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Random Thoughts: Is Netflix a Canary in the Coal Mine?


The stock market faces its toughest test this week.

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

"First to fall over when the atmosphere is less than perfect; your sensibilities are shaken by the slightest defect."-- The Police

Earlier this week, television's Jeff Macke and I discussed how this "bull market is suckling at the teat of economic misery." We touched on the all-time highs, the sentiment surrounding the price action, and how difficult it was to find anything wrong with market-aside from the fact that it was so difficult to find anything wrong with the market!

Fast-forward a few sessions; we've gotten a boatload of earnings, a shiny new object from Apple (NASDAQ:AAPL), and a downside reversal in Netflix (NASDAQ:NFLX) that invoked memories of Nasdaq (INDEXNASDAQ:.IXIC) circa Y2K. The degree of parabolic frolic these days may pale in comparison to the tech bubble 1.0, but the moves in Tesla (NASDAQ:TSLA), Chipotle (NYSE:CMG), and select social media stocks smack of familiarity.

And there's the ever-present presumption of faith that the Bernanke Call will continue for as long as he wants it to.

It's hard to argue with performance, not just this year but in the four years since the Federal Reserve plunged the adrenaline needle into the heart of the market. Indeed, folks have stopped asking "why" and now just trade the "what," which I suppose is what a trader should do. What remains to be seen is the "other side" of the policy directive, other than the impact on social mood and the wealth disparity we've monitored for years.

Through a financial lens, the bulls won't blink unless S&P (INDEXSP:.INX) 1730 and NDX (INDEXNASDAQ:NDX) 3255 (the previous breakout levels) are breached. They've been rewarded to buy the dip over and over and over again, and old habits die hard -- especially when you get paid to make them.

As we know, pullbacks from extended levels are viewed as "healthy corrections" until they aren't. Therein lies the rub between continued performance anxiety into year-end and the bitterness of common sense. See both sides as we continue to find our way.

Random Thoughts:
  • The Run-DMC award-"Not bad meaning bad but bad meaning good!"-goes to yesterday's non-farm payroll report, which punk'd the consensus estimate (read: slower growth) but fueled the "No Tapering" momentum in the marketplace.
  • The "Honest Abe" quote of the week goes to Netflix CEO Reed Hastings, who offered: "In calendar year 2003, we were the highest-performing stock on Nasdaq. We had solid results compounded by momentum investor-fueled euphoria. Some of the euphoria today feels like 2003."
  • Speaking of momentum, the chart below, tracking margin debt with the S&P, comes courtesy of my ol' pal Helene Meisler. Stocks aren't the only thing hitting all-time highs these days.
  • As it stands, the gold $1,275 breakdown (which "worked" to $1,180) was a false signal. That's the fatal flaw of technical analysis; it would have "confirmed" if validated by price, but not on a reversal. This also speaks to the value of risk definition when playing these patterns.
  • We've been all over the divergence between gold and the S&P; here are some other divergences to consider.
  • Some tough talk from European Central Bank President Mario "Don't Call Me Ivan" Draghi is weighing on the tape. He insists that officials won't hesitate to fail banks during next year's stress tests, if warranted.

Twitter: @todd_harrison

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