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Growing Pains


You always want to see both sides of every trade.


Good morning and welcome to the scorning. It's been a long week (and not for the meek) as the ursine bum rushed the minxy boutique. Day after day and trade after trade, the bovine upchucked and the furry got paid. "It's been a long road and man what a year," Boo said as he made the green disappear, "but I'll tell you this and I won't shed a tear--you'd better beware and you better stand clear!" Is he talkin' smack, this bear that just snacked? Will the bovine fight back and edge into the black? It's a most freaky Friday, come one and come all, and let's see if Hoofy can cushion the fall!

These are somber times in the world--not so much in a pure financial sense (that's yet to play out), but from a humanity standpoint. It's a fine line of distinction in a business where the collective mood is often a function of the bottom line. Traders must constantly assign a probability to risk that's yet to occur and the only "right" interpretation is the one that yields the greatest profit. Indeed, emotions are the enemy and a premium is placed on lucidity and metric assimilation. And in these uncertain and fragile times, when the difference between panic and prudence is a trade apart, that's much easier said than done.

Yesterday's bombing in Madrid (and the subsequent claim of responsibility by Al-Queda) was a sad reminder of painful memories and lost friends. While there was once a time that terrorism happened "over there," most Americans can unfortunately empathize with senseless suffering. This tragedy will forever be etched in the annals of Spanish history and as fellow human souls, our prayers reach across the globe. As risk managers and market speculators, we must clear the mechanism and assess the future.

Just as the 9/11 didn't prick the burst bubble, 3/11 wasn't solely responsible for the recent meltage. It seems like forever ago that S&P 1160 was a technical nuisance and the bulls all danced in the giddy city. The fact is that it was four sessions ago and, since then, the landscape and minxy backdrop has drastically changed. The subtle hint started a few weeks ago when negative divergences and non-confirmations gathered in a dark corner. Since then, and this week alone, the damage lurched forward and screamed for attention.

With a 50% increase in the VXO--the most widely accepted quantitative measure of fear--we must ascertain if sufficient risk premium is now priced into the market. Throughout what could be known as The One Year Rally (almost to the day), the collective mindset migrated from duct tape denial to mass migration to panicky nonparticipation. In the process, the perception of risk altered dramatically, folks stopped worrying about what could go wrong and instead focused on what they had missed. And despite the war, a historic sentiment skew and flashing red lights (debt, jobs), the world's biggest thermometer steadily climbed and investors caught an old familiar fever.

I don't know what the future holds--anybody that claims they do is a charlatan--but, like most of you, I have thoughts and perspective that continually evolve. The writing on last year's rear-view wall was a steady trend, healthy internals and an intrinsic impermeability. In the last week, charts have failed, breadth is abysmal and good news was met with supply. The healthy hallmark was that the corrections were digested as a function of time rather than price. And in one short week, with each day registering more volume than the last, that stock rotation turned into mass migration.

There are no easy answers or blanket panaceas as each Minyan has a unique time horizon and risk profile. If this week served a purpose, however, it was as a reminder that all outcomes must be assigned a probability and factored into the decision making process. Hoofy and Boo have polar opposite views of the future but I assure you they share a mutual respect for each other's power. And regardless of which way the wind blows, there will be no looking back or second guessing. That, my friends, would be a waste of precious time.

I'll be back with some morning randoms but, in the meantime, enjoy the morning grub and your daily process.

Good luck today.


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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

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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