Near-Term Market Strategy: Fade Conventional Wisdom
Emotion is the enemy when trading.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
We often say the destination we arrive at pales in comparison to the path we take to get there; I've been reminded of that a lot lately as the bipolar stroller continues.
Last week we had too many bears -- and we rallied sharply.
Sunday night, we had too many bulls -- and they took it in the teeth.
And yesterday, as the ursine uglies growled anew, the tape put on a brave face.
And you wanted to be a trader...
I don't envy the 'big gorillas' who are trading size; moving that amount of merchandise in this environment is like trying to navigate a cruise ship in a canal. I've been there and done that during the Asian Contagion, tech bubble, and other massive dislocations. It's not an easy way to make a living, and although it can be quite lucrative, you pay for it with your sweat and soul.
One of the most vital insights I've adopted is the ability to view obstacles as opportunities. I'm not mandated to trade big risk or multiple positions and I manage my profile accordingly. "Know thyself" and "know thy environment" are critical perspectives when managing risk; while I love to swing a big bat, I've shortened up my grip in an attempt to hit singles and doubles.
One of the strategies I've employed lately is the Apple (AAPL) - Google (GOOG) pairs trade (trading Apple from the long side against Google on the short side). The stocks are currently the same price and they've got mirror-image technical patterns (Apple "works" to $623 while Google projects toward $522). That doesn't mean I've blindly slapped these positions on and walked away (although that might prove profitable). I traded around both sides, as evidenced by yesterday's leg when I covered Google down $8, punted the Apple up $4 and went home flat.
I respect the potential volatility surrounding the Greek elections on Sunday, and while the markets could resolve to the upside (I see the reverse head & shoulders formation in the S&P that "works" to 1400 IF the S&P breach 1335), I'm not in the business of flipping coins or anticipating patterns. There are setups with advantageous risk-reward intra-day and should I miss a move, opportunities are made up easier than losses. That, my friends, is the "other side" of discipline.
I'll be watching (the reaction to news in) JPMorgan (JPM) today as Jamie Dimon hikes up the hill (I respect the guy but I'll remind you that the leaders coming out of a crisis are rarely the same as those who enter it). BKX 44 remains a stealth, near-term tell for both the banks and the broader market (as go the piggies, so goes the smoke) as they encapsulate all the European "smoke." Remember, the $70 trillion in G-10 debt is the tip of the iceberg for $700+ trillion in derivatives in an interconnected finance-based global economy.
Lots to chew through but that doesn't mean we have to swallow the whole enchilada at once. Compartmentalize the conversation, digest the crosscurrents and strike when you see the whites of their eyes in the context of defined risk. There will be better days and easier trades; our goal, both as Minyans and human beings, is to get there together, one step at a time.
There was a moment last night when Kevin Durant and the Oklahoma City Thunder shifted into Ludicrous Gear when all was well in the world.
Spanish 10-year yields are at a new crisis high. As my bonus daughter Mug would say, that's "NG."
- There's an $11 spread in the Apple - Google pairs trade; I think this could widen to $50 (on the conservative side).
I'll be shooting on location tomorrow (an exciting project that I'll communicate as soon as I'm able). Ah, the joys of trading risk and doing the media thang in real-time in front of a massive catalyst (Greek election!). Our best thoughts, as always, we be shared in real-time on the Buzz & Banter (click here for a free two-week trial!).
Speaking of the Buzz, we'll be hosting our first-ever Buzz & Banter Fireside Chat Webcast at 4:15 p.m. today. Please click here for more information and to pose any questions that you would like the MV professors and myself to (attempt to) answer!
The NYC apartment is officially in the rear-view mirror; I'm now domiciled at a midtown NYC hotel mid-week until the beginning of August (when the new digs are ready) and I'll be working from the east end Mondays and Fridays. Given I've got a full system out there, I don't foresee any disruption. In fact, I get more done and think more clearly when I'm alone in my thoughts.
Emotion is the enemy when trading; leave the tears for weddings and funerals. Sell hope, buy despair, and remember that discipline must always trump conviction.
- I'm hopping over to the Buzz; see you there!
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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 email@example.com.
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