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DAX and S&P 500 Suggest We're Not Out of the Woods


If DAX can recapture 6500 and S&P subsequently can reclaim 1375, the technical lens -- and by extension, the psychogical lens -- will shift.


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

Yesterday, following a few not-so-fun days, I offered a Global Market Trading Strategy that detailed a few important levels in the global financial marketplace. I did so in good faith and with best intentions, without the benefit of screens or a turret. These are important times, and I wanted to put forth my very best effort.

Shortly thereafter, as posted in real-time on our Buzz & Banter, I shared the following fare:
"I penned a lucid trading plan earlier; allow me to update that and explain my actions, and why they pertain to my particular time horizon and risk profile.

"While I believe the stair-step risk management approach I penned is valid--and it is one I would otherwise follow--I took profits on the majority of my short-side exposure.

"I have never lied (to Buzz readers or otherwise, at least as an adult who prides himself on his name and word), so here are the straight facts. We are closing on our new home next month and the lender will be reviewing this account statement. Given my trading book is at YTD highs, it was (cough) suggested to me to trade smaller until we close on the house.

"... I love my family. As such, I'm inclined to follow that advice in a manner consistent with our collective best interests (different strokes for different folks).

"I'm out of the S&P, and have a small remnant Deutsche Bank (DB) put position that I can live without (but have yet to punt the leaves). I will continue to scribe vibe consistent with best trading practices...."
A few hours later, I shared some additional thoughts on the Buzz, which included:
"I was two years early on this puppy but it's as relevant now as it was then.

"I stepped to the sidelines in my Deutsche Bank put position but in terms of risk-reward, it still feels like one of the better bets on the board (under $44). SEE the head and shoulders, and set your stop on the other side if you're so inclined.

"I'm likely wrong but I'm not so enthused by the Facebook IPO; now Twitter, that stock will excite me, as does LinkedIn (LNKD) at the right price point.

"Last week, heading into the European elections, I offered that I'm "scary bearish." While the price action has been somewhere between "extremely resilient" and "outright denial," I maintain that bias until such time that S&P 1375 or DAX 6500 is broken with any type of confidence (technical levels are risk contexts, not catalysts). And yes, the longer we linger below, the more bearish "it" becomes."
I covered my sizable short-side exposure near session lows. In hindsight it was the right thing to do; with foresight, I will offer that we're not out of the woods, although if the DAX can recapture 6500 with vigor -- and the S&P subsequently reclaims 1375 -- the technical lens, and by extension the psychogical lens, will shift. The structural metric, however, remains the metric of focus, as Europe has issues in that regard, not to mention a fair share of (two-sided) headline risk.

In terms of the tape, I would be careful here (especially under S&P 1375); if there are no improvements in Greece and/or Europe, I can't imagine fund managers would want to carry risk into the weekend. I am all cash here -- again, full disclosure.

As always, I hope this finds you well!


Twitter: @todd_harrison

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