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Random Thoughts: Anatomy of a Rally


The bulls make their final stand of 2012.


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

On Friday, I scribed the following vibe on our real-time Buzz & Banter:

"Yesterday, I shared that the combination of 1) BKX (INDEXDJX:BKX) 47 (the 200-day moving average, drawn with a crayon), 2) the S&P (INDEXSP:.INX) trend-line (since the summer of 2011) and 3) the defined risk inherent in those two levels was enough to trigger some long exposure by yours truly.

My vehicle is some out-of-the-money December calls in the S&P, which may or may not be the right time horizon or directional bias BUT you can do anything as long as you're disciplined."

Into the closing bell, after some nifty two-sided action on expiration, I re-iterated that stance when I shared the Buzz below:

"BKX 47? Check!

"S&P 1350? Check!

"Being so fried after a week in the trenches (following 12 days without power)? Priceless!

"Given that I've already sucked down the theta (time decay; weekend option premium is typically taken out of options on Friday) in my S&P calls, I'm going to carry my long position into the weekend. It's not a huge position (always honest) but it's directionally where I'm at for a trade with defined risk.

"When I started writing almost 13 years ago, I looked at the weekend as an opportunity to blow off steam and have some fun. These days, my requisite respite includes a trip to the chiropractor, a puppet show with my daughter and, well, happiness (there is a huge difference between having fun and being happy).

"That doesn't mean I'm not stressed -- in many ways, I've never been more stressed -- but at least these days there's a bit more balance. I suppose the longer you wait for dinner, the better it tastes. Anyway, I wanted to make sure I updated you on my risk, and took the time to wish you a good weekend."

Fast-forward three days. My back feels much better (I've been doing Myofascial Release, which has worked wonders, on top of the chiropractor and weekly yoga sessions), the puppet show (and the weekend as a whole with the family) was terrific (and much-needed) and we walk into work to find global markets glittering green.

Better lucky than smart, for sure, but we'll take what we can get as we tiptoe toward year-end.

Random Thoughts:
  • I don't know how far this rally runs but as we've been saying, the buyers are higher and the sellers are lower as a function of performance anxiety. The 200-day moving averages in the NDX (INDEXNASDAQ:NDX) (2665) and the S&P (1382) are intuitive targets -- past support is future resistance -- but as our crystal ball is in the shop, we'll take our journey one step at a time and stair-step our risk profile.
  • Whispering discipline over conviction to myself, I shaved some of my S&P upside exposure as the tape quickly probed the underbelly of S&P 1380, the 200-day moving average.
  • We offered on Friday, in real-time on the Buzz & Banter, that "Apple (NASDAQ:AAPL) is holding the May low by the skin of its teeth, and there's chatter that some gorillas were caught with some negative front-month gamma (which will disappear into the close). Keep that in the back of your mind as we tick-tock toward the bell; Apple's 200-day, so it's said, is up near $596."
  • I still own some lottery tickets in the cannabis space as I believe this is fertile ground as an investment thesis. I touch on the "why" in this podcast (we also talked tape, if you're into that sorta thing).
  • The dollar is lower, commodities act strong, and Europe is up a deuce (2%) across the board. That bodes well for higher prices, although a probe lower (that, in my view, will hold) wouldn't shock me following last week's action.
  • Note how the banks held BKX 47. Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC) are tells for the complex.
  • While I recently shared that S&P 1380 (and the reaction to that level) could shape the tape into year-end, I amended that last week (to BKX 47 and S&P 1350) as too many eyes were spying the 1380 level as "do or die" and sell-stops could (as discussed at the time) set the market up for a Drop & Pop. That's what we're seeing now.
  • Finally, Festivus is 18 days away and 100% of the net proceeds from this year's event will benefit educational efforts for the children impacted by Hurricane Sandy. The three killer tribute bands (The Police, Journey, and U2), top-shelf liquor, all-you-can-eat BBQ and 500 of the finest folks in our space are the gravy. Hope to see you there; it's an awesome event!

Twitter: @todd_harrison

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