Navigating an Unsure World Into Quarter-End
The goal when trading is to be in a position to use price to your advantage.
It's a new day — and a new world, as evidenced by the traction in European bourses and the early stateside jig.
We've spoken a lot this week about the potential for Cyprus to trigger the next phase of the financial crisis and assume the role of MicroStrategy (NASDAQ:MSTR), circa 2000, and American Home Mortgage (PINK:AHMIQ), circa 2007.
Clearly, that analogy — those analogies? — will only be known with the benefit of hindsight, but I thought it might be helpful to share the chart below. When Minyanville flagged AHM on August 29, 2008, the S&P (INDEXSP:.INX) rallied an additional 8% — before dropping 57% in value in the following year and a half. History doesn't always repeat — nor is it written that it must rhyme — but I offer this chart in the spirit of perspective.
I have been trading around some short exposure in the S&P — detailed here and here, and every day (all day) in real-time on the Buzz in Banter (click here for a free two-week trial).
To top-line, I initiated a SPY short into the rally on Monday (25% position of a full position), doubled down into the early rally yesterday (bringing my exposure to 50%), and pared exposure — as a function of discipline — into the sharp sell-off yesterday. (I peeled out of 10% of my risk.) Yes, I should have covered more when the tape was in the hole, but if wishes were knishes, I’d weigh 300 lbs.
My plan is to add back some short-side exposure into rallies — and cover into dips, also known as “trading around a short-bias — under the all-important S&P 1580 level.
Against that exposure, I am long some BlackBerry (NASDAQ:BBRY), which happened to get a double-notch upgrade at Morgan Stanley today (the stock is trading up 7% in the early goings). Consistent with the game-plan shared in recent weeks, I intend to make some sales into the March 22 US launch of the BB10 — just trading, from the long side — as a function of yes, discipline.
As a reminder, Scooter McGavin (that's me with a bum hip in Disney) will be out-of-pocket next Monday through Wednesday, so at a point, that has to factor into my risk profile. I normally prefer to flatten exposure while away from the fray, but that'll be a game-time decision as a function of time and price.
As I told my wife last night, "Who needs a roller coaster when I do board one every day in the global financial markets?"
- Sentiment levels remain at/near historic readings, so a reflex rally — with quarter-end on tap — shouldn’t be a shocker (we paid homage to it yesterday). While bottoms are points, tops are processes, in large part due to The Three Phases of Leave.
- I like to Question Conventional Wisdom; I can't help myself, it's part of my DNA. And while "timing is everything," as evidenced by the timestamp on the column I just linked (declaring the financial crisis was over), I would offer that the only way the financial crisis is over (I don't think it is) is if a social crisis emerged...which would lead to, yep, a financial crisis (truth and trust are the grist of bull markets).
- As I added some S&P short-side exposure, I rotated out of my Facebook (NASDAQ:FB) short after the 7% nine-session decline. This is an important zone for the stock — the right shoulder of a potentially negative head & shoulders pattern — but I’m keeping my risk tight, both in terms of price and concentration of risk. So it’s said, I also have a newbie cannabis play on my books, but I can't speak to particulars because it’s so thin.
- In the make-it-to-take-it world of risk management, rotation is good, as long as you remember that opportunities are made up easier than losses.
- In a stunning point of recognition, Minyan Craig emailed me yesterday to ask, "What, there's no Minyan March Madness Tournament this year?" WOW! I've been so wrapped up in work that I completely spaced that! We have set it up, so please CLICK HERE for details and get your picks in by 12 p.m. EDT tomorrow!
- If you’re digging the Buzz & Banter — or want to learn more about our FINRA and SEC compliant intranet/outward facing communication and content tool — and wanna flip the switch for your office/team/firm, we can do that....we can do that, and we would be much obliged! Please email me for more information; it’s a game-changer, in my view.
- Good luck today and remember, profitability begins within!
Disclosure: Minyanville has a business relationship with BlackBerry.
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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 email@example.com.
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