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Random Thoughts: Stocks Rocket on the ECB... But Will It Last?


The path we take trumps the destination we arrive at.


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

Many have I loved, many times been bitten; many times I've gazed along the open road.
Led Zeppelin

As portfolio managers shake the sand from their swimsuits after the long holiday stretch, they've nervously cast an eye toward quarter- and year-end. The performance anxiety is palpable; while there is a litany of reasons for global markets to crack - we discussed this yesterday, at length - underperformance is a four-letter word on Wall Street - and it's not "Drat!"

Mario Draghi is the latest policymaker to assume the role of Sisyphus as he rolls the global imbalances into a cumulative boulder and pushes it up the hill. The European Central Bank President unveiled an unlimited bond-purchase program in an attempt to reign in interest rates across the eurozone, which, presumably, will quell the speculation that the currency will splinter.

The always prescient Peter Atwater, this morning on the Buzz & Banter, offered that "the ECB just won the battle and lost the war. When you cut to the 'but,' there are plenty of conditions... and worse, Germany has been painted into a shrinking box." He further opined that "Irreversibility is like capital, liquidity, and good looks. The more you feel you have to say it, the less you really have it."

The Pavlovian response of investors has been to buy risk assets with reckless abandon. To wit, the only red beans in today's green seas are the VXO (-8% at 15ish) and the VXN (-7%, at 17ish), both of which are fear proxies. Market breadth is almost 5:1 positive, commodities are acting well (but outside of crude, not great), and both the S&P and NDX are trading at fresh 2012 highs. How about that!

Per yesterday's commentary on the Buzz, I entered today's session with a dollar-neutral trade: Long Facebook (FB) against a spate of NDX puts (QQQ). As the former is up 2% and the latter is up 1.6%, it's been a "no great shakes" session from a P&L standpoint, but that is subject to change.

I am taking my trade in Facebook as it re-tests $19 (the 50% Fibonacci retracement; I may revisit this position as gun-to-head it has upside room) and added a 25% to my short position in the NDX (I am raising that stop to 2850 to allow for a potential Pop & Drop as shorts scramble to cover. NDX 2806 was/is a 50% retracement of the entire Nasdaq downdraft, so I'm drawing this line with a crayon rather than a pencil).

Sometimes right, sometimes wrong, always hungry; I will be updating my posture in real-time on the Buzz (click here for a FREE two-week trial).
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Position in QQQ.
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