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Random Thoughts: Date, Don't Marry (Stocks)


Stylistic approach will dictate performance.


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

Turnaround Tuesday has arrived and the morning action evidently didn't get the memo with the TPS cover sheet. Europe is higher (led by Spain), the dollar is lower and the S's and N's are giggling green.

Yes, it's still early.

Consistent with the persistent pattern of 2012, the bulls have gotten louder at the top of the range, just as the bears roared at the bottom of the trend channel. All the while, the market is playing, playing in the band.

While buy and hold types have (for the most part) been rewarded this year - the Dow Jones Industrial Average is up 7%, the S&P is higher by 11%, and the Nasdaq is better by 15% - my stylistic approach (pick your spots and hit-it-to quit-it) has not only out-performed the averages, but it has, more importantly, allowed me to sleep at night.

This isn't a victory lap or a back-pat - we don't roll that way in these parts - I share this for a good reason. As everyone and their sister is looking for guidance, and more and more folks are trying to make names for themselves by calling the future direction of a multilinear stock market, the mechanics of the swing will always trump the results of the at-bat.

What is my takeaway? Perhaps it's to never let an opinion get in the way of making money. I firmly believe that there is a chasm between perception and reality, and a difference between a stock market rally and an economic recovery. If I would have drawn a line in the sand and bet the farm on that view, I would have been dust in the wind, dude.

Or maybe it's to trade the tape we have, not the tape we want. One of our Ten Trading Commandments is that we must adapt our style to the market; this is not your father's stock market anymore. The financial equation was much simpler then; it was based on supply and demand, not derivatives, dark pools, and synthetic stimulus.

I've employed dozens of different strategies over my 21-year career - trading around core positions, employing exotic option strategies, capturing volatility skew - and given the wicked crosscurrents these days, I am trading fewer positions (at once), remaining patient, and managing risk rather than chasing reward.

A wise man once said to take care of the minutes and the hours will take care of themselves. That comes to mind as we edge through the modern day frantic fray.

Random Thoughts:
  • With the above in mind - and before I really mush myself - I punted my Facebook (FB) position this morning in real-time on the Buzz & Banter. My basis was $20ish and trades are made to be taken.
  • S&P 1400 and the NDX 2700 are both levels to monitor; while both have a bit more room, this was likely the "easier" trade as highlighted last Tuesday.
  • VXO: Dueling Head & Shoulder formations (read: bearish for VXO; bullish for stocks) or the bottom of the range (bullish for VXO; bearish for stocks)?
Click to enlarge

  • LinkedIn (LNKD), Google (GOOG), and Apple (AAPL) are red beans in today's green sea. They led us higher, so the price action is worth nothing.
  • Finally, we often say that there's no shame in admitting it's hard; there's only shame in pretending it's not. I interact with a lot of people the world over (229 countries and territories) and I can tell you that almost everyone is struggling these days, both personally and professionally. We once wrote about "a prolonged period of socioeconomic malaise entirely more depressing than a recession" and it hit full force. The good news - and yes, there is good news - is that we needed to go through it to get through it, and we're going through it now. This too shall pass and when it does, we'll look back at this stretch with learned knowledge. The only advice I can offer, and yes, I need to follow it better myself at times, is to attempt to enjoy the journey. By the time we get to where we think we want to be, the experience will already be over.
  • As always, I hope this finds you well.

Twitter: @todd_harrison

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