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The Devil's Advocate


Dude, that's so depressing.


You are living a reality
I left years ago it quite near killed me
In the long run, it will make you cry
Make you crazy and old before your time

(Crosby, Stills, Nash & Young)

Good morning and welcome back to the fluttering flicks. With last week's three-peat fade treat, the bears managed to stave off the bovine barrage and successfully defend the higher ground. While the five-session span failed to effectively turn the tide (the averages were begrudgingly lower), Boo's chutzpah gained momentum with each successfully strategized stand. He was, after all, growing weary of Hoofy's rose-colored glasses and his uncanny ability to absorb the negative narration. Ironically, the constructive data points seemed to summon supply and equalize the efforts of both camps. This stressful series of saucy semantics surprised the savviest of critters but, like it or not, we have to suck it up and stick it out, sister -- earning's season is set to spring!

In our constant search for the elusive edge, we could look at any number of indices and see why so many players are focused on the technical metric. If higher lows are bullish and lower highs are bearish, one of these patterns is gonna give, and it's gonna give soon.

You know I've always believed that technical analysis offers a helpful backdrop for trading. But it's important to remember that technical analysis is only one of four primary drivers of price action (fundamentals, psychology and structural being the others). If you ask 100 traders to list the forces that matter most, you'll likely get a host of different answers. Personally, I believe that their weighting in the trading brew is ever-changing and the ability to identify which matters most (and when) is the key to a successful strategy.

The macro influences (structural) have been the dominant metric lately, and that has substantially shifted the collective psychology. Fundamentals, for the most part, haven't mattered (they've been relatively constant) and, as we search for clarity in this week's releases, we'll need to closely monitor their contribution to our individual recipe. It's a delicate balance, but the onus is on us to wait for a compelling combination to emerge before assuming substantial risk. What that is, how it's played and what time horizon is employed is a decision unique to each and every Minyan.

I've been bangin' with Boo for the better part of the last three years as I've felt (and continue to feel) that there's substantial risk to the tape. While there will surely be bullish phases and I certainly strive to capture them, I can't shake the feeling that rallies, no matter how spirited they seem, are ultimately doomed to fail. Yes, my job dictates that I focus on the journey rather than the destination and I'll continue to view the big picture as a series of little pictures. However, this is a forum for sharing and I would be remiss if I didn't communicate some honest and forthright concerns.

Even the most fervent and ambitious bulls can't deny that the structural elements of a prolonged and painful road are deeply imbedded in our financial system. The deadly combination of debt and derivatives allow the potential -- and I stress the word potential -- that our economy could slip into a depression. WAIT! Did he just say depression? I did. But please understand that I'm simply saying that there's a possibility (be it 5%, 10%, 20%, ect.) that the upside excess of the 1990s will lead to a similar state of despair on the other side of the mirror.

I understand that this isn't a popular topic, and the mere mention is enough to drive many towards a deep denial. After all, who wants to think about such a world? We're America, aren't we? This kind of thing doesn't happen to us! You may not believe in this potential and that's alright. Everybody is entitled to an opinion and it'll likely be many years before we know the outcome. My intent is simply to introduce the possibility and note that the warning signs are there both on a consumer and corporate level. Furthermore, if the spiral starts to unwind, the massive maze of derivatives has the firepower to fan the financial flame.

Long-time Minyans know that I share these thoughts with the most benevolent of intentions and I'm not trying to make "the call." As I wrote during a missive a few years back, I'm hopeful this column will mark the bottom for the equity markets. Back then, I suggested the entire dynamic of trading would become more difficult and the weeding out process would be brutal. Unfortunately, that proved accurate. While it's possible that we sidestep the potholes ahead, it would be a mistake to discount it altogether.

I simply want to draw a line of distinction between hope and faith when it comes to your investment decisions. Each person can assign his or her own probability of this outcome (some may choose to ignore it) and factor that into a long-term approach. Do I think it could happen? Yes. I believe it could and, for my part, I've threaded the concept of capital preservation into my everyday life just in case.

We'll discuss the "Double D" thesis more in the future but before we get to far ahead of ourselves, we need to focus on our task at hand. 145 companies in the S&P 500 will be offering their state of the union this week and that, coupled with April expiration, will likely make for a wild ride.

As we collectively find our way, please understand that we're wading through unique times and, regardless of the outcome, there are risks and rewards associated with any market thesis. Map out a viable strategy (either way) before stepping on the field and allow for a margin of error in the approach. And understand that while the truth will sometimes hurt, honesty is always the best policy.

Good luck today.

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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