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Random Thoughts: Is the Market Setting Up for an Off-Sides?

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A euphoric market awaits earnings.

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

They say the toughest fades are the best trades; should that prove true, a great trade awaits.

With our long-awaited S&P (INDEXSP:.INX) 1580 level finally upon us-this is where the reverse H&S (flagged in mid-March) "worked to," and the long-term triple-lindy price point we've discussed since February-the bulls are large and in charge.

Let's reflect for a moment: All-time highs in the Dow Jones (INDEXDJX:.DJI) and S&P, a positive reaction to any and all bad news, only 19.31% bulls in the weekly equity investor sentiment index (can this be right?), and a widespread "What, me worry?" mindset have the matador crowd standing proud. Put some lipstick on this pig and that bacon is shakin'.

After selling my SPY put position at S&P 1540 following the NFP report last Friday, I began to gingerly nibble back at the position a few days ago. Late yesterday, the fourth day of a vicious Snapper that has cleared out many burnt shorts, I rounded that exposure up to a full position in an attempt to use price to my advantage.

The reasoning is as follows: We're at a technical inflection point (that we've patiently awaited), a slew of hedges were unwound the last few days, and the market's field position (following this rally) is ripe for an off-sides with catalysts, in the form of earnings, on the immediate horizon.

Will my trade pay off? Time will tell-and time (theta) is my risk. From a pure price standpoint, I've set my stop on the other side of S&P 1600, which is +/- 15 handles from last night's close. And while the SPY is a "full position," it is a full position with regard to my comfort zone on directional risk, not a full position of my overall book (read: I'm not "all in").

Remember, when trading, right-sizing your risk, and syncing that risk profile to your time horizon, is half the battle.

Random Thoughts:
  • Gold got hit yesterday but remains above the all-important $1550 level.
  • We touched on The Balance of Balance last week in an attempt to "see both sides" and we would be wise to remember those elements.
  • The VIX (INDEXCBOE:VIX) has again lost teen status, which makes complete sense as volatility is the opposite of liquidity (and there is a lot of liquidity being pumped into the system. Still, see the 30-year chart below and the support that lives around VIX 10.
  • Where you stand is a function of where you sit; the bulls will point to the up-trend channel in the S&P that has been in place since mid-November, which suggests we have room to S&P 1610 before a pullback.


  • The bears will argue that investors have gotten punished at the top and savers screwed at the bottom, per the 30-year chart of the S&P. Both are included below.
  • Me? You know how I'm positioned for a trade and it's just that, a trade. We'll pick up this conversation in real-time over on the Buzz & Banter, so click here for a free two-week trial!
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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Position in SPY.

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.

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