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Todd Harrison: A Gut Check for Global Markets

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Japan is at a critical inflection point.

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

Why we are still seeing volatility is a bit of a puzzle for me because there needs to be a distortion somewhere in the market.
--ECB Governing Council member Klaas Knot, Bloomberg

The stock market is coming off its worst week since 2012 as a confluence of jitters spooked investors. The hit parade continues this week with earnings, economic reports, and a Federal Reserve announcement tossed in for good measure.

Here's a look at some Random Thoughts as we edge into a fresh five-session set:
  • S&P (INDEXSP:.INX) 1800 and Nasdaq (INDEXNASDAQ:NDX) 3600 (former support) are next-step resistance levels. The 200-day moving average, so you see it, is down at S&P 1700.
  • We touched on the depressed level of the VXO (INDEXCBOE:VXO) last Wednesday; the fear index rallied 46% in the three sessions that followed.
  • I am trading cannabis stocks from the long side, albeit surgically, given my big-picture concerns. As I look for real companies that will benefit from (what I perceive to be) an emerging secular growth trend, I'm avoiding pink sheet plays as many of those stocks will go up in smoke.
  • Why do I perceive the secular growth trend? Continued legalization (which most of America supports) will 1) increase tax revenue and 2) lower the crime rate, which will 3) reduce overcrowded prison populations. I also love the fact that Wall Street doesn't cover the sector yet.
  • We don't "do" advice in Minyanville, but we did discuss some potential cannabis plays last year.
  • Corrections, by definition, feel sinister -- although I'm not sure we can call 3% from all-time highs a genuine correction.
  • We shared this morning in real time that following outsized moves in the market, tapes tend to probe the prevailing direction at least once the following session -- and that an "up" opening was the last thing the bulls wanted to see.
  • Japan closed on an important technical inflection point. Given it's such a crowded trade (on the long side), this bears watching. Note the two charts below; if the Nikkei (INDEXNIKKEI:NI225) breaks 15,000, a measured move works 8% lower.
http://image.minyanville.com/assets/buzzbanter/charts/original/012714/Nikkei_jan_14_1390830301.gif?from=mvBuzz

http://image.minyanville.com/assets/buzzbanter/charts/original/012414/toddjapan_1390575544.gif?from=mvBuzz
R.P.

Twitter: @todd_harrison

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