Sometimes common sense comes from the most unexpected places. Consider this bearish take on the stock market from – better sit down for this – a Morgan Stanley strategist, Jason Todd: “Equity markets now implicitly need a V-shaped recovery to sustain further gains,” he told a reporter for the Wall Street Journal yesterday. “We do not expect such a recovery and therefore believe the next move is more likely to be down than up.” What’s next? A warning from Abby Cohen, perhaps, to lighten up on stocks?  Actually, it looks like traders aren’t waiting for the preternaturally bullish Abby to sound the alarm, since they pummeled the Dow Industrials for a nearly 300-point loss in the last two days. That’s not much compared to the heady days of last autumn, when we saw the blue chip average fall more than twice that in mere hours. But it does represent a minor triumph of head over heart at a time when green shoots of recovery have been spotted growing out of every crack in the asphalt from New York to Michigan to California.    

We haven’t seen any shoots ourselves other than a few weeds, although we did advise some cautious bottom-fishing in the shares of Apple yesterday if the stock dips just a bit lower. We also hold a small long position in Akamai, a “cloud computing” favorite that has been in a holding pattern since, seemingly, the dawn of history. These two stocks seem like pretty conservative plays to us, since both companies have been doing relatively brisk business even with the global economy in a deep funk. But it never hurts to have some insurance, and that’s why we were bearishly bidding yesterday for some put options on the Diamonds, a trading vehicle that mirrors the action in the Dow Industrials. We lowered our bid minutes before the opening because index futures had moved higher overnight, predicting a flurry of buy orders at the bell. The buyers did indeed arrive, but not exactly in droves, and so the puts never traded down to our price: We missed buying them by a measly 13 cents.  Were we being penny wise but pound foolish?  And: Is it greedy of us to think Mr. Market will gift us with a small rally if we enter another stingy bid this morning?

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 Calling All Traders…

Ever found yourself sitting on your thumbs after the opening bell, waiting for the dust to settle?  If so, then you know how much harder it becomes to trade profitably as the day wears on. That’s because once a market has established an opening range, trading becomes essentially a frustrating game of second- and third-guessing other traders who are trying to second-guess you.

But suppose you were able to predict the high or low of the opening range beforehand?  Using your crystal ball, you could be waiting at the bell with your bid or offer, ready to pounce on what will later turn out to be at the high or low of the day. Wouldn’t that be a trick!

That is exactly what we attempt to do each morning, using the Hidden Pivot Method to spot predictive price patterns that may have occurred overnight. If you want to see how this is done, and how precisely, please join me for The Morning Briefing each day before the opening this Monday through Thursday. These 20-minute sessions will commence online sharply at 9:00 a.m. EDT. Our goal will be to identify trading opportunities for that day, with a particular emphasis on Comex Gold futures and the E-Mini S&P.  The Morning Briefing will be open to all, but to sign up you will need to register by clicking here.  See you Wednesday morning!