The Roller Coaster Continues: What to Watch for in Financial Markets
Adapt, don't conform, as we together find our way.
We like to say the price action associated with options expiration-which is tomorrow- manifests (through increased volatility) in the days preceding the actual expiration.
That has played through this week, in spades; Monday, the S&P lost 36 points.
On Turnaround Tuesday, they bounced 'em 22 points.
Wednesday, they lost-yep-22 points, to close precisely at Monday's close.
And true to form, in the early goings of Thursday, the S&P (INDEXSP:.INX) is indicating a higher opening.
I actively traded this stretch, as detailed in real-time on the Buzz & Banter (click here for a free trial!) and consistent with my shared strategy of navigating a short bias under +/-S&P 1600.
Yesterday, after punting all but 5% of my SPY (NYSEARCA:SPY) puts into the weakness, I called an audible and reloaded on my downside exposure, rounding it up to 50% of a full position.
With "my level" 50-odd handles away-too wide, through the lens of risk definition-I'm focused on the back-test of the up-trend line that has been in place since November, per the chart below, which comes into play +/- S&P 1560).
My plan this morning is to let the noise settle (the first half hour of each trading session is crowded), gauge the tenor of the tape and take a fresh look. Should market internals skew 2:1 positive, or if the financial complex demonstrates strength (Morgan Stanley (NYSE:MS) reported; watch for the reaction to that news), I won't rationalize my risk.
I told Michael Sedacca this morning that "loose grips" will likely reward the bears-and I believe that-but discipline over conviction has rewarded me over the course of my 23-year career, and it only takes a momentary lapse of judgment to give back hard-earned gains. Good traders know how to make money; great traders know how to take a loss.
Those are my top-line vibes coming into the session-I am writing this pre-market-and as always, we'll update our vibes in real-time on the Buzz & Banter as the market writes the script and Minyanville tells the story.
- Yesterday on the Buzz, I noted that the sub-sectors were getting hit harder than the mainstay averages. While the S&P was down 1.84%, the Nasdaq-100 (INDEXNASDAQ:NDX) off 2.4% and the Dow Jones Industrial Average (INDEXDJX:.DJI) 1.2% lower, the BKX was down 2.7%, the SOX was off 3.4%, the OSX (drillers) minus 3.6% and the XAU 3% lower. As this is a market of stocks and not a stock market, I thought that warranted a mention.
- Perspective Check: The S&P is currently 2.8% below an all-time high; for purposes of perspective, the Russell is off 5.5%, the KBW Bank Index (INDEXDJX:BKX) is down 6% (from recent, not all-time, highs) and gold is down some 30% from 2011 highs (and 21-26% since October, depending on the day).
- This speaks to our discussion earlier this week about how we're at/near all-time highs but nobody feels like we're at/near all-time highs. The last time we had that conversation? Yep, December 2006.
- Not saying history repeats-credit has yet to blink, but then again stocks were off 20-25% in the first phase of the financial crisis before credit confirmed the move lower. So, there is no all-knowing indicator; just best practices in risk management and patience in our approach.
- There are some relative winners out there-Wal-Mart (NYSE:WMT), Target (NYSE:TGT) and Home Depot (NYSE:HD), to name a few-and it remains to be seen if retail will be snuffed out as well. In a finance-based global economy, consumer spending is tied to the stock market, or that's presumably the plan on the Beltway.
- The Old School folks, or what's left of them, would argue that nobody is bigger than the market if the market is to remain free.
- The S&P held the 50-day (1542) yesterday, which is near the level we flagged out of the gate (1540). Below there, S&P 1540-ish becomes new-found resistance for bears who are looking to roll down their stops.
- Love and white light to our Boston brethren; know that our thoughts and prayers are with you.
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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 firstname.lastname@example.org.
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