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Random Thoughts: Summers Lovin'

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Stocks start higher into an important week.

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

It's a cold, dark, dreary Monday in the big city, but you couldn't tell by looking at the stock market.

News that Larry Summers has withdrawn his name for consideration as the Chairman of the Federal Reserve has markets feeling groovy the world over. He was more hawkish than some of the other potential nominees, although it's tough to argue that markets were discounting his appointment given the September price action.

While Wall Street is no fan of Summers, his appointment-or at the very least, his nomination-was viewed as a near certainty, according to high-placed sources (which is further confirmed by the initial kneejerk higher in equity prices). Of course, we'll get further information from the Fed this week when it announces its "rate decision," and speculation is rampant about whether it will taper, and how much.

The bulls continue to view the taper decision as "heads I win, tails you lose"; the FOMC will only taper if the economy is improving, or so the thinking goes, and will remain accomodative until it does. This assumes past performance (liquidity-fueled gains) is a guarantor of future returns, but it has earned the benefit of the collective doubt given the stock market action in the five years since Lehman Brothers fell.

While we can point to numerous issues - the transparency of Level III (off-balance sheet) assets, the lack of regulation in the OTC derivative market, the interdependency and interconnectedness of the global machination, sovereign debt levels relative to GDP - those concerns are akin to Chicken Little as long as the screens are green. Financial players are notoriously shortsighted when it comes to the risk of rewards, and with the Dow Jones Industrial Average (INDEXDJX:.DJI), Nasdaq (INDEXNASAQ:.IXIC), and S&P (INDEXSP:.INX) 20% higher on the aggregate, performance anxiety is good and thick.

In the here and now, traders are looking at the potential cup-and-handle formation in the S&P, per the chart below, which requires a breakout through recent (all-time) highs to trigger. While this week started on a strong note, there is a slew of news left to digest in this five-session stretch, so be sure to manage risk rather than chase reward as we together find our way.



Random Thoughts:
  • The Gold vs. S&P chart is cause for pause.
  • Apple (NASDAQ:AAPL) continues to be a battleground; I have no horse in that race although $360 continues to vibrate in my mind's eye.
  • If you were to tell me that my Raiders would have a better record than the New York Giants at any point this season, I wouldn't have believed it.
  • White light to those impacted in the Washington Navy Yard shootings this morning. And so it continues.
  • Tech stocks are lagging today (S's over N's). NDX (INDEXNASDAQ:NDX) 3150 will be the first level of support; we should learn a lot just by watching.

R.P.

Twitter: @todd_harrison

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Position in SPY.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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