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The Long Hard Road


Taking stock of the financial dynamic.


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

Yesterday on the Minyanville Buzz & Banter, we flagged a few patterns that suggested that caution was warranted in the near-term. Some of those items were highlighted in our recent column, Metric Check Into Earnings Season, but our most timely content will always be shared on the Buzz (click here for a free two-week trial).

Once upon a time, I would have pounced to increase short-side exposure, but these days I'm looking for a high "quack count" (advantageous risk-reward setups when the 'ducks' align). The flies in yesterday's downside try? The financials, which not only held the all-important BKX 44 level but exhibited impressive relative strength. That remains a focus today, for those who follow such things.

While some may say I was gun-shy, I prefer the term "proactively patient." I'm operating within my "trading bucket" which doesn't mandate risk. In fact, if I had to use one word to describe my style thus far this year, it would be "surgical." I would offer that particular stylistic approach has lead to my best performance in years (no mush!) but we don't talk about things like that around here.

Shifting gears, I participated in an interview yesterday and was asked whether there is too much-or not enough-regulation. My thoughts were similar to what I said about hedge funds in late 2006: that I would "sell the quantity and buy the quality." In other words, it's not the amount of regulation that matters, it's the effectiveness of the regulation in place, and until policymakers understand what they're regulating, it will be a lesson in futility.

Further, I offered the current conundrum-in terms of the "entire financial dynamic becoming increasingly difficult" (first offered in The Long Hard Road back in 2000)-can be traced to two parallel evolutions. The first-as of 2008-is that we no longer have true free market capitalism; the second is that the machines have consumed the human capital in the marketplace over the last decade.

Wall Street-from the mechanism to the execution to the crosscurrents in play-has evolved much faster than most people can fathom-including many Wall Street professionals who are as confused as the rest of the world. It's a changing of the guard, the "weeding out" if you will, and it takes no prisoners and knows no bounds. It's in many ways sad but in every way inevitable, and it requires us to adapt to survive.

My apologies for the rant; I just feel as if an old friend has passed. Alas, there is a difference between loss and loss, which I was again reminded off last night when I paid a Shiva call to a dear friend who lost his wife much too early in life. I've known this fine man for 20 years; he was a good trader and I'm certain that if I asked him if he would take a tough tape over the loss of his beloved, he would make that trade every single time.

In other words-yes, it's tough out there but it could be worse. It could always be worse.

Random Thoughts:
  • I'm often asked, "So, what do you think of the market?" My answer of late is, "A free market would trade lower but the market is far from free."
  • The good news? While it will likely get worse before it gets better, there is a bright light on the other side of this ride that will be chock full of generational opportunity.
  • This chart of commodities vs. the S&P is perhaps the single clearest snapshot of our forward path.
  • While you're there-the link above-check the channel in the S&P, which has now breached to the downside, bringing the 200-day moving average into play at 1305.
  • Federal Express (FDX), Nike (NKE), Infosys (INFY), Applied Materials (AMAT), Cummins (CMI), and Chevron (CVX) have all messed the earnings bed, so to speak. I will continue to monitor their price action as the reaction to news is always more important than the news itself.
  • The doors to Festivus 2012 are open! Please use "friends12" to secure your 10% early-bird discount as we do our part to help the leaders, dreamers, and healers of tomorrow.
  • Good luck today, and remember, profitability begins within.

Twitter: @todd_harrison

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