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Random Thoughts: Sell the Earnings News?


Respect the price action, don't defer to it.

While some days hold critical clues for our forward path, yesterday wasn't one of them. Breadth was balanced, the tape was digestive and analysts spent the session preparing for a cacophony of catalysts in the form of upcoming earnings.

Still, there's a lot we can learn just by watching, which have triggered the following vibes:
  • Overbought conditions, short-term or otherwise, can be alleviated through time or price and the longer we meander sideways, the more viable an upside resolution becomes, perhaps all the way toward S&P 1360.
  • While the current price action has the distinct smell of an offsides (read: under-invested) fund community, yesterday was the fifteenth (15th) straight session without a meaningful pullback (hence the Shallow Hal references).
  • Boo the Bear would offer that the path of maximum frustration dictates a semblance of directional comfort before a reversal arrives, and we're approaching that mindset now.
  • Hoofy the Bull, forever the optimist, would argue that even the most fervent bulls are waiting for a pullback to buy and the higher we trade, the more likely a "long squeeze" becomes.
  • If we continue to ramp into earnings, the door will officially open for those looking to sell the news.
  • Insofar as that's highly likely, in my view, I plan on piecing out some exposure as a function of discipline, keeping some core risk and maintaining a high percentage of dry powder.
While I'm not as invested as my prose might suggest (always honest), I am operating within my comfort zone and I've found, over the course of my 20 years on the street, that I'm more lucid when I'm not loaded to the gills with risk (which tends to shape your perception).

Risk management over reward chasing as we continue to find our way.

Random Thoughts
  • Check the chart below, which tracks the DXY over the course of the last decade. Rounding bottoms are historically bullish, which portends further dollar strength in the month and years ahead. (Click chart to enlarge.)

  • Will the proposed transaction tax, if globally adopted, drive us toward "the other side of love, which is apathy"?
  • Perspective check: The S&P is up 20% since October and Goldman Sachs (GS) is still trading double-digits.
  • Will Research in Motion (RIMM) ever fill that gap between $25 and $29?
  • Bank of America (BAC) has rallied 40% since probing the all-important $5-handle as the 2011 sinners emerge as the early 2012 winners.
  • The next time you order leek soup, are you gonna ask for an extra bowl?
  • I know, I'm Europed out as well, but it does matter (both ways) so we have to keep an ear to the ground. Please note that, with the exception of the FTSE, Europe is exhibiting some nice price action.
  • As go the piggies, so goes the poke; BKX 40 is support below, as you know, although BKX 43 -- the 200-day moving average -- is now in play for the first time since last summer. We've marginally breached it to the upside, but keep in mind the BKX is up 20% on a moon-shot since December 20 and likely due for a pause.
  • As I've extensively written, the easy money on the short side of the financials was made a long time ago. With that said, we can trade 'em two-sided as long as we define risk, and that's what we're doing right now on the Buzz & Banter.

Twitter: @todd_harrison

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