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Monday Morning Quarterback: Hungry Bulls Gobble Up Gains


The latest 20% rally was second best showing in history.


"Running on empty, running blind. Running on empty but I'm running behind." --Jackson Browne

Following a festive five-day feast, stock market bulls throughout the land have unfastened their top buttons and leaned back in stunned amazement.

You can't blame them for feeling like they're in a food coma. Gains have been tough to stomach this year given the prevalent direction and insane volatility. It has, in many ways, been a feast and famine for the ursine and bovine, respectively.

We scribed an Outside The Box: Five Potential Surprises into Year-End article on November 19th that stood out for several reasons, one of which had little to do with the content contained therein. The feedback on the message boards where the column was syndicated bordered on incredulous. In fact, the attendant acrimony proved telling with the benefit of hindsight.

The S&P swiftly lost 6% the following day (always early) before tacking on a 20% rally the following five sessions, the second best showing in history. Throughout the lift, conventional wisdom maintained that it was a begrudging bear-market bounce destined to fail at any given moment.

That remains quite possible-real, structural risks remain, particularly in the credit markets-but there are several reasons why we should respect the potential for further upside.

In no particular order:

  • A false breakdown was necessary to shake out technical types, most of whom set stops below S&P 840.

  • When equities ticked at decade lows, the negative press induced "duct-tape type" nervousness. Remember, news is always best at the tops and worst near the lows.

  • Field position. Most major market indices lost 50% year over year, an intuitive level for a meaningful bounce.

  • Performance anxiety in the mutual fund arena. The only thing worse than losing money, through their eyes, is underperforming the benchmark. In this reactive environment, the buyers are higher and the sellers are lower.

  • While we've yet to see a "seismic readjustment" that realigns equities, credit, currencies and commodities into equilibrium, the specter of radical change remains and, perhaps more importantly, is being widely viewed with skepticism.

Old school Minyans know that global socioeconomic and financial stability has long been a great concern of mine and I view our current juncture as perhaps the riskiest in history.

If the world can hold together and step forward in a unified fashion, resisting the natural urge of isolationism, we can indeed find our way to The Golden Age of Globalization once this forest fire passes and debt is destroyed.

If, however, societal acrimony shifts to social unrest and geopolitical strife, we may look back at Shock & Awe as the beginning of WW3. That is the single greatest risk, in my estimation, and not one to be overlooked.

As a trader, I've been schooled to believe that the destination we arrive at pales in comparison to the path that we take to get there. The management of risk-a balanced, disciplined, patient approach-will define whether we prosper during the good times and persevere the bad.

There are no crystal balls on Wall Street and nobody can tell you what the future will hold. The world is in crisis mode and the underpinnings are fragile, nerves are frayed and tension is high. All we can do is the best we can do and therein lies our individual responsibilities.

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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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