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Freaky Friday Potpourri: Limit Down!

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The point of maximum pain has been reached.

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"So put me on a highway and show me a sign. And take it to the limit one more time."
--Eagles

We all have our limits. For U.S. equity futures, they've reached the point of maximum pain this morning. The Dow Jones Industrial Average is indicated 550 points lower, the S&P futures are down 60 handles and the NASDAQ is 85 points to the downside.

But wait, there's more. As I furiously share my Friday fare, Great Britain, France and Germany have suffered losses of seven to eight percent while Japan, Hong Kong, India, Russia and Korea are down roughly 10% each.

Before we deep dive and thrive, I would like to highlight two recent missives. The first is Kevin Depew's prescient vibes yesterday on national television and Minyanville-while the market was higher-that the S&P would likely melt to S&P 777 within the next week. We're not there yet but it was gutsy to put it out there as he did.

The second is the column I wrote on Wednesday discussing The Other Side of the Trade: Bear Trap that chewed through why my recent vibes that the 2008 low might have been established at S&P 840 and DJIA 7880 could prove too optimistic. We're still above those nadirs, mind you, but there are two sides of every ride and risk management dictates digesting both.


A few Random Thoughts as we juggle the struggle and prepare our fare:

  • There is a run on emerging market currencies as sovereign country credit default swaps are blowing out. This is worth noting through the lens of the bursting of the Dot.Gov bubble we've discussed this week. Russia, as old school Minyans know, does matter.

  • Limit down means we're seeing "bid wanted situations" which, through a historic traditional trading lens, is a bullish capitulatory signal.

  • While we must allow for "Black Monday" if markets remain sloppy, this-along with the ongoing process of debt destruction and price discovery-are healthy on the margin.

  • As discussed Wednesday, I flattened my book before attending an off-site meeting yesterday (100% cash in both my short-term trading account and long-term nest egg). As such, I plan to identify opportunities and scale into exposure as a function of time and price while leaving powder dry for lower levels still.

  • I'll trade equities as opposed to options given premiums are fatter than I am at this point (and I haven't even eaten my bagel and shmear yet).

  • Potential vehicles include the usual energy suspects such as Weatherford (WFT), Transocean (RIG), Schlumberger (SLB) (at fresh lows), but I'll likely skew towards the QLD and SSO, the ultra-long proxies for the NASDAQ and S&P. Gold, into our $700 target, is also intriguing.

  • I'm trading Ginger not Mary Ann with four thoughts in mind.

    • The better technicians in the 'Ville are targeting S&P 777 and S&P 600, which remains in the back of my mind as I map my stylistic approach.

    • Common stock (as opposed to options) gives me staying power to ride out the storm.

    • Only trade with what you can afford to lose.

    • The first snapper higher is likely the easy trade. The second mouse, however, might swipe the cheese.

    • Don't be surprised to see a coordinated rate cut to the tune of fitty bips across the globe with a full percent possible by the ECB.

  • If the markets continue on this prickly path, I'll again draw your attention to the potential that U.S.-and perhaps global-equity markets could CLOSE until they identify a defibrillator.

  • My greatest fear is that socioeconomic malaise manifests into geopolitical strife. This you know but so it's said.

  • Hank Paulson is said to plan buying stakes in regional U.S. banks, an announcement that could come as soon as today.

  • It's worth noting that was only down a deuce. That may very well be a stealth signal that Shanghai is finally poised for a powerful rally.

  • I'm out of time on this particular chime. I'll see YOU in real-time on the Buzz & Banter as I'm heading over there now.


R.P.


Did you know the doors to Festivus 2008 are officially open? Have you yet locked your spot for the critter trot as last year's soiree sold out? (This is our annual event to commingle our professors, partners and Minyans while chowing down and listening to live music. The very best part? It's for the kids in the good name of my grandfather.)

No positions in stocks mentioned.

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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