Todd Harrison: Wall Street Braces for an Earnings Avalanche

By Todd Harrison  APR 09, 2014 10:12 AM

Earnings, HFT, Russia, Asia, and the Fed vie for mind share.


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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:

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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