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Random Thoughts: China Rider!


The Grateful Dead try to awaken the bears.


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

Today's title isn't about China Cat Sunflower-although you really wouldn't have to twist my arm to do that. I'm referring to the Shanghai stock market, which was down another 2% last night-or 8% for the year, or 67% from the 2007 high.

I bring this up for two reasons; first, if you recall, China was once viewed as the global growth engine, the widely-proclaimed savior of globalization. It was as sure as sure could be; perhaps almost as sure as the Bernanke call (note: this used to be the Bernanke put until the Fed became offensive).

Second, and this is perhaps more pertinent to traders in our midst, Shanghai 2000 should provide some support (it closed at SHCOMP 2024 last night). That's nice and tight for a "spec" position-OR, for those betting against the stateside proxies, this might provide a good "pair" on the other side of that bet.

The last time we offered this thought was with Spain and the IBEX has rallied 35% off the July low (vs. 10% in the S&P (INDEXSP:.INX)).

Food for thought as we continue to find our way.

Anatomy of a Botched Trade

Last week, I had a long Facebook (NYSE:FB)-short NDX (NASDAQ:QQQ) dollar-neutral trade positioned. The logic, as discussed at the time, was that I thought Facebook would outperform the tech market (based on an $18 and change entry level in Facebook) and in the back of my mind, I sensed that tech-and the market as a whole-would come for sale after Big Ben spilled the beans.

While that strategy proved prescient-Facebook is up more that 20% while the NASDAQ has rallied 3%-my execution was dirt poor. I attempted to "leg out" of the trade by selling Facebook and holding the tech short. It's not the opportunity cost that stings-opportunities are made up easier than losses-it's my attempt to get "cute" on what would have been a solid situation.

While observing the holiday earlier this week, I found myself in a quandary. I was in "hope" mode as I watched the tape constructively digest the recent gains (sector rotation is on-the-margin healthy relative to outright migration) and I post-rationalized my risk. While I've mentally written-down the loss (setting stops removes emotions), the situation could have been avoided if I just followed my plan.

I share the tale for two reasons. The first is an opportunity to synthesize my thoughts (which is why I write to begin with) and the second is the hope that by recounting my missteps, others will have the foresight to avoid them altogether. It's only a mistake if you don't learn from it; otherwise, it's a lesson. I prefer the latter, which doesn't help my bottom line but does provide utility.

Anyway, that's about all I have to say about that. I'm still short tech-down $0.35 on the position as I pound the keyboard on the opening-and I'll update it in real-time on the Buzz (click here for a free two-week trial!)

Random Thoughts:
  • I sense fireworks on the horizon-remember, expiration is tomorrow-the direction of which remains to be seen.
  • I attended the Pee-Wee football draft last night as I assume an assistant coaching position for the first time. Welcome to the burbs, Coach Harrison.
  • I heard on the radio this morning that household medium income has dropped for the fourth year in a row and was reminded of our old adage, "Inflation in things we need; deflation in things we want."
  • Should the tape scrape lower, we'll look at the price action in crude (-8% following the FOMC) and think to ourselves, "Commodity volatility typically precedes equity movement."
  • The financials, led by Goldman Sachs (NYSE:GS) and big beta, led by Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL) and F5 (NASDAQ:FFIV) are leading the tape lower in the early going. Of course, it's not how the market opens, it's how the market closes that matters most.
  • Expiration influences typically manifest in the days prior to the actual expiry (tomorrow). That said, there is all sorts of chatter regarding re-weightings and re-balances on the close tomorrow. I've traded-quick math-roughly 264 expirations in my career and I don't try to game this sorta stuff, I just respect that it's "out there."
  • If your firm would like to sponsor Festivus 2012 and give back to the kids-come on now, it's a write-off!-please let us know. The sponsor banners will appear on every Minyanville article from here to there, as well as registration and signage at the event. Plus, it's a GREAT event that celebrates the journey with our community!
  • Good luck today; one step at a time as we continue to find our way.

Twitter: @todd_harrison

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Position in QQQ
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