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Random Thoughts: Stocks Arrive at a Critical Juncture


A technical toggle is upon us.

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

I return from yet another trip to the doctor-I will be getting a right hip replacement next Tuesday, leaving the left hip for another time-to find the S&P (INDEXSP:.INX) meandering under our all-important S&P 1560 level.

Pulling up my trusty systems, I see that the S&P rallied out of the gate to S&P 1560.10 before dipping roughly 12 handles. If I had been around to manage and monitor the risk, I would have faded that move (the first fade was the easy trade) and perhaps picked against that overage on the subsequent pullback.

Then again, if wishes were knishes, I would weigh 300 lbs.

There are a few things we know, and a few things we believe. We know the options expiration hangover is over as firms have presumably squared their extraneous risk following Friday's April expiry.

We know earnings have beaten estimates (on the aggregate) and the reaction has been mixed with a bearish bias, as evidenced by the lower highs in the S&P.

Finally, we know there is tranched technical resistance on the S&P between S&P 1560 and S&P 1610.

What do we believe? Well, a few things; first, we believe social mood continues to deteriorate despite market proxies at or near all-time highs.

We believe central banks are taking historic, extraordinary measures to morph the stock market rally into a legitimate economic recovery.

We believe there is inflation in things we need (health care, food, energy) and deflation in things we want (cell phones, plasmas, laptops).

Finally, we believe that nobody is bigger than the markets for an extended period of time, if markets are to remain free.

While the first fade (lower this morning) was the easy trade, I continue to trade my September SPY put position in real-time over on the Buzz & Banter (click here for a free two-week trial).

Below is the confluence of resistance in and around S&P 1560, so you have it; sometimes a picture speaks 1,000 words.

Some Random Thoughts:
  • Keep an eye on the Russell (INDEXRUSSELL:RUT) as many view this as an early indicator of risk appetites. In short, RTY 900, and the reaction to that level, is likely a precursor to S&P 1540, which is THE level of lore.
  • We all know the bull case-liquidity, liquidity, liquidity-and while nothing would surprise me at this point, the bears must defend these levels or risk being ushered back into hibernation. With emerging markets-and much of Europe-lower on the year, the bull case is predicated on a decoupling, which is a tall order in a derivative-laced, finance-based interconnected global economy, or at least that's my take.
  • S&P 1540-1560 is the zone (Mr. Valentine has set the price), with additional resistance tranched between S&P 1580-1610.
  • The reaction to news (earnings) is always more important than the news itself. Through that lens, I will draw your attention to the price action in Caterpillar (NYSE:CAT).
  • Last week, we flagged the potential that the insider sales window typically opens at Goldman (NYSE:GS) a few days after earnings. The stock has been heavy ever since.
  • I offered on Friday that with all eyes are on Boston, I didn't remember such focus (away from the financial markets by financial media) since the OJ chase, although I'm sure 9/11 was much the same (I wasn't in front of the TV).
  • Last Monday, the S&P was down 36 handles. On Tuesday, it gained 22 handles. Wednesday, it lost 22 handles. Thursday, it lost 10 handles, and on Friday, it gained 13 handles. Nothing like a little volatility to shake things up, eh?
  • A few housekeeping notes. First, we launched the new Buzz & Banter on Friday, and as with most launches, there are some glitches and fixes that continue to take place; thank you for your patience as we strive to keep our community happy. Second, I will be in wall-to-wall pre-op on Wednesday starting at 7:00 a.m. and plan to jump back on the Buzz around 1:00 p.m. or so.
  • Remain lucid, remove emotion, and focus on the process, as the mechanics of the swing always trump the results of the at-bat.

Twitter: @todd_harrison

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