Todd Harrison: Thoughts on Technical Levels, Highfliers, and Cannabis
The stock market navigates another critical crossroads.
I once offered that anxiety is simply the friction between where you are and where you should be.
I had anxiety last night because that dynamic existed. It wasn't my P&L or position size that gnawed at me -- both were small on a relative basis -- it was the fact that I deviated from the discipline that has served me in such good stead throughout my 23 years on the Street.
You see, as the highfliers danced with the animal spirits yesterday and the S&P 500 (INDEXSP:.INX) tickled 1850, I broke one of my own cardinal rules: I anticipated the upside breakout. I knew that a push through that level "worked" higher -- potentially much higher -- and rather than let the pattern confirm (and subsequently lean against the level), I attempted to get in front of it.
I keep my 20 Trading Commandments handy but for some reason, I looked the other way and found myself in hope mode. Over time, the mechanics of the swing always trump the results of the at-bat, and I know this instinctively; on that particular plate appearance, I was caught looking.
I've had my fair share of streaks over the years; it comes with the territory, but I would be doing our audience a disservice if I didn't discuss that mistake so we can learn from it. I flattened that directional exposure this morning a few handles from where I initiated the position, but as my 10-year-old girl often says, "It's not about that."
I will note that the aforementioned (bullish) technical pattern remains in play above S&P 1820, so the bulls have that going for them. I will also point to the sticky price action in Tesla (NASDAQ:TSLA) in the face of the convert (leaving the Morgan Stanley (NYSE:MS) analyst-banker relationship aside) and the price action in the other highfliers, which remain harbingers of aggregate risk appetites.
We are at a binary technical toggle, one with the potential to trigger two-sided head-fakes and a death by 1,000 paper cuts if you're not careful. See both sides as we continue to find our way.
- I've mentioned a few times that the recent price action in the highfliers reminds me of Y2K, and it does; I was in a serious rhythm back then, which has been more elusive of late, but that's a separate discussion.
- Even in Y2K, as we scaled the wall of worry and once it came crumbling down, there were big opportunities on both the long and short side, often in the same session. I wouldn't be surprised to see that again, albeit on a smaller scale.
- If you're trading the highfliers, keep in mind that vols in these names are inflated (to say the least), so don't trade single stock options based on the level of the VXO (INDEXCBOE:VXO) (which reflects index volatility). Two different conversations.
- I filmed a segment on Yahoo Finance this morning surrounding cannabis legalization. You know my take; broad passage will 1) increase tax revenues, 2) lower crime rates, 3) lower the prison population, and 4) through the lens of an investment theme, its not yet covered on Wall Street.
- Fifty-eight percent of America supports cannabis legalization; that's the top line. The bigger story, in my view, is that 72% of those under age 30 support it while only 29% of those over 65 support it. Through that lens, time is on the side of continued passage of legalization.
- I'll again say, steer clear of the penny stocks in that complex. Nothing good will come of that.
- I am sensitive to the concerns regarding its impact on society, but it's not much different than alcohol in that regard; there will always be abusers, of a substance or a system; the times, at least for this conversation, are already a-changin'.
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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 email@example.com.
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