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.
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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 firstname.lastname@example.org.
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