling us that they -- Dre, Snoop, Easy-E, Tupac and Biggie (Pulte Homes (PHM), Toll Brothers (TOL), Centex (CTX), Ryland (RYL) and Lennar (LEN)) -- will be bitten by the nationalization bug?

  • Along those lines, are current buyers of the banks conscious that existing equity will have risk when preferred equity is issued?

  • Which could well be why JP Morgan (JPM) and Wells Fargo (WFC) are laggy?

  • Have I effectively communicated that the last leg of my bull costume is operating with a one percent trailing stop on the S&P (currently below S&P 955)?

  • And that doesn't mean I'm "selling everything," it simply refers to my metaphorical imagery?

  • Was a trading low (not to be confused with a market bottom) as easy as stocking up on canned goods and water?

  • Was last week's depression chatter a modern day "duct tape" discussion?

  • Did I over-think the GLD down $1.5? Or EEM? Or BHP?

  • Or will patience once again prove virtuous?

  • Would now be a good time to communicated that I punted my QLD trading exposure?

  • I mean, risk rotation is a good thing right?

  • Have you locked your spot for the Festivus trot?

  • Seriously? Why the heck not?

Full Disclosure! - 2:33 pm

Here are some things I think:

  • We'll close near today's highs if contra-hour can be contained (see things I "know" below in terms of risk management).

  • Winners will begin to diverge from the sinners (nationalization candidates).

  • Current equity holders in banks and homebuilders might have a rude awakening.

  • Politicians will pile into policies designed to jack the market higher into expiration.

  • The Ambien was responsible for my consuming that packet of hot chocolate last night (sans water).

  • EEM, FXY, BHP and Gold should trade higher but I'll likely have an opportunity to initiate risk lower (I did nibble on an EEM starter, so you know, but it's tiny).

Here's what I know:

  • Tapes that are strong all day (with 2:1 positive breadth) typically end that way.

  • Discipline must always trump conviction, which is why I'll adhere to that "sell stop" under S&P 950ish, which is a 1% trailing stop drawn with a crayon.

  • It's never a good idea to trade to your bottom line. Trade what is and what will be, not what was.

  • Cheerleaders belong on the sidelines, not center stage during a global crisis.

  • Autumn is by far my favorite season.

  • In the absence of water, people are so thirsty that they'll drink the sand.

  • People don't drink the sand 'cause they're thirsty, they drink the sand because they don't know the difference.

  • Cannibals don't eat clowns because they taste funny.

  • My top two strummers are Jimi and Stevie with third place up for grabs.
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Positions in WFT, RIG, QLD, EEM
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