According to the author of the article, we are on the verge of a 50-year financial storm. Right now capital preservation is the first step toward wealth accumulation. The author believes that a downside ride lies in wait for our financial fate.
Todd Harrison
July 25, 2012, 12:01 a.m. EDT
Market Watch
NEW YORK (MarketWatch) — These are historic times, and that may lead to historic moves in the market.
Entering May this year, we asked the question on Minyanville: Will European Elections Trigger the Next Phase of the Financial Crisis?
In that column, we detailed the technical, structural, and psychological metrics and how they might play out through the summer.
The following day we clarified our view for the avoidance of doubt.
“If it’s possible that I understated my concerns Thursday morning, let me make something perfectly clear: I am extremely bearish here. I’ve built a sizable short in the S&P SPX +0.40% (with some Deutsche Bank DB -2.24% puts as a sweetener) and set my stop above recent highs at S&P 1420.
I’m not prone to hyperbole and the above missive offered a full take on what I saw and perhaps more importantly felt last Thursday. While we strive to remove emotion from the trading process, me no likee the stock market at these levels, not one bit.”
Better lucky than smart; the S&P shed 10% over the next month before chopping toward the upside trend channel we’ve highlighted in recent weeks. Hands-over-eyes, the S&P recouped roughly 50% of the decline from the 2012 highs (that level is S&P 1345) as we enter the meat of the earnings heat and the center of the European storm.
For purposes of full disclosure, my stylistic approach remains surgical; when I spy an advantageous risk-reward with defined risk parameters, I hit it to quit it and remind myself that good traders know how to make money but great traders know how to take a loss. Stay humble as the adage goes, or the market will do it for you.
I share this for a reason; I’m getting that old familiar feeling: that a downside ride lies in wait for our financial fate. Perhaps it’s the headlines — the worse drought in 50 years; the highest poverty level in 50 years — or maybe it’s our solemn social structure, as evidenced by the Dark Knight massacre and the Black Sea bombing.
Quite possibly it’s both, with some intuition sprinkled in for good measure.
My chief beef with ‘right here, right now’ on the short side is the lack of definable risk; discipline must always trump conviction and I simply don’t see a setup that makes my mouth water. (I wrote last week that a move toward S&P 1400 would provide such an opportunity, but true to the path of maximum frustration, the tape pulled up lame.) The closest catalyst that I can see is BKX 44 BKX +0.81% ; if the financials break below that level, the bears will likely press the downside.
In the interim, I continue to watch, wait, and demonstrate proactive patience as we edge our way to better days and easier trades. I see what you see and feel what you feel in terms of the “pressure” building under the seemingly calm summer surface, so please keep your right hand up as we find our way from here to there.
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