Todd Harrison: 'Gravity' and the Other Side of the Breakout
The bulls attempt to regain their footing.
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We spent the majority of last week discussing the importance of S&P (INDEXSP:.INX) 1850 and some things to remember when flirting with a massive breakout. On Friday, as the world held hands and sang Kumbaya, stocks rallied to all-time highs.
As the shorts covered and the bulls pressed their upside bets, there were few reasons not to buy into the euphoria -- except perhaps for the euphoria itself.
When you see things like CNBC tossing up the wrong chart of a cannabis stock -- and that "chart" rallying 62% on the session, and staying there -- it speaks volumes about the mood in the marketplace.
In the midst of the high fives, I quietly offered that a reversal lower to close under S&P 1850 would catch everyone leaning the wrong way. It was a low probability event given the 2:1 positive breadth and the price action in the banks -- but if it happened, there would be nobody left to cover.
That's the fatal flaw of technical analysis, right? Above a technical breakout, they love 'em, but below the same level, it's no bueno. Any time you have stocks "better" higher and "worse" lower, something isn't quite right. Alas, that's a discussion for another time.
The tape melted lower on the news coming out of the Ukraine, losing the entire rally and then some, but the bulls held S&P 1850 by the skin of their teeth before a small short-covering rally into the close. The writing was on the wall, however; the market was offsides and traders were caught with their shorts down.
Like many others, I spent the weekend watching headlines, which may be a good thing considering how Syracuse is playing basketball these days. Last night, with the Academy Awards on tap and the futures about to open, I took to Twitter (NYSE:TWTR) to ask who would be the big winner: Gravity (meaning stocks lower) or Dallas Buyers Club (dip buyers).
Soon thereafter, we got our answer on both fronts.
I don't claim to be a geopolitical expert (there are enough of them on Twitter), but we have been speaking about the direction of social mood for some time.
In particular, it's been our long-held view that stateside monetary and fiscal policy shifted risk from one perception to another, from the financial markets to the social sphere, and started us down a path toward societal acrimony, social unrest, and ultimately, geopolitical conflict.
Given that active traders need not focus on the big picture, just as long-term investors shouldn't get caught up in the daily noise, I will dial us back to the here and now.
A one-sided Wall Street awoke this morning to find that their technical catalyst had vanished under S&P 1850. Insofar as the bullish (reverse head & shoulders) pattern remains intact above S&P 1820, they won't give up the ball that easily.
If, however, the bears can hold their ground and advance their cause, gravity may be the least of the concerns surrounding the theories of Sir Isaac Newton.
- RUT (INDEXRUSSELL:RUT) 1182 is S&P 1850, for all intents and purposes.
- BKX (INDEXSP:BKX) 71.5 remains the technical confirmation for the banks, if and when.
- I don't know the timing, but Chipotle (NYSE:CMG), Yelp (NASDAQ: YELP), Netflix (NASDAQ:NFLX), Tesla (NASDAQ:TSLA), and Priceline (NASDAQ: PCLN) could very well be Ariba (NASDAQ:ARBA), Infospace, JDS Uniphase (NASDAQ:JDSU), Veritas and VeriSign (NASDAQ:VRSN) circa Y2K.
1986. Pixar Animation was formed, Microsoft (NASDAQ:MSFT) came public, Greg Lemond won the Tour de France, the Mets won the World Series, and I was a junior at Taft High School in Encino, California.
And the VIX (INDEXCBOE:VIX) -- or the "fear gauge" -- was developed to measure the market's expectation of stock market volatility over the next 30 days.
I bring that up as the VXO (INDEXCBOE:VXO) traded near 12 on Friday, which "has room" vs. all-time support, but not much, through the lens of history. Perhaps that's not a shocker with the market (and Colorado) at all-time highs, but it's worthy of a mention, per the chart below.
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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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