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Random Thoughts: Navigating Turnaround Tuesday


Stair-stepping our way toward some serious tryptophan.


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

The bulls enjoyed a run in the sun yesterday-hey, a broken clock is right twice a day-and the question on everyone's lips is: Was that a one-day wonder or the beginning of something entirely bigger-perhaps even the start of the fabled Santa Claus Rally?

The honest answer is: I don't know. (Think Mr. Hand and Jeff Spicoli.)

What I do know is listed below, in no particular order:
  • Tapes that are strong all day (with 2:1 positive breadth or better) tend to end that way, and that proved true anew.
  • S&P (INDEXSP:.INX) 1380 is a zone of resistance (the 200-day moving average) while S&P 1400 is the zone of resistance (per the chart below).
  • The strongest rallies occur in the context of a bear market (just as the sharpest pullbacks occur in the context of a bull market).
  • Some of yesterday's price action was an expiration hangover (unwinding the gravitational pulls associated with options expiration).
  • Most major market averages and sub-sectors are still mired in a pattern of lower highs and lower lows (which is a sign of distribution).
As shared in real-time on yesterday's Buzz & Banter (click here for a free two-week trial-no, seriously!), I sold 80% of my S&P upside call position into yesterday's hot-popper (and the remaining 20% this morning when then financials opened funky). That may prove right or wrong but is most certainly disciplined (in hit-it-to-quit-it mode, trades are made to be taken). And yes, if we ramp higher into year-end (which is within the probability spectrum), I'll again be guilty of premature evacuation yet again.

What do I sense will happen next for the stock market? Perhaps an upside probe of the aforementioned S&P 1400 level-but as it stands, that's a zone I may look to fade (read: short). While the bulls want to break out to the upside (so investors can get their kids the GI Joe with the Kung-Fu Grip), we can't get excited until the series of lower highs (a bearish sign of distribution) is breached. Interestingly, that could also be achieved with a push higher through S&P 1400.

In terms of the tech (NDX (INDEXNASDAQ:NDX)) and the financials (BKX (INDEXDJX:BKX)), we're seeing the same patterns of lower highs, and I've included those charts as well. On the downside, S&P 1350 and BKX 47 remain levels that the bulls will lean against (as near-term support), particularly as they've been rewarded for defending that zone in a big way already.

Volumes will get thinner into Thanksgiving-I should be so lucky-so factor that into your risk profile as we together find our way. And think positive, my brethren; profitability begins within.

Random Thoughts
  • I wrote last week that the new Research In Motion (NASDAQ:RIMM) BB10 operating system was awesome and followed that with a vibe that the stock would trade to double-digits. It traded at double-digits this morning, so you see it, albeit without me.
  • Folks were scratching their head about how Apple (NASDAQ:AAPL) could rally 12%-$56 billion in market capitalization, rough justice-from Friday's low to yesterday's high. It can be summed up in a single word: expiration.
  • Why are the banks so very important as trading tells? They encapsulate the interconnected finance-based global economy, including the current happenings-or should I say expectations of future happenings-in Europe. Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) are my stateside proxies, while Deutsche Bank (NYSE:DB) and Barclays (NYSE:BCS) are my guides from across the pond.
  • Hewlett-Packard (NYSE:HPQ) took an $8.8 billion charge-yes, with a "B"-after it said the software company it agreed to buy last year falsified its finances. It's just that easy, eh? And if a publicly traded company can simply take a charge and write off a bad decision, what prevents the USA from doing the same to write off its bad eggs?
  • I promise I'll stop talking about Festivus-in 17 days, when it arrives! From now until then, I will do something I rarely do-give advice! If there is any way you can make this event, or support this cause, you should certainly do so. Three rocking tribute bands (U2, Journey, The Police), all-you-can-eat BBQ, top-shelf liquor and the Minyanville community (and our professors) cutting the rug in size. The best part? 100% of the net proceeds will benefit educational efforts for children impacted but Hurricane Sandy. Visit The Ruby Peck Foundation for Children's Education to snag your tickets, or ping me directly if your firm would like to sponsor; and thank you, as a little bit of love goes an awfully long way!
  • May peace be with you.

Twitter: @todd_harrison

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