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A Bear Scare Arrives on Wall Street


Gold raises a red flag for investors.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Yesterday morning, we took a look back and glanced ahead at the investment horizon that awaits us; we saw both sides, mapped meaningful levels, and fingered forward catalysts in an attempt to Navigate the Year-End Stock Market Stretch.

Later that day, in real-time on the Buzz & Banter, we updated our view when we shared the following thoughts:

"On November 13, while sensing the potential for a sharp Snapper in the midst of a meaty downdraft, we offered these vibes:

"Where do I think Apple (NASDAQ:AAPL) -- and by extension, the tech tape -- can trade to on the upside? The 200-day on each, $594 and NDX (INDEXNASDAQ:NDX) 2664 respectively, are as intuitive as any other levels...but given my chosen stylistic approach of 'hit it to quit it,' I will likely be long gone by the time, and if, those levels arrive."

True to form, I prematurely evacuated from my upside rentals -- the rally back to the 200-day in the S&P was the "easy" trade -- but I drew your attention to these levels, which now reside at $598 and 2667 respectively, for a reason.

While there is wiggle room between S&P 1400 (where we were trading at the time of the Buzz yesterday) and those corresponding levels in tech, suffice to say the slope of hope has gotten steeper for the bulls. My ducks aren't (read: weren't) lined up quite yet, but I do/did hear some quacks in between the year-end upside goose attempts.

Later in the session, I bought some downside exposure, as expressed below:

So here we stand; on one side -- let's call it the bullish bent -- S&P 1350 and BKX (INDEXDJX:BKX) 47 (the 200-day) held precisely where they had to. What followed was a spirited sprint that awoke the year-end animal spirits.

On the other -- we'll name it the bearish stare -- we're tickling the underbelly of the lower highs in the S&P while the NDX and Apple, not necessarily in that order, are probing levels we fingered a few weeks ago.

The two variables seem to be on the lips of every market practitioner out there? Greece and the fiscal cliff, and while I believe the latter will work itself out, the former had on-the-margin positive news this morning and yet the tape didn't rally. Sometimes you can learn a lot just by watching.

In the interest of transparency, I bought out-of-the-money February S&P puts, with a stop on the other side of the levels mentioned above (drawn with a crayon). Yes, I respect the potential for performance anxiety to "keep 'em going" to the upside, but I'm taking one disciplined step at a time in an attempt to shake some acorns from the tree.

It's not a meaty position; given the year that was, I'm content to play smaller and preserve my gains as we edge toward 2013. And, as I will be out-of-pocket tomorrow and Friday on a business trip -- and given how much I abhor blind risk -- I'm not married to this particular position and will trade accordingly as a function of time and price.

Random Thoughts:
  • I hope you're as excited as I am for Festivus next Friday (click here to register!).
  • The metals are taking it on the chin this morning and we would be wise to remember that commodity volatility typically precedes equity movement, per the chart below.
  • The only problem with the political process is that there are too many politicians.
  • Doug "Don't Call Me Mama!" Kass posted an updated version of George Lindsay's "Three Peaks and the Domed House" chart pattern a few weeks ago. While I'm a big fan of Mark Twain -- "History doesn't always repeat but it often rhymes" -- I wanted to again share it for your edification. IF (big if) this pattern plays through, we tagged point 27 yesterday.
  • Good luck today, and remember that profitability begins within!

Twitter: @todd_harrison

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