Will the Bull Breakout Last?
Smiles abound on Wall and Broad.
Greetings from Minyanville HQ, where I strapped into my turret this morning after several intensive hours of Entrepreneurial Management 101. If you think trading the tape is a full-time job, try juggling risk alongside a digital media enterprise with several moving parts that include editorial (dot.com), licensing (MVP) and production (MV Studios). Complaining? Nah, just explaining; cause that's how we roll.
Turning my attention to the tape...
Yesterday morning, while the market was meandering around S&P (INDEXSP:.INX) 1515, I called an "audible" (in real-time on the Buzz & Banter) and covered my short market exposure (while, at the same time, punting my Potash (NYSE:POT) call position). I did it for a few reasons, one of which was how seemingly crowded S&P 1525 (and NDX (INDEXNASDAQ:NDX) 2750) had become, and the other was a gut sense that the tape had a binary feel to it—and I'm not in the business of flipping coins.
By the end of the session—and obviously, given today's price action—that prudence was rewarded. Sure, I could lament missing upside trades (there are always reasons to complain if you're looking for them) but if my biggest loss is that of opportunity, I will consider myself fortunate. Different strokes for different folks, I know, but I will again share that a surgical approach to this market (hit-it-to-quit-it) "fits" my current risk appetite, and yes, my current schedule (time management has never been my strong suit and blind risk is bad risk).
Looking out, now that the market has, or is in the process of, clearing out the shorts and establishing a long squeeze (performance anxiety; the only thing worse than losing money on Wall Street is not making as much as your peers), my eyes are firmly cast to S&P 1580 as perhaps the most important level of lore all year—or even, for that matter, in years. We've flagged this level before but it wasn't "next up" on our stair-step risk management process.
That's no longer the case; from a trading perspective, the closer we edge to S&P 1580, the more defined the risk becomes for those who are looking to fade (read: sell and/or short) this rally. Check the chart below; either this time is different (a dangerous, but not entirely impossible assumption) or we're approaching the zone where investors will once again get punished at the tops, just as savers have been screwed at the bottoms.
Seeing both sides---we must always see both sides—the recent sideways action was just what the doctor ordered for the bulls, working off the overbought condition as a function of time rather than price. Nowhere is that more self-evident than in the tech sector, where the NDX has been coiling, complete with false breakdowns and breakouts, for this entire calendar year (the second chart).
We must respect -- not defer to -- the price action, so please understand that technical analysis is a better risk context than catalyst as we together find our way.
We've been talking about BlackBerry (NASDAQ:BBRY) $12 for so long—and in fact, we've already traded it when it touched that level, peeling out a few days later at $16 or so—that it may be too obvious but it’s an intuitive level to lean against on the long side, with defined risk.
I would venture to say that Apple (NASDAQ:AAPL) $360 would also trigger some interest, especially if it gets there in a hurry, as few folks thought it would ever see that level again (it's also +/- a 50% retracement of the move to $700).
While I used to trade 200 positions in a $400 million fund—with $25-$30 million swings, some days—we live in a different world and yes, I'm a different guy. I am not mandated to carry risk; I have the ability to wait for advantageous risk-reward. The upside to that approach is that I'm not sweating futures overnight or rationalizing risk; it's acute, concentrated, and more often than not, I am able to concentrate on fewer things at any given time.
Balance, whether it's work/life or work/work, is a good thing in this day and age, as the chasm between perception (all-time highs) and reality (where's mine) sticks in the craw of mainstream America.
Is that steady drip I hear the sound of theta (decay) as the tape slithers sideways and the VXO dips 6%?
Is this December 2006 or March 2003?
Last week, Hoofy and Boo asked the question: Are Smartphones Making Us Dumb? Soon, they’ll release a new episode where they take their case to the next level.
Do you remember all those years and all those articles on Minyanville warning about how policymakers were mortgaging our future and lowering the standard of living for our children? Stan Druckenmiller, who is about as sharp as they come—and is typically camera shy—seems to have reached the same conclusion in this Bloomberg interview.
- Minyanville was early in flagging Groupon (NASDAQ:GRPN) as a problem child, not that it matters to Andrew Mason, who reportedly has 260,000,000 reasons to smile in the face of adversity.
Disclosure: Minyanville has a business relationship with BlackBerry.
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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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