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Random Thoughts: The Rally vs. The Recovery

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Musings from Mercury Rx to trading tells.

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Did your alarm sound this morning? Miss your train? Having car trouble? Is your phone dropping calls? Is your computer working properly? Are you (gulp) trying to travel?

If the answer to these questions is no, yes, yes, yes, no, and "I was supposed to, why?" respectively, you should know that Mercury Retrograde begins today.

You can ignore this, of course, but I'll tell you there's there there when it comes to this cosmic confusion. It's slated to last until April 23, when this universal trickster returns to his direct motion through the zodiac, but for the next three weeks, there will be forces in motion that we may not understand but would be wise to respect.

I know, I'm nuts, right? Perhaps -- that's a different conversation -- but those nuts promise to be assorted, if not outright salty, and I felt compelled to share that fare.

Here's what I'm vibing as my antennas try to vibe right:

  • I was looking to get shorty for a trade into the bell but didn't see a defined risk set-up in the S&P specifically suited my taste buds, so I sniffed for another vehicle. The tightest risk profile I uncovered was in the financials (BKX 52 is a massive level, stops would be set above BKX 53), so I swooped in to scoop some offers. I accumulated a grand total of eight contracts (a mere snivlet of my total order) before the final bell tolled, and I'll revisit that position today (assuming of course that the BKX doesn't open above my pre-determined ripcord zone).


    Click to enlarge

  • There's a lesson nestled in here, as well. I chose not to force risk for the sake of risk. After actively trading for the better part of a month -- shorting blips around S&P 1330ish to buy dips at S&P 1300, and then playing the same game under S&P 1300 (past support is future resistance) a few times before getting stopped out on Friday -- I took a step back to watch the world and digest the action. If I had tossed on exposure last night "just because," I would have paid an initial price for being undisciplined.

  • The cost of insuring Portuguese debt against default is at an all-time high, Irish stress tests may put the government in charge of the remaining private banks, wars are raging overseas, and stateside austerity measures are meeting staunch resistance. As I said last night on Bloomberg Television, this is a dynamic juncture and we should draw the distinction between a recovery and a recovery, at least through the traditional lens of capitalism.

  • I'll again say, because it's tremendously important, that corporate credit acts great, and that suggests higher equity prices (as well as further M&A, stock buy-backs, and LBO's) if viewed in a vacuum. As my Delta Tau Chi pledge name isn't Hoover, I'll remind ye faithful that stocks dropped 25% into the first phase of the financial crisis before the credit markets turned tail. That's why it's critical to see both sides while respecting the ever-present power of social mood.

  • IF Goldman (GS) was to Tuesday what Apple (AAPL) was to Monday, the 'smartest firm in the room' should be front and center on everyone's radar as a trading tell.

  • Hoofy is quick to note that market breadth has been strong (2:1), S&P 1300 is underfoot and high-beta tech (such as Amazon (AMZN), Google (GOOG), and Baidu (BIDU) has seemingly settled into a grove. Boo will counter that the combination of T-3 settlement into quarter-end, low volume (considering), the biggest weekly drop in VXO history last week, and BKX 52 sticky overhead, warrants a semblance of caution.

  • "In my view, the poor performance of the US economy from an employment standpoint cannot be separated from the Fed's attempts, for more than a decade, to make easy monetary policy a substitute for the accumulation of real savings and investment." --Dr. John Hussman

  • I concur, sir!

  • Why is it that it's always the last bite of every meal that comes back to, uh, bite you? I was polishing off a healthy wrap yesterday for lunch and ZING, I bit through my lower lip. Normally I wouldn't care -- I'm a karate man, I bleed on the inside -- but it facilitated a pronounced lisp right in front of a media appearance!

  • Will Portugal, Greece, Spain, and the lot of 'em "matter" or will the EU "FASB 187" them away for a rainy day?

  • Will it be as easy for Egypt, Tunisia, Syria, Iran, Saudi Arabia, and the rest of them? (Nope.)

  • Insider selling to buying is 18:1 but has the Fed, and the manifestations of their policy -- most notably the action in the credit markets -- opened the ultimate insider window? These are some of the things I think about at night, at least when I find some quiet time. That's sorta sad, but balance is a process, not a point.

  • As always, I hope this finds you well.


R.P.


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Position in financials

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.

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