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Random Thoughts: Q4 Arrives With a Bang!


Looser grips relax risk parameters.


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

It's a beautiful autumn morning as fund managers relax their risk grip after a very intense weekend.

I'm not referring to stresses associated with NFL fandom -- or PeeWee football for that matter, despite our first game (and our first win!) -- I'm talking about the third-quarter investment letters that were written and mailed by fund managers. Who shall live and who shall die has been determined by who has bought and who has sold -- and that's only gonna get more acute as year-end dances closer to reality.

At the center of this week's great debate was whether the recent slippage was a healthy retracement -- and we bounced right where we had to -- or the beginning of the "denial" phase of the bear case. While we won't know without the benefit of hindsight, we must position ourselves based on the here and now, decisions that are easier said than done.

I enter a fresh five-session set with balanced and measured risk. I'm long (half of my original) Facebook (NASDAQ:FB) common with a cost basis of $20 and a stop below recent lows, I have slimmed QQQ (NASDAQ:QQQ) December out-of-the-money puts (bought with the underlying at QQQ $68.30), a snivlet of Google (NASDAQ:GOOG) November out-of-the-money puts (bought when the stock traded $760) and a smallish oh-by-the-way Research in Motion (NASDAQ:RIMM) upside bet (bought at $7.65; stop below recent lows).

This positioning is entirely more palatable than the one-way bet that I sweated out before getting bailed out. I was too big -- I know this because I was watching every tick -- and it was a lesson, which is pretty crazy considering I've been trading 22 years and should have learned that lesson long ago.

Ah, the travails of being a human being rather than a black box.

Random Thoughts:
  • It's never wise to mess with Mother Nature or free markets!
  • We highlighted this puppy last week but lest you missed it, there's a Head & Shoulders formation forming on the Nasdaq 100 (INDEXNASDAQ:NDX) that "works," if triggered, to NDX 2675 (head minus shoulder, minus shoulder). We would need to break NDX 2770ish for it that to happen, but we should keep it on our radar we dance to the music.

  • Just when you thought the world's wildest reality show couldn't get any better, I'll draw your attention to the S&P (INDEXSP:.INX) trend channel that's been in place since the spring low. If we break that level -- note there was one false breakdown earlier this year -- a technical picture points toward SPX 1350.

  • If you haven't noticed, social mood is devolving around us. It's a race against the clock: Save the system or reach the tipping point if we're not already there. Social moods and risk appetites shape financial markets, so this discussion is fair game.
  • On the "other side" of that trade, we've secured the same bands for Festivus 2012 to benefit The Ruby Peck Foundation for Children's Education. If you like Journey or U2 -- or helping less fortunate children -- this is the gig for you! Please join us in giving back and have a great time doing it!
  • Finally, happy birthday, Minyanville! We turned 10 years old today, and I would be remiss if I didn't thank all you for being part of such a special community!

Twitter: @todd_harrison

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Position in FB, RIMM, QQQ, GOOG
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