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Todd Harrison: Mapping the Freaky Friday Stock Market

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Crosscurrents galore into quarter-end

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Yesterday's selling was broad and deep with nary a bounce throughout the session.  Given the run-up we've seen over (pick a time horizon), one would think the bulls would have more moxie on days like yesterday; they didn't. 

While rumors ruled the day--Russia seizing assets, forced hedge fund liquidations, a more hawkish stance on high yield risk by select Fed officials-the price action spoke louder than words.  Indeed, at 330 ET yesterday, there was $1 billion to buy MOC--which isn't a small number--but even that couldn't get 'em higher; by 345 ET, sellers swarmed in and paired most of that off, leaving the indices to close on the lows.

When I saw higher futures this morning, I thought to myself that the easy trade would be the first fade lower (after outsized moves, the tape tends to probe that direction at least once the next day).  That too, has now abated as the S's are flat (the N's are up 8 handles). 



The head & shoulders in the S&P (that both Brandon Perry and I highlighted on Wednesday) "works" to S&P 1940 in a technical vacuum, so keep that in mind as you frame your risk profile into the weekend.  And remember, quarter-end is a few days away and emotions are high--I repeat, emotions are high--so factor that into your Freak Friday reality as we wind down our week and get ready for some football.

For my part, I'm still in the midst of a leg lower in my SPY puts, so that will be today's business as I look to manage risk rather than chase reward.

Random Thoughts:

On Wednesday, we noted that market internals were sluggish the entire session despite the green seas in Equities. Sometimes you can learn a lot just by watching; right now, big board breadth is skewed slightly positive but it's 2:1 positive in four-letter land.

Buying the dips has been a Pavlovian response--and a profitable one--for a long time; will be curious to see how the bulls are treated heading into the weekend...with quarter-end on tap.

S&P 1980 is an intuitive level for the bears to lean against; S&P 2000 gives you a bit more room. I'm inclined to use the lower level as to not give back recent gains, and roll that puppy down if and when we see further slippage.

Sideways action above support is basing; if it's under resistance, it's churning., It's a small--but very critical--distinction in terms of how you interpret the technical framework.

As a general rule of thumb, you want to trade smaller size when volatility picks up...particularly given the fact that so many funds traded larger size during the stretch of muted volatility.  That's the classic compression we've discussed for years on end.

R.P.

Twitter: @todd_harrison

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