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Technical Levels Are Hit -- Now What?

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Sizing up a fresh five-session set.

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MINYANVILLE ORIGINAL

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

We power up this pup for a fresh five-session set and I will remind you that tapes -- or stocks, for that matter -- that had outsized moves the previous session tend to (at the very least) probe that direction the following session. We saw that with Google (NASDAQ:GOOG) on Friday (it was green in the morning following the shellacking it took on Thursday) and we'll more likely than not see the bears test the downside at a point today.

The S&P (INDEXSP:.INX), for its part, held "where it had to" late Friday, directly on the 50-day moving average, which happens to coincide with the October lows (the index DID break the uptrend channel, so keep this in perspective). We offered in real-time on the Minyanville Buzz & Banter that this was where the bulls would make a stand -- which is why I punted my SPY (NYSEARCA:SPY) puts and took the trade -- so keep your eyes peeled on that zone. Further, as we offered at the beginning of October, the NDX (INDEXNASDAQ:NDX) "worked" to 2670 and it closed near there on Friday; the next support is the 200-day at NDX 2650, if and when.

Finally, as far as levels are concerned, we've repeatedly mentioned that the world's most important stock -- Apple (NASDAQ:AAPL) --"worked toward $610 or so" in a vacuum and it closed Friday at $609.84. Technical analysis is one of our four primary metrics -- with fundamentals, structural forces, and psychology arguably more important -- but keep it in the back of your mind as we continue to find our way. Buying strength and selling weakness is a tough way to trade the tape, friends.

Away from the big-picture monolithic marketplace, I continue to search, sniff, and otherwise explore cannabis plays as they may be my single best idea for the next decade. Think of it this way: The legalization of marijuana would presumably create tax revenue, lower the crime rate, and add jobs. We discussed this dynamic last week before word arrived that the industry would be featured on 60 Minutes last night, so this isn't a bandwagon thought. In fact, if anything, the feature last night highlighted the substantial risks to the industry on the federal level.

I can't speak to specific names as 1) they are über-small caps (and we don't roll that way in the 'Ville; no pun intended) and 2) this sector, which is not yet covered on the Street (another potential positive) is akin to betting on MySpace, Friendster, or Facebook (NASDAQ:FB) or hearkening back to yesteryear, Netscape, Google, Lycos, AltaVista or Excite. My point is that we don't know the winners from the sinners yet -- or if there will be any winners at all -- so I've "planted a few seeds" across various plays as upside lottery tickets and we'll see what happens.

I enter today's session with the above-mentioned specs (small dollar positions), a half position in Research In Motion (NASDAQ:RIMM) with a stop below $7-half, a lotta dry powder and a fresh head following our requisite respite. I continue to trade surgically with defined risk as that's what has worked for me this year, and when I've strayed from that stylistic approach, I've paid the price.

Good luck today and I'll see YOU on the Buzz & Banter (click here for a free two-week trial!).

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
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No positions in stocks mentioned.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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