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Random Thoughts: A Trader Looks Within


Chewing through our Freaky Friday.

I thought I was being strong yesterday when I ignored doctor's orders (bed rest) and schlepped my bones into Minyanville headquarters to represent. It turns out that it would have been less expensive to stay in the hospital!

While I've got defined risk on my latest batch of short-side stabs, my Sleep-O-Meter was red-lining last night. With the Knicks game over (yikes!) and the kitchen pantry already raided, I found myself burning the midnight candle as I scoured the globe for bread crumbs of clues. In the back of my mind was an ever-present question: Am I trying to pick up dimes in front of a bulldozer?

Three points of Parliamentary procedure, in no particular order:
To wit, as scribed in January:

Financial asset performance will be dependent on policymakers. "Free" markets-those without government stimuli-will aggressively deflate. "Modified" markets-those with bearded socialism and/or nationalized assets-will act better, but arrive with profound costs and unintended consequences.

Through a pure technical lens, the "reverse head & shoulders" pattern in the S&P that we've monitored in Minyanville for the past month has triggered, which "works" to S&P 1360. From there-if and when-the European debt auctions will set the tone for global assets in the context of a secular bear market that has a few years to go before generational opportunities emerge in the back half of this decade.

The natural question is when the flip will switch on The Tale of Two Tapes, and given that that's unknowable-catching cusps is a dangerous way to make a living-risk definition is our best friend as we forge ahead. In that regard, we can view the current dew through two lenses, as represented below in the charts of the S&P and NDX.

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You will note that both indices are more than 27% higher since the October 4 lows-that's four months-with the S&P approaching last year's high tick (1370) and the NDX having blown through it (in and around 2400). A fair share of those gains occurred, of course, as The Smartest Guys in the Room Screamed to Get Out of the Market.

Extended markets are NOT a reason to make sales/get short but they do factor into our risk-management process when juxtaposed against the global socioeconomic landscape. And it's equally interesting to note that after the meat of the above-mentioned gains, The Smartest Guys in the Room Screamed to Get Into the Market!

I learned a valuable lesson in 2003 that you can never post-rationalize risk, and I enter Freaky Friday with my short-bias in tact and very tight stops above current levels. The bulls have enjoyed a strong start to 2012 and my portfolio benefited in kind; and while I sense an inflection point may soon be upon us, I know better than to make blind bets as hope has never been a viable investment vehicle.

Discipline over conviction as we together find our way.

Random Thoughts:
  • An Apple (AAPL) 10:1 stock split was one of my bigger fears on the short side of tech and that has seemingly been alleviated, at least in the near-term.
  • If you put a water pistol to my head and asked me how Apple will use its $100 billion in cash, I would guess that a special one-time dividend might appease the most folks.
  • I continue to sense that crude is the best proxy for Mid East tension, consistent with our tricky trifecta of societal acrimony, social unrest, and geopolitical conflict (and yes, I hope I'm wrong on the final third of this continuum).
  • The VXO (angst index) is at the lowest level since July 8, 2011; and you remember what happened last July, right? History doesn't always repeat but it often rhymes.

Click to enlarge
  • I've got a big weekend planned and I can't wait! Let's make today count while remembering, we work to live-we don't live to work! Enjoy, friends; you've most certainly earned it!

Twitter: @todd_harrison

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