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Random Thoughts: Is This Dip Buyable?

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Observations as we kick off our five-session set.

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

They say that timing is everything; boy, they weren't kidding!

Late Friday, following an extremely hectic day and week, I scribed the following vibe on the Buzz & Banter:

"Call me early, old-fashioned, or just plain chicken but I'm tidying up my trading house into the close today. It's been a long time since I've flattened my pad, and while I'm not there yet, the positions are slimming as we speak. There's nothing wrong with dry powder, particularly in a tape as opportunistic as this, or that's what I'm telling myself as I cast a glance toward a weekend full of laughter and little kids.

"Indeed, I'm inclined to flatten, take a deep breath, and come to play with a fresh head on Monday. And yes, I'm aware that covering my short bias -- as I'm in the process of doing -- may well set the stage for a wild crimson ride. Either way, opportunities are made up easier than losses."

We're honest in these parts, and trust me, I'm not particularly proud of this fact as I've been banging around the short side for some time. To add insult to injury -- or the other way around -- my daughter Ruby has been fighting a chest cold the last week and it finally caught up with me yesterday (I spent the entire day in bed) and today, and I opted to stay home as not infect the rest of Minyanville headquarters.

Opportunities are made up easier than losses indeed; I'm more or less flat to the share, which I suppose could be viewed as a blessing or a curse.

My personal positioning notwithstanding, I will offer the following: When this year began, I offered Ten Themes that included the following tidbit:

"Financial asset performance will be dependent on policymakers. 'Free' markets -- those without government stimuli -- will aggressively deflate. 'Modified' markets -- those with bearded socialism and/or nationalized assets -- will act better, but arrive with profound costs and unintended consequences.

"Through a pure technical lens, the 'reverse head & shoulders' pattern in the S&P that we've monitored in Minyanville for the past month has triggered, which 'works' to S&P 1360. From there -- if and when -- the European debt auctions will set the tone for global assets in the context of a secular bear market that has a few years to go before generational opportunities emerge in the back half of this decade."

At the time, targeting S&P 1360 in the near-term was an eye-popping bullish assertion; it seemed borderline ridiculous as The Smartest Guys in the Room Screamed "Get Out of the Market!"

Yet here we are, not five months later, sitting directly at S&P 1360 and most folks perceive this as a buyable dip. That may prove true -- there are two sides to every trade -- but a little perspective goes a long way.

Some Random Thoughts:
  • SEE the BKX trend-line, which officially broke on the opening.
  • Ditto the (potentially bearish) head & shoulders on the S&P (which will trigger should S&P 1350 breach).
  • Remember it's earnings season, so we'll see our fair share of alpha (individual motion) despite broad market movement (and yes, Apple (AAPL) reports tomorrow, so keep that in the back of your crowded keppe).
  • I sure hope Vicks VapoRub works because the smell is pungent.
  • Professor Peter Atwater continues to be well ahead of the curve; check this missive from last May regarding how political leaders would shift the investment landscape beneath our feet.
  • Apple and Google (GOOG), both of which have demonstrably underperformed the mainstay averages, tried to lend an early bid to the tech tape. Two stocks do not a market make, but let's keep an eye on them as we fire up this five-session set.
  • Speaking of Apple: While the stock is down (roughly) 10% the last few weeks, it's still 60% higher since Thanksgiving. It's more or less a given that it will beat on earnings -- that's one of Steve Jobs' legacies, the ability to consistently sandbag the Street. The question, as always, will center on the reaction to that beat.
  • While I punted both positions on Friday, LinkedIn (LNKD) -- above $100 -- and Banco Santander (STD) are both go-to stocks on the long side, particularly if and when I begin to rebuild market short exposure.
  • It's not what happens in the market that matters; it's what happens in the market relative to other elements of the market that determines the forward price action.
  • As always, I hope this finds you well.
R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
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