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Todd Harrison: Gold, Cannabis, and the Russell 2000

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Views and clues from the front lines of Wall Street.

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

With the long weekend behind us and a holiday stretch here -- lots of kids, mine included, are off from school this week -- it's time to turn our attention to the flickering ticks.

In the interest of respecting your time, I'll offer some top-line vibes in no particular order:
  • The Nasdaq-100 (INDEXNASDAQ:NDX) broke out last week above 3640, which will serve as initial support on a pullback. The S&P (INDEXSP:.INX) stair-step range is 1800-1850, with stops likely nestled on either side of that ride.
  • Jeff Saut offers food for thought this morning regarding this juncture vs. previous market tops. As I've long believed that he's as good as it gets, I've learned to pay attention to what he says. Among his more salient observations, "Last week the New York Composite Advance/Decline Line rose to a new bull market high. That is not the kind of action one sees at market peaks."
  • I typically like to give the tape 30 minutes for the noise to dissipate before taking a read, and today is the perfect example of why that's usually a good idea.
  • Economic data has been soft of late, but everyone and their sister is blaming the weather. Interestingly, one would think that Amazon (NASDAQ:AMZN) would be doing great if folks are shopping online vs. slopping through the snow, but alas, it reported soft numbers as well.
  • While cannabis continues to be my single best investment theme for the next decade, investors would be wise to steer clear from penny stocks and identify real companies. There's a reason stocks are listed on the major exchanges; it's the first layer of due diligence to protect investors.
  • Two cannabis names that I've traded -- but I'm not currently involved in at the moment -- are GW Pharmaceuticals (NASDAQ:GWPH), which is up some 500% since last summer, and Medbox (OTCMKTS:MDBX). Both are extremely thin, so tread carefully if you choose to tread.
  • Given the recent rally in gold -- and our previously stated view that the chasm between gold and stocks should bridge -- I thought it might be helpful to update the chart below.

  • I enter this week with a short bet on the Russell 2000 (INDEXRUSSELL:RUT), via IWM (NYSEARCA:IWM) puts. I initiated this trade as a function of risk-reward (note the setup in the chart below) and fully aware that any short bet has been run over with dip buyers galore. It's a trade, that's all, with a stop above RUT 1160. (Editor's Update: Todd has been stopped out of this trade).
  • A fund manager recently mentioned that he was having a hard time finding individual stocks to buy. I told him that when I used to manage a $400 million fund and we couldn't find individual names we liked, we would usually short the indices and make good money. It's a market of stocks, not a stock market.
  • Who isn't conditioned to buy the first dip at this point?
  • OK, I'm ready for season three of House of Cards.
R.P.

Twitter: @todd_harrison

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