Editor's Note: Todd posts his vibes in real time each day on
Buzz & Banter
The bulls and bears have been engaged in a technical war; after six
straight months of higher lows and higher highs, the tide turned
last month, producing a series of lower highs and lower lows -- a
sign of distribution and the first serious test of 2013.
Yesterday, the dueling channels, as they've been dubbed in
Minyanville, seemingly resolved in the direction of the broader
trend, in this case to the upside. While the bulls still need to
push the tape higher
S&P (INDEXSP:.INX) 1648
-- a level yet to be attained in June, and one that
trigger an inverse Head & Shoulders pattern that "works" to
in a technical vacuum -- they must do so into the biggest event of
our young summer.
Big Ben, our Federal Reserve Chairman who, according to President
Obama, stayed at his post "longer than he wanted," will release the
FOMC "rate decision" tomorrow at 2 p.m. EDT. Given that we now have
a clear signal that Mr. Bernanke will step down when his current
term expires next year, his actions, or inaction as the case may
be, will be highly scrutinized as he has long held the keys to the
printing press and license to his helicopter.
These are trying times for the system formerly known as capitalism.
Between the heavy hand of the government, the uneven playing field
for the small investor (HFT), and the frenetic pace of information,
due in large part to the fragmentation of media and the speed at
which it's delivered, trading these days is an adventure in and of
itself. In the first phase of the financial crisis, we eyed
The War on Capitalism
, and it appears to have played through, and then some.
So here we are, mid-June 2013, with the
Dow Jones Industrial Average
(INDEXDJX:.DJI) and the
(INDEXNASDAQ:IXIC) all up +/-15% YTD. We're halfway home, as least
in terms of annualized returns, but few I know are enjoying the
ride. Perhaps this is the wall of worry we hear about so often, the
one that bull markets like to scale. Or, it could be a telling sign
-- a frightening disconnect between perception and reality,
with social mood moving in one direction
and performance in the other.
Yesterday, after entering the week with some short exposure in the
S&P (40% of a full position), I flipped my book midday and took
down some upside exposure. The catalyst was the pattern discussed
earlier, but it's not as sexy as it sounds; if you're a half-step
slow, as I seemed to be, it was a pretty frustrating session.
Thankfully, I didn't blow out of my exposure into session lows,
opting instead to wait for the end-of-day Snapper that once again
arrived on cue.
While I carried that risk -- 45% of a full position -- into today's
trade, I'm well aware all that matters for our forward path will be
what Bernanke has to say tomorrow. Will he hint at tapering the
synthetic stimuli that has fueled the stock market rally, or will
he walk the party line and remain vigilant as they monitor future
data? Given this is Mr. Bernanke's swan song, I would imagine he
tries to navigate a soft landing, so to speak. Thus, the
15-trillion-dollar question becomes:
Will the market let him?
I've been trading 23 long years and writing about it in real time
for more than half that, and I'll tell you, this is the most
F.U.B.A.R. environment I've ever seen -- and I've seen plenty of
F.U.B.A.R. markets. When the tape moves on what a journalist writes
about what may or may not happen in the coming days, as we saw
yesterday after the
article posted, you have to ask yourself what it's all about, and
if you have a competitive edge. This is not our father's stock
market; not even close.
Speaking of which, each of us will have the edge of a marble at 2
p.m. EDT tomorrow; while we might get the "statement" right (my
read: status quo and watching closely), the reaction to news will
be more important than the news itself. For my part, I expect to
flatten my S&P exposure before the announcement as I work too
hard to make money and it's too easy to lose it. I still have some
single stock exposure on my sheets; that's a different
I will say this: I don't believe "close your eyes and ride the
tide" will carry the market through year-end. I believe there will
be a serious gut-check at a point and the recent 5% pullback
doesn't qualify. As such, my game plan is to continue to identify
advantageous risk-reward, define my risk, and practice
discipline over conviction
as we together find our way. It's not sexy, mind you, but it's a
process that shakes shekels from the tree while allowing me to
sleep at night, and that's a good thing in this day and age.
- A picture speaks 1,000 words; here are the aforementioned
- And here is the inverse Head & Shoulders pattern that
could trigger should the S&P push through 1650. Just
remember, technicals are just one of our four primary metrics,
along with fundamentals, structural, and psychology.
- I nibbled on some
) yesterday, via August call options, with defined risk, per the
trend line below.
And Finally, a Minyanville Mailbag...
- Good traders know how to make money; great traders know how
to take a loss.
- My computer keeps telling me my physical memory is low. How
the heck does my computer know how A.D.D I am?
- Our overseas banking proxies --
Barclays PLC (ADR)
) -- gave the bears an early downside wink yesterday. The
financials remain a primary tell as they encapsulate so many
dynamics of our rate-sensitive, highly-leveraged finance-based
- The S&P hasn't traded above 1648 thus far in June; that's
likely why the bears are making such a stink at that level.
- Anyone else remember when the Federal Reserve didn't target
- I'm still looking for a "pure" cannabis play (
I think this is biotech circa 1990
) but to my knowledge, there aren't many options. Between 1)
increased tax revenue, 2) lower crime rate, 3) impact on prison
overpopulation, and 4) the fact that the industry isn't covered
by Wall Street, there are a lot of reasons for the legalization
of marijuana to mirror the repeal of prohibition in 1933, in my
Minyanville reader Dan writes:
I am an original Minyanville member who started reading you when
you were with Cramer. I know you have at times been short the
(NYSEARCA:SPY) but I wondered your degree of conviction. Do you
think it is just a matter of time before the wheels come off --
again? Inquiring minds want to know.
Your thoughts in the past have saved me. Thanks for that.
I'm just trying to trade around the market and make hay while the
sun shines. To your point, I do not think this ends well, BUT I
respect the motivated agendas of global central banks, so it
becomes a question of timing and degree.
The bull case is that the government swallows hard and writes off
the toxic debt they've consumed; the bear case is that IF markets
are to be free again, they must clear at levels unencumbered by
synthetic demand -- and that's likely much lower than here, all
else being equal.
The trick to that trade is that all else is
equal right now -- policymakers, HFT front-running, etc. -- so we
must continually peer around the corner at what might be and assign
probability to that, which is much easier said than done. Not sure
if this helps, but it is what it is, as they say. Hope this finds