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Turnaround Tuesday lived up to its reputation yesterday as the stocks bounced, led by the beaten-up tech sector.  The "N's over S's" -- Nasdaq-100 (INDEXNASDAQ:NDX) outperformance of the S&P 500 (INDEXSP:.INX) -- was intuitive given the Art Carnage this past month; the question now is whether it will continue, and if so, for how long.

Monday afternoon, once our levels were breached across the board, we updated several areas of interest. They included S&P 1850 and 1840 (before the 200-day comes into play 5% lower), NDX 3410 (3360), IBB 218, BKX 69.60, RUT 1102, and TRAN 7390.

Much like their technical predecessors, these levels should be viewed as a risk context, not a Holy Grail. The market has a lot of influences vying for its attention -- the Fed, tapering, earnings season, high-frequency trading (HFT), potential regulation of HFT, Russia, Asia, Europe, social mood; the list goes on and the residual grist will drive the price action.

While the S&P is up less than two-tenths of a percentage point entering today's trade, the focus of late has been in the high-beta tech realm, with stocks ranging from Tesla (NASDAQ:TSLA) to Netflix (NASDAQ:NFLX) to Facebook (NASDAQ:FB) to GW Pharma (NASDAQ:GWPH) down 20-40% in the past month.

These names -- as well as the small caps and biotech as a whole -- had massive runs before the latest downdraft, so maintain perspective. To justify a resumption of the move higher, we must buy into the notion that the run-up was rational to begin with.

Shifting Gears

While I've been trading some exposure back and forth, old-school Minyanville readers will recall that I used to be entirely more active in individual stocks. I'm not talking about when I ran a $400 million hedge fund and juggled tech stocks through the burst bubble; I'm referring to the more surgical approach of recent years.

I pulled back on the scope of my activity and communicated that the tape no longer felt natural to me -- although I couldn't put my finger on precisely why -- and I was going to do less until I had a better handle. There's no shame in admitting it's hard; there's only shame in pretending it's not, or so says our 20 Trading Commandments.

We wrote about the waning integrity of US financial markets last summer and touched on some of the smartest players on the Street going dark three years ago. Both articles are again relevant given recent news -- the second one, in particular -- so I'll encourage you to circle back if you have the time. 

Given that the leaders coming out of a crisis are rarely the same as those who enter it, we are approaching a seminal moment for the financial process insofar as the new "leaders," in terms of process, now have their feet to the fire. Through a legal lens, it will be difficult to prove wrongdoing; in the court of public opinion, that may not matter.

With Goldman Sachs (NYSE:GS) posturing that it will distance itself from "dark pools"-- partly because it can't beat the Street and in part a marketing ploy (we recently saw the same by Schwab (NYSE:SCHW)) -- expect the high-stake gamesmanship to continue, and be on the lookout for unintended consequences.

Random Thoughts:

• One of the Street's biggest stock loan departments is being attributed with the following quote: "Our book saw the largest cover day since October 5 and 27, 2011. The S&P was pulling off a low of 1100 at the time, on its way to a 68% rise over the next 30 months."
   
• This is odd, given that massive covering -- such as we saw yesterday -- typically removes a future layer of demand (which is bearish on the margin).
   
• The source of funds yesterday was the transports and the financials, weighed down by the price action in Goldman and JPMorgan (NYSE:JPM). Not surprisingly, the S&P struggled to regain the all-important 1850 level.  If that seems like a familiar discussion, it is, because yesterday was the 24th time the S&P has tested that level this year.
   
• Gold continues to float between the 50- and 200-day moving averages -- a technical no-man's-land -- while yesterday's market breadth was solid (2:1 positive in both the S&P and NDX). 
   
• There has been some chatter of pain in the Street following the harsh downside move in the highfliers (read: fund liquidation and/or forced selling), so respect the unexpected in terms of fund flows.
   
• Biotech acted sloppy again yesterday -- Biogen (NASDAQ:BIIB), Gilead (NASDAQ:GILD), Celgene (NASDAQ:CELG) -- in an otherwise "up" tape.  IBB 218 is the 200-day support that we've been fingering for the last month; given biotech led tech higher, we would be wise to watch that level.

• Shorting the exchanges -- Intercontinental (NYSE:ICE), Nasdaq (NASDAQ:NDAQ) -- is starting to crystallize in my mind's eye as a smart bet.  With fewer barriers to entry and potential regulation that could eat into HFT fees -- in a world where they are getting paid a lot by HFTs -- this trade makes intuitive sense, at least to me.  It's just a question of synching time horizons with risk profiles; but isn't it always?
   
• I'll be traveling next week as my wife and I take our three kids to Florida to visit our 93-year-old grandmothers. Jamie, like me, was extremely close with her grandpa (both passed in 2001), so we're making a point to circle those memories.
   
• Good luck today.

R.P.

Twitter: @todd_harrison

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