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Todd Harrison: The Bulls Flirt With a Massive Breakout


Can they bust a move before Turnaround Tuesday?

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

A fresh five-session set begins today, and the bulls are staking their claim to upside fame in the early goings. Per my late Buzz & Banter on Friday afternoon:

I've done better trading individual names lately (GW Pharmaceuticals (NASDAQ:GWPH), Twitter (NYSE:TWTR), etc.) than I have indices. As such, my inclination is to flatten my SPDR S&P 500 ETF Trust (NYSEARCA:SPY) puts today. While banks are underperforming, the SMART money index is screaming for attention, and vols are compressed across the board (not a timing mechanism), one would expect Ukraine worries to manifest into the weekend. The fact that they're not, coupled with my desire to keep a tight pad, is helping to move me in that direction.

I flattened that directional exposure (a push versus my entry price), with the exception of a tag-end's leave on the last tranche (it was a small position to begin with, as I expect volatility to pick up, and right-sizing risk is how one prepares for that). As such, I enter today's fray with the Twitter stock we scooped at $29.99 into the lockup expiration purge and a housekeeping item to clean up in the SPY. Soup to nuts, I'm ready for a brand new day.

The SPY decision was an audible; we often say boredom isn't an actionable catalyst, and I thought about that before I pared the risk. I told Michael Sedacca that I'm not known for my patience (when trading; I suppose the same can't be true in life, as I was 41 when I settled down with a wife and three kids). Recall that I layered into a slew of Facebook (NASDAQ:FB) puts late February/early March when the stock was trading $70, and after held that risk for a week or so. I subsequently flattened the position as it lacked a catalyst, and you know what happened from there.

These types of decisions are a fine line and why market timing is so tough. I remember rolling my Fannie Mae $70 puts month after month for a year before finally placing the stock on my personal restricted list. I must have dropped half a million in my personal account in that position; it was brutal. I moved the sidelines the week before it began the slide to 70 cents, leaving seven figures on the table. A wise man once said you can pick a direction or you can pick the timing, but you'll rarely nail both. Twenty-four years into this wild ride, all I can say is, "Agreed."

I'm not playing as big these days; it's a different market, and I suppose I'm a different me. Point being, the onus is on us to adapt our style to the market and adopt a stylistic approach that provides the highest probability of an advantageous outcome. Whether it's "hitting to quit it" versus "trading around a core," syncing your time horizon with your risk profile, taking the other side of conventional wisdom, or just waiting patiently for your pitch, there are different strokes for different folks, and where you stand is a function of where you sit.

The landscape we laid out Friday morning remains in play, so take a quick peek at that column if you haven't already seen it, and let's hit this week with positive energy and lucid thoughts.

Random Thoughts:
  • Note the 11-handle CBOEO EX implied Volatility (INDEXCBOE:VXO); we're getting close to all-time support, per the first chart below.

  • Lots of nuggets and thoughts last week here, here, here, and here, lest you missed 'em.
  • The Russell 2000 (INDEXRUSSELL:RUT) continues to churn under RUT 1115 (the 200-day).
  • KBW Bank Index (INDEXSP:BKX) 67 is the most important level in the world right now.
  • The bull case -- as discussed last week -- includes the reverse head-and-shoulders pattern. IF the tape pushes through S&P 500 (INDEXSP:.INX) 1895, it "works" through a pure technical lens to S&P 1975.

  • Twitter was upgraded to a buy by SunTrust Bank this morning, which follows BofA Merrill and Morgan Stanley upgrades late last week. I expected more to the upside on the heels of this -- it's up a buck (3%) -- but my inclination is to hold it for a while. When I bought the stock in December at $57, I watched it rally $10 without making a sale and finally flattened post-earnings, when it popped back to $57 (my entry). So by no means do I consider myself a stud in this stock; I just think my entry this go-round is entirely more attractive than it was then.
  • Market breadth is about 4:1 positive; it's early, but see it -- we're a long way from Turnaround Tuesday.
  • As always, I hope this finds you well.

Twitter: @todd_harrison

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