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A Lot to Swallow


Europe and the dollar are shruggin' and huggin!


Good morning and welcome back to the pancake stack. Tuesday slacked as the ursine fought back and eased the hot Minx from the red to the black. It wasn't a drubbing (and far from a clubbing) but Hoofy did sense a subtle bull snubbing. "I'm not that dependent or really that needy," he said somewhat fast (it was rather speedy), "it's just that the bears are sordid and seedy and I feel somewhat frisky, real horny and greedy." Is yesterday's run through Red Dye now done? Or have young Boo's shenanigans only begun? Last night while at the Birdland Jazz Club, the critters talked tape while grabbin' some grub. The convo went something like this:

Boo: I don't know about you but I, for one, will rest much easier now that Elmer has assured us that the record deficit and melting dollar isn't a worry. He also gave me Mandy Moore's phone number and told me she's eager to take a roll in ze hay. NOT!

Hoofy: You...just...don', do you? The Fed is printing money and handing it out and you're standing at the door screaming at people for accepting it? What have you got against a little prosperity? You were the B.B.O.C for a nice little stretch and missed your curtain call last March. No offense, but you gotta know when to hang 'em up pal.

Snapper: Seriously Boo, who pee'd in your Cheerios? Almost every teletubbie and/or newsletter is resigned to the fact that we're overdue for a correction and they've now set up for it. Have you learned nothing? Won't the Minx follow the path of maximum frustration? Doesn't it seem a bit too obvious that we'll pull back before rallying again?

Sammy: Wait a minute...I don't disagree that some folks are chatting up a correction but psychology, as prices, must be viewed within the context of time. Big picture, the sentiment is as frothy as it's ever been--we're talkin' bubble big--and while that backdrop has existed for a while, it's not something to ignore. Yes, it's possible that yesterday's slippage was "one and done" and the panic phase has a remaining pulse. Still, the biggest bubble out there very well might be one of psychology.

Daisy: (filing her nails) I'm not sure what tape you guys are watching but the sell-off seemed mighty orderly to me--almost like a necessary evil. Heck, the only panic I've seen during the last ten months is when I told Hoofs I was going off the pill!

Boo: Dude.

Hoofy: She has a point--and it's not 'cause I don't love her. (smiles) The stair-step rally, broad breakouts, relatively tight corporate spreads (watch these) and lack of sell-side motivation has fed the bountiful bovine. Every catalyst, be it earnings or economic reports or geopolitical event, has created enough schvitz to climb the wall of worry. Do you really think the rally will end on something as obvious as earnings?

Boo: Why not? Conventional wisdom has worked for a while now and the entire crowd is leaning the long way (how do they know where we're going?). The Intel (INTC:NASD) and Yahoo! (YHOO:NASD) bars are set pretty high (so is Apple (AAPL:NASD)) and while there is "room" to S&P 1050, you've gotta decide if that constitutes an advantageous risk/reward or, like we used to say, the "easy" trade. Maybe you're right--maybe the parade has to end on good news rather than bad--but the stack is decked.

Snapper: Maybe, but the Minx has traded as a market of stocks (not a stock market). Sector rotation has been the standout element this year--into and out of the semis (watch SOX 535), retail, software, energy, pharma, metals, financials--so remember that market "calls" must be kept within that context.

Sammy: It's also worth noting that the internet space often acts as a leading indicator for the overall tech tape. In that regard, this Yahoo! report (and, more importantly, its reaction to the report) bears watching. Further, traders will be keying on the capital expenditure component of Intel's release (exp. 3.8-4.0B) as a guide on how to trade the semicaps.

The schnitzel arrived (with a fresh round of brews) and the critters chowed down while digesting the news. The next few sessions would leave an impression that is par for the course in this minxy profession. As they ate in silence, Boo gummed his meal (he's lost a few teeth) and carefully eyeballed Hoofy. He knew his day was on its way--he just hoped he still had an appetite when it arrived.

Good luck today.
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