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Monday Morning Quarterback: Step Function!


The beginning of the end or the end of the beginning?


"All great masters are chiefly distinguished by the power of adding a second, a third, and perhaps a fourth step in a continuous line. Many a man had taken the first step. With every additional step you enhance immensely the value of your first." --Ralph Waldo Emerson

We often opine that technical analysis is a better context than catalyst. With so many crosscurrents competing for our collective attention, the world is watching several levels with bated breath.

We offered on Friday that battles and wars were being waged, with the retest of S&P 875-the level from which the market broke out-an intuitive first step. On cue, the market probed that level and bounced, which one would expect on the first test.

Investors enter a fresh five-session set with one question in mind. Was last week's 5% haircut on the S&P a pause that refreshes, as the bulls would like to believe, or the beginning of the end of the bear market bounce and the other side of the "W" formation?

My view-one I secretly hope is wrong-is that contrary to popular opinion, the socioeconomic landscape is getting worse, not better. While prices are the arbiter of variant financial views, the recent rally was synthetically manufactured; much like it was at the turn of the century.

The natural response is to point to the "gains" on the heels of that effort. I would reply that there is a massive distinction between a legitimate economic recovery and credit-fueled growth masked by a lower dollar and skewed by the spending habits of a slimming margin of society.

Throughout the prolonged period of conspicuous consumption, cumulative imbalances continued to build and the middle class steadily eroded until the debt bubble burst in 2007. It stands to reason that the aftermath of a grand experiment gone awry won't be cured by yet another grand experiment.

As the government bought the cancer and sold the car crash, the simple yet sad truth is that the system still has cancer. That doesn't mean it's terminal, it simply means the inevitable medicine of time, price and debt destruction must eventually replace the multitude of drugs that have been injected in an attempt to mask the disease.

To be sure, the "easy" trade on the short side was a few years ago when the markets were dancing at all-time highs. Conversely, the bulls should have been licking their chops in early March when they were stopped out against Armageddon.

In my trading account, I've respected this dynamic through my stylistic approach. After trading from the short side for much of the last two years (with several notable exceptions), I flipped my lid and "bought dips to sell blips" in March, balanced that process in April and again began to trade from the short side two weeks ago.

It should be noted (as it was on the Buzz & Banter Friday afternoon) that I covered my recent short-side bets into S&P 875 as a function of discipline. I'll be taking my first vacation of the year beginning Thursday afternoon and plan to "hit it to quit it" and enter the holiday stretch with a clean pad and clear head.

Where you stand is a function of where you sit. Just make sure that should the music suddenly stop, you've already eyed a comfy chair to rest your risk.

Random Thoughts:


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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