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Navigating the System Formerly Known as Capitalism

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This is not your father's stock market anymore.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

My apologies for being MIA on our real-time Buzz & Banter yesterday after posting my 1:10 p.m. EDT column.

I've been battling a head cold for the last two days (coughing, sneezing, wheezing - in the summer, no less!) and on the advice of my wife, I laid down for a bit. When I awoke at 4:30 p.m. ET, Maria Bartiromo and the rest of the gang were in a great mood; I knew what that meant.

The S&P (INDEXSP:.INX), Nasdaq (INDEXNASDAQ:.IXIC), and Dow Jones (INDEXDJX:.DJI) closed at the highs of the day, and the bulls were back in charge.

I awoke this morning - an abbreviated sleep due to the fact that our two-year-old Ruby also has the bug - to find that the S&P closed yesterday precisely where it "should" have, up against the top end of the downward sloping trend-channel that we've been featuring for the last week or so in our "dueling channels" commentary.



As recently discussed, I got short on Tuesday at S&P 1639 - 60% of a full position - and added another 10% to that position into the opening pop on Wednesday and subsequently covered all but 25% into the melt toward S&P 1600 that immediately followed.

Yesterday, given our tells were pointing higher out of the gate, I patiently waited for higher prices (S&P 1624) and added 25% back to the short position - to get to the 50% posture I'm at today - in an attempt to use price to my advantage. I continue to feel S&P 1600 gives way, perhaps all the way to the 200-day at S&P 1500.

While I've set my stop above S&P 1650, the ability of the bears to defend their line in the sand - and keep their streak of "lower highs" intact, as shown below - should tell the tale for the rest of the day and perhaps into next week.

I may or may not be right; the tenor of the tape shifted yesterday - we shrugged off bad news, the banks outperformed, and the ability to again hold the upward sloping trend-line (from November) no doubt emboldened the bulls. I saw all this but decided to fade (read: sell into) it anyway; not because I'm stubborn, but because if those things didn't happen, I wouldn't have the opportunity to make higher sales.

It's an important distinction; I respected the price action, but I didn't defer to it. Only time will tell if that was wise or foolish. I will adhere to my defined risk parameters either way; as a wise man once said, we must employ discipline over conviction and never let an opinion get in the way of making money.

According to my good friend Jeff Saut of Raymond James, today is session 115 of the "buying stampede" that he tracks - an all-time record by a country mile. In his words:

Upside stampedes typically extend on the upside only interrupted by 1 - 3 session pauses/pullbacks before they exhaust themselves. Consequently, if we had another down day yesterday, it would have sealed the stampede's fate. But, yesterday morning the NYSE McClellan Oscillator was more oversold than it was at last Thursday's Dow Dive. So, when we got better-than-expected economic numbers, the pre-opening futures went from down 9.00 (@6 a.m. EDT) to +4.00 and the blast-off was preordained. That makes today's session 115 in the stampede, and I will have more tactics on what to do from here in Monday's strategy letter.

Yes, these are historic times for financial markets, so if you're flummoxed by the day-over-day ADD, the HFT front-running, the heavy hand of the government, the uneven playing field for the small investor, the repeated sequence of savers being punished at the bottoms and investors being screwed at the tops, or the mockery being made of the system formerly known as capitalism, you're not alone.

That's not my P&L talking - I'm having a decent year - that's 23 years invested in a once noble profession that is seemingly leaking trust each and every session. And we wonder why we're seeing A Devolution in Social Mood; we, the people, are angry, and rightfully so. But hey, all we can do is the best we can do and that's exactly what we'll do, day after day after day.

R.P.

Twitter: @todd_harrison

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