Stocks rallied Thursday, ending a 6-day losing streak, but finished well off the session highs, another sign of the negative tone that's been in place since early May.
"When you look at what's going on underneath the headlines, you're seeing lower highs across the indices: the market is telling you to be careful here," says Todd Harrison, CEO of Minyanville.com. "You're seeing the leadership — the former generals [like] JPMorgan, Google, even Apple…Goldman Sachs of course — these stocks all act like death. Without generals the troops tend to get lost sometimes."
Like most traders, Harrison views the recent break of the S&P's April low of 1294.70 as technically significant and is now eyeing the March lows of 1249 being the next important level of support with 1300 now upside resistance. (See: Stocks in Retreat: Pause to Refresh or End of the Rally?)
"The easy trade" is that the market will test those March lows, which also coincide with the S&P's 200-day moving average, he says, suggesting there's "room" for a decline to S&P 1150 if the financials continue to falter. "This is the best chance for the bears this year to make a dent."
To be clear, Harrison isn't betting aggressively on a market swoon and expects the bulls to make a stand near S&P 1250. He's also clearly aware of the bull case, which is predicated mainly on the strength of corporate balance sheets and continued strength in the corporate credit market. "As a trader you try to look at the path we take vs. the destination we arrive at," he says. "That's why a stair-step right now is 1250-1300, you can set your stops on either side and [employ] discipline over conviction."
Speaking of conviction, faithful viewers will recall Harrison put his long-term holdings in 100% cash back in 2008, before the market crashed. (See: 100 Percent Cash: Is Todd Harrison Raving Mad, or Just Foxy?)
As you'll see in the accompanying video, he's still 100% cash in his long-term portfolio. Despite the market's big rally off the 2009 lows and the dollar's steep decline, he's still focused on capital preservation vs. appreciation in his long-term account.