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Random Thoughts: Will the Market Retest the 2009 Lows?

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The lifeguards begin to take on water.

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It's not your fault, Will Hunting; it really is that tough out there.

So says a trading pal whose been doing this for a long time. "I'm hearing that a few big funds are blowing up," he said, "which might be responsible for the end-of-day action of late." I wouldn't be surprised; when margins call and redemptions sing, they tend to do so for a lot longer than most folks expect.

I said to him, as I wrote yesterday, that A) there is an upside "window" for a trade if S&P 1250 can remain underfoot (as it stands, all bets are off) and B) I conceivably foresee a retest of the March 2009 lows, although that may not happen (if it happens at all) until 2013.

Therein lies "the path we take vs. the destination we arrive at" we often speak of. There are a multitude of ever-changing variables in play. That isn't a hedge, it's what is. That's why I employ a stair-step approach to risk management. Everybody trips, the goal is not to fall.

While that long-term scenario may or may not evolve, I'll say this so it's officially said -- if we get "there," I plan to close my eyes and buy everything in sight (in both my long- and short-term buckets). While you may be thinking, "Way to put it out there, sport; I'd buy everything too if it were trading at 50 cents on the dollar," I'll say with a high degree of certainty that it won't feel like an opportunity -- it will feel like the end of the world.

I don't enjoy being bearish on the big picture. I feel like that annoying guy at the craps table who bets on the "no pass" line (yes, that's bad momo). And no, I don't talk about this much as folks will think I've fallen out of my tree (deja vu all over again!). With that said, all a man has is his name and his word, and I would be remiss if I wasn't forthright (which is a different conversation than being right).

I've always believed I would be the most bullish guy in the room when the shvitz really hit the fan, if and when we're allowed to get there. While a snapshot of the short-term trading picture finds a fair share of bears, the opposite of love isn't hate -- it's apathy -- and there is way too much emotion for this to be anything close to the low.

As my astute trading pal said to me when I shared the above thesis, "there's a lot of trading between here and there" and he's spot on. The true test won't be P&L, in my view, it'll be engagement and, to be frank, financial survival. I'm not trying to put a scare into ya, I'm just attempting to edge you into the mindset of "anything can happen" and it most likely will.

Putting that aside, S&P 1250 remains the line in the sand for the upside window, and that "matters" on a closing basis. Keep an eye out for margin calls, which hit the market at 3:30. If they can't take 'em down and keep 'em down, they'll likely scramble up.

The financial markets have morphed into a matter of national -- and international -- security, and every central bank in the world is motivated to win The War on Capitalism.

See both sides and remember not to underestimate the power of a caged and cornered animal.

Random Thoughts

  • European Central Bank President Jean-Claude Trichet signaled this morning that the ECB has resumed bond purchases in Europe with hopes of stemming the crisis before it sucks Italy and Spain into the abyss. The obvious question is therefore begged: Who is going to bailout the ECB?

  • With Europe melting -- the mainstay bourses have yet to rally on this news -- some of these sovereign situations are down 10% from Monday's high. I've attached a chart of Germany below for reference. Achtung!


    Click to enlarge

  • Check out the US Dollar, which is 1.5% higher (which is a massive move for currencies). As long as the greenback is grabby, headwinds will persist for asset classes of all shapes and sizes.

  • S&P 1250... S&P 1250... S&P 1250... are you watching S&P 1250?

  • Trading tells today include big beta (Google (GOOG), Apple (AAPL)), European banks (Barclays (BCS), Deutsche Bank (DB)), market breadth, the dollar (natch), and our technical levels (please note that the NDX 200-day is near here at 2285).

  • There's no shame in admitting it's hard, there's only shame in pretending it's not. Make sure your portfolio is well within your comfort zone, and that you've got "room" either way as the market plays its hand.

  • If you're looking for a little help with your trading take a free trial to any of our subscription products. They're run by some smart cookies.

  • Good luck today!

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.

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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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