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Looking for Fundamental Validation

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Searching for signs that we've turned this thing around.

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"I'm learning to fly but I ain't got wings. Coming down is the hardest thing." --Tom Petty

It's hard to hide from the hurt in this world. This past week alone, a shooter rampaged through Binghamton; three police officers were shot in Pittsburgh and upwards of 40,000 protesters converged in Strasbourg, France setting fire to a hotel.

Societal acrimony has long been on our radar with social unrest and geopolitical conflict a natural albeit unfortunate evolution. The question for the world at large is how the current discord will manifest throughout the socioeconomic spectrum.

The great debate of late has centered on whether we've indeed turned the corner, if the worst is behind us and if the new bull market has begun. That's quite a shift from a mere month ago, when the popular press pointed to The Great Depression as the framework of comparison.

The measuring stick for this discussion and the ultimate arbiter of variant views is the stock market. With investors nursing the worst first quarter since 1939 and March mustering the best monthly gains since 2002, we're seemingly at the crossroads of what was and what will be.

When I shifted my stylistic approach last month, scaling into upside exposure rather than operating with quick hits, my internal rationalization was that I was stopped out against Armageddon. If General Motors (GM), General Electric (GE), Citigroup (C) and the rest of industrial complex was sucked into the vortex, profit and loss were the least of my concerns.

It was a time when fund managers wore cash balances as a badge of honor and individual investors finally waved the white towel. It was, through the lens of selling hope and buying despair, the perfect time to buy stocks.

The questions now posed to investors involve field position, psychology and time horizon. Trading moves are characterized by three phases-denial, migration, and panic-with the pendulum of fear and greed played out across the four primary time horizons of nuances, trends, phases and cycles.

Given the low levels of exposure and the subsequent performance anxiety, the rally off the lows made sense. The key for investors is to draw the distinction between a cyclical and secular bull market while remembering that debt destruction is the only true cure for what ails the global economy.

Scenarios exist where equities can continue higher, with dollar debasement being the most intuitive. And, with mainstay averages cut in half the last few years, we're surely one step closer to recovery through the lens of time and price. We've long said that in order to get through this, we needed to go through this and the process, while painful, is constructive on the margin.

I will simply offer that history will measure this daunting dynamic in years, not months, and the percolating white collar depression that is ravaging the financial industry, media sphere, educational complex, legal profession and philanthropic establishment won't be solved with fancy synthetic acronyms manufactured in Washington.

That, perhaps, is the most disturbing element of what we're currently witnessing, the false hope and empty promises that litter the landscape of any bear market. Investors would be wise to remember that the imbalances were cumulative, free markets are efficient and financial staying power will serve us in good stead regardless of the next few percent.

With earnings season upon us, my stylistic approach has shifted back to picking spots, trailing stops and risk definition through a technical lens as I pay attention to the reaction to forward guidance offered by corporate America.

For every journey, no matter how grizzly, is manageable if we take it one step at a time.

R.P.
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 todd@minyanville.com.

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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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