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Risk On, Risk Off: Is the Rally Over?

Fin - Breakout - US

"Trade the market you're given, not the one you want."

That's the simple yet sage advice from my longtime friend and Minyanville founder Todd Harrison. The unapologetic and self-described big-picture bear applies his own advice as a way to reconcile future concerns with the fact that traders gotta eat every day, regardless of what tomorrow holds. With the tape up more than 7 percent year to date despite looking weak of late, Harrison is bullish with a slew of caveats.

On the bullish side, he notes the same technical formation on the S&P 500 being watched by so many traders at the moment: the reverse head and shoulders formation from which it sprang. He notes that past resistance is future support, making 1,340 a critical area for the S&P to hold.

"It's the reaction to news that always matters," he says, noting that it was an important "tell" of market strength when the markets didn't sell off more strongly in the wake of the Japanese tsunami/nuclear catastrophe. Of course, that's a double-edge sword, as the tape has done little in the way of advancing well into a better than expected reporting season.

Harrison is also a watcher of the debt markets. "Credit markets trade great," he says, giving another reason to be bullish. They aren't a "panacea in terms of predictive powers"; debt does tend to lead stocks, for good or bad.

What does this all mean for stocks in the here and now? Harrison says it's all about context, or "field position." Traders are competing with themselves as well as indices. As the rally in stocks has gone on longer than many expected, "there's a lot of performance anxiety out there," says the generally self-assured Harrison. Unless and until the financials or broader tape break down in earnest, you can put him down as a cautious bull.

Watch the video and let us know what you think. Write to us at Breakoutcrew@yahoo.com, or comment below.