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Random Thoughts: An Earnings Avalanche Awaits

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The fundamental metric steps up to the plate.

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

Turnaround Tuesday is upon us with active traders looking at two particular price points.

The first is S&P (INDEXSP:.INX) 1560, which was the post-NFP downside gap from Friday, which "filled" yesterday after the rally. The second is the mother of all levels at S&P 1580, which I'll again lean against (on the short side) as we edge closer (risk definition). As such, S&P 1560-1580 is the zone to watch in the near-term; Mr. Valentine has set the price.

The style that rewarded me over the last few years has been to play two-sided individual situations "between the 20s" and broader directional bets in the red zone (market cusps). I do believe we're in the red zone, but I'm trying to remain patient in my approach as I've learned not to take risk for the sake of risk. That said, I will re-visit the SPY puts I punted into Friday's hole (S&P 1540) into further lift as you can do anything as long as you're disciplined.

I don't see an edge in making a directional bet quite yet given today's price action (this is subject to change; we update our risk in real-time on the Buzz & Banter; click here for a free two-week trial. Banks are firm (note Goldman Sachs (NYSE:GS)), breadth is skewed positive, and tech is mixed (Google (NASDAQ:GOOG) higher, Apple (NASDAQ:AAPL) lower; $360 remains a level I'll look to get involved).

In terms of our four primary metrics, earnings will take center stage in the weeks ahead, so respect the fundamentals while remembering they're rear-view (guidance will move stocks but the truth is, nobody knows what the future will hold). I still believe that psychology is the top dog in our metric mix, followed by structural (central banks, global debt dynamic) fundamentals and finally, technical (which are always a better context than catalyst).

These are trying times in the system formerly known as capitalism, but it's not impossible to make money in the marketplace. Manage risk rather than chase reward, define exposure instead of swinging for the fences, and always remember that opportunities are made up easier than losses.

Random Thoughts:
  • Yes, I'm aware that I tend to have a good feel around cusps-see here, here, and here-before suffering premature evacuation.
  • That said, "fear of missing" is never a valid catalyst for assuming risk; we have to trade the market we have and look forward not back; profitability resides in the ride ahead.
  • I was itching to slap back on a 25% short position in the SPY this morning (after peeling out Friday at S&P 1540). I didn't, as our tells weren't aligned, which reminded me that sometimes the ability not to trade is as important as trading ability.
  • As go the piggies, so goes the poke -- so please check the chart below.
  • I was looking at JC Penny (NYSE:JCP) last week, noting that it was approaching multi-year support. I chuckled to myself when I saw the news last night (that the CEO resigned), almost bummed that I didn't flag it for ye faithful before it traded up to $17. The stock is now near $14 (-10%), so if you're looking for a defined risk, contrarian play (note: there is no tangible catalyst) keep it on your radar. A smart real estate fella tells me its real estate holding alone makes it an intriguing stock.
  • I, for one, will miss Californication and Shameless, both of which had their season finales on Sunday. And we've gotta wait until September for Homeland? Sunday nights just got less exciting on the margin.
  • Finally, congrats to Louisville on winning the National Championship (or so I hear; I couldn't watch the game as the Syracuse loss was too raw) and snaps to Matt Davio, who took the Minyan March Madness tournament despite picking the Wolverines to win it all.
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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