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Todd Harrison: Freaky Friday Potpourri


In case you missed it, some relevant themes.

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

It's been a long month this week and I'm feeling it this Friday morning.  With the Wall Street A-Team halfway to the Hamptons, there will be a new type of taper in the marketplace today: tapering interest.
Of course, thinning liquidity, by definition, creates the potential for more volatility, so we'll keep that in the back of our crowded keppes as we tick-tock toward the long weekend. 
That possibility is all the more intriguing given the proximity to the bovine breakout in the S&P (INDEXSP:.INX), which is a few points above current levels. Don't anticipate technical signals but certainly see them, along with the likelihood of buy-stops set on the other side of S&P 1900.

More Random Thoughts, in no particular order:

  • John Succo addressed the compression dynamic 10 years ago, and the structural implications remain the same.
  • Ironically, this column -- Why I'm Exiting the Digital Media Business -- continues to garner clicks.
  • We've touched on how this new process impacts -- or doesn't impact -- our community. If you missed that, you can read about it here.
  • Yes, volatility levels can remain compressed for years at a time; note the periods between 1992-1996 and 2004-2006 in the chart below.  I remember them well; it was death by 1,000 paper cuts for anyone who overtraded.
  • The Bloomberg Smart Money Flow Index -- described here -- is another contextual red flag.  Nothing is omniscient given the multilinear dynamic of the markets, but some clues are worth watching; this is one of them.
  • Apple (NASDAQ:AAPL) continues to flirt with a technical breakout above $605.  Should the bulls hold that level, it will provide nice and tight risk definition for those looking to play the upside.
  • The small caps, as measured by the Russell 2000 (INDEXRUSSELL:RUT), continue to struggle, both on an absolute and relative basis.  The chart below suggests that the S&P and Russell will adjust to this disparity on a forward basis.
  • Also note that the Russell is trying to break the series of lower highs, which happens to coincide with the 200-day moving average.
  • Remember, the market will take the time premium (theta) of options before the three-day weekend.
  • It remains to be seen if "sell in May and go away" plays through this year.  Per the chart below, that strategy allowed for a lower purchase (cover) in four of the last five years despite the parabolic frolic, but if you stayed away, you were left behind. 

Twitter: @todd_harrison

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