Random Thoughts: Shoots and Ladders
Turnaround Tuesday starts in the hole as concerns surrounding China, Europe, and commodities manifest.
We recently touched on some of these items, asking if gold was giving stocks the downside wink and if China was raising a red flag. I don't highlight these columns as any sort of victory lap-we don't roll that way in the 'Ville-but rather to respect your time. If you're interested in understanding some of the "why" rather than the "what," the proper context is extremely important. To appreciate where we are, we must understand how we got here.
As highlighted the last few weeks, the Nasdaq, through a pure technical lens, has room to retrace to NDX 2400 if it is to back-test the level where it broke out (see below). Insofar as that is 9% below the recent high, it would seemingly provide an ample gut check for those who have been operating with blind faith. My sense is that we'll get there at a point and that I won't be there for a fair share of it, as the "easy" trade is likely upon us.
Click to enlarge
Quite obviously, there are several items of note that could influence the forward price action -- the private creditor vote on the Greek debt restructuring is at the top of the list -- so we'll take our journey one step at a time, and make sure each stride is stable at that. Remember, there is always a bull case and a bear case and the residual grist is what shapes the tape.
There are still a slew of pension funds pining with performance anxiety; the irony, both for them and fund managers as a whole, is that losing money is alright as long as others lose more, but making money while others make more can get you fired. Imagine having that hang over your head every day and you'll begin to understand why we've been climbing the wall of worry to start 2012.
As discussed yesterday in real-time on the Buzz (click here for a free trial), I nibbled anew on some S&P and NDX puts in the context of lighter and tighter trading given my expectation for higher volatility (and what's shaping up to be another wacky week of meetings). I abhor blind risk, and while that sometimes backfires by missing meaty moves, demonstrating that discipline has saved me plenty over the course of my 20-plus year career. The mechanics of the swing are always more important than the results of the at-bat, and opportunities are made up easier than losses.
I plan to punt some of my puts into the opening abyss -- discipline over conviction -- and will then take a fresh look at the price action and update my posture in real-time on the Buzz. The financials (BKX 45), Apple (AAPL), Google (GOOG), breadth and the commodity complex (gold is already down another $30) will provide telling clues to the Tuesday fuse.
I suppose now we know why gold got jack-hammered last week (in front of the perceived China slowdown). It's uncanny how the stock market -- or gold, as the case may be -- can be predictive in nature, but that's why we often say that we can learn a lot just by watching.
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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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