Todd Harrison: A Monday Morning Look at the Stock Market
Expiration hangovers, technical levels, and macro crosscurrents.
Good morning and welcome back to the Monday Morning Hangover. I'm not talking about the trading community -- although Mondays are always rough -- I'm referring to the tape, as there is always residual price action after an expiration Friday. If the past is a prologue, expect the market to use the first few hours to work off that overage (in individual stocks that were drawn to strike prices) before a truer tenor emerges as we edge toward lunch.
We touched on a few topics last week, including the thought process behind the massive tech merger, societal discontent and the stock market, and my personal favorite, the angels and demons of the stock market. That last column was ruminating within for many months so I was happy to get it out, if only to take a deeper look at my internal operating mechanism. We all have cognitive biases; the ability to "know thyself" is an imperative step toward reaching our full potential.
We power up our weekly pup to find the tape at a critical technical crossroads. The Nasdaq (INDEXNASDAQ:NDX) held right where it had to when it was tested on Thursday -- NDX 3640 -- and then rallied. The S&P (INDEXSP:.INX) has thus far failed to bust a move beyond S&P 1850 -- the breakout through all-time highs -- and is lingering below that mother-lode level. Meanwhile, important sub-indices are trying to help guide us; the Russell 2000 (INDEXRUSSELL:RUT) is trying to recapture the uptrend channel and the banks (INDEXSP:BKX) are notable in their non-confirmation (BKX 71.50 is the breakout equivalent of NDX 3640).
To be sure, the market has demonstrated a brave face, blowing off soft economic data (it's the weather, don't you know?), continued plans to taper (as widely anticipated), a choppy earnings season, geopolitical strife (keep an eye on Venezuela), Chinese trust concerns (where there's smoke there's fire?) and just an absolute ton of noise. At the end of the day, when push comes to shove and the dust settles, price serves as the ultimate arbiter of various financial views.
In other news, we learned last week that the Colorado cannabis tax revenue is exceeding estimates, and as this state is widely seen as a litmus test for the broader adoption of legalization, that's a data point worth mentioning. Politics aside, I continue to feel that this is the single best investment theme for the next decade, albeit one that will be fraught with worthless options along the way (avoid the penny stocks).
One of the real companies in the space seems to be GW Pharmaceuticals (NASDAQ:GWPH), which has rallied 500% since last summer but is establishing a chart pattern as it goes. The 50-day moving average is in and around $47, for those watching at home.
You're Invited to "Bitcoin: Boom and Bust"
The rise of bitcoin has triggered a lively debate over the risks and rewards of virtual currencies. If you're interested in bitcoin, and will be in New York on Tuesday, March 4, you're invited to join us for an evening of cocktails and conversations on the topic. MarketWatch Senior Columnist Robert Powell will moderate a panel discussion that I will be on along with Mark T. Williams, a banking and risk management expert and a professor at Boston University School of Management. This event is free, but space is limited. To attend, RSVP to MarketWatchevent@wsj.com by Friday, Feb. 28.
Good luck today; I'll see you after the opening.
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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 email@example.com.
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