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Todd Harrison: The Stock Market Arrives at the Moment of Truth


Inflection points abound as investors digest earnings.

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

And so it goes, as we edge through earnings and digest information, data, and interpretation in an attempt to map our forward path. There's a lot going on and we'll get to all that; first, a bit of a sidebar.

My writing has evolved through various stages the last 13 years. There have been stretches that were intense and others more reflective; through it all, there has been a healthy dialogue and transparency.

I've always loved financial markets and what they represent: They are, in the most basic form, vehicles to reward foresight. Having traded 23 years, I consider myself well-informed on financial matters, which is entirely different than claiming to be this, that, or the other thing.

In the fourth quarter last year, for the first time in my career, I took a step back from actively trading risk. It wasn't because I was wrong, although I was too bearish. It was to clear the mechanism in an effort to view the world free from cognitive biases.

This isn't a "Mission Accomplished" moment in terms of proclaiming the timing or direction of the next market move; there are many moving parts and competing agendas, and absolute clarity is elusive if not subject to change.

What is clear is that we're navigating one of the more profound eras in the history of financial markets, and we must pay attention to the "why" as much as the "what."

From the outside looking in, there is a notable disconnect as stocks rocket higher while the standard of living suffers. From the inside looking out, the boundaries of normalcy appear stretched as the vicious cycle continues, almost in slow motion.

As we enter the New Year, my intention is to trade surgically with an eye on capital preservation while keeping an eye out for longer-term opportunities.

I don't trust the tape, but I most certainly respect it; animal spirits have minds of their own and tend to pave the path of maximum frustration.

Random Thoughts:
  • The S&P 500 (INDEXSP:.INX) and Nasdaq-100 (INDEXNASDAQ:NDX) are both perched at (what would be) massive breakout levels at 1850 and 3600, so respect that, even if you choose not to agree with it.

  • With the VXO (INDEXCBOE:VXO) at 11ish and the percentage of bears in the weekly sentiment survey at a scant 21% (vs. 39% bulls), we know which way the crowd is leaning.
  • Trading tells today include General Electric (NYSE:GE), Morgan Stanley (NYSE:MS) and Intel (NASDAQ:INTC) as they react to the most recent earnings reports.
  • The forward path of the stock market will trade as a function of where we sit on the stock market's psychological continuum.
  • There is a lot of chatter about the future of cannabis, including this interesting take from Rolling Stone. I will again share that this complex is my single best investment thesis for the next decade, albeit one that will be littered with false hope and empty promises. I view it as biotech circa 1990; Amgens (NASDAQ:AMGN) and Biogens (NASDAQ:BIIB) will emerge, along with a fair share of unclaimed lottery tickets. Do your homework and understand that we're still in the early innings here.

Twitter: @todd_harrison

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