Random Thoughts: Is the Market Setting Up for an Off-Sides?
A euphoric market awaits earnings.
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.
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!
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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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