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Critter Cafe

By

Don't shoot the messenger...

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And the battle's just begun
There's many lost, but tell me who has won?
The trench is dug within our hearts
And mothers, children, brothers, critters torn apart


(U2)


It's Hump Day in the City of Critters and the flickering ticks are throbbing with anxious anticipation. With the first flurry of earnings worry front and center, it promises to be a nutty strut as we check our gut. The alarm clocks rattled early this morning as the animal spirits readied themselves for the front lines. The lights had barely flickered to life at Ollie's when our fearsome fivesome gathered at their corner table. The chatter went a bit like this:

Boo: So lemme see if I got this straight? We rallied straight outa the '06 gate on hopes that the light at the end-of-the-rate-hike tunnel would shine bright on corporate earnings. The technical landscape confirmed the squirm (with the initial trade through S&P 1275 and NDX 1705) and, looking at the weekly sentiment survey, folks seem to be lined up in Matador City. Has anyone seen my yellow flag?

Hoofy: You're gonna throw the flag? For what, piling on? We all see the tech trifection today--Intel, Yahoo and IBM left a lot to be desired--but one day does not a season make. Besides, textbook technical analysis calls for a retest of the initial acne so I wanna see how our levels react when they're prodded and probed this morning. Success doesn't define the bull, Mon Frere, adversity does.

Sammy: Fair enough, Hoofy, but there are alotta prickly parts to our current equation. Crude prices continue to rise as Iran, Nigeria and Russia cross swords, volatility has been picking up across a bevy of asset classes (and is due to roll into equities), the Nikkei is down 1000 points in three sessions (and closed early due to order imbalances) and the consumer is delicately balancing insanely high debt with a slowing housing market. The margin for error is rather thin, me thinks.

Snapper: Yeah, but the bearish bent isn't new, it's simply rising to the surface as a function of the crimson tide. I would pay particular attention to the financials today on the heels of JP Morgan. IF (big if) the Matador Crowd can morph the ursine migration into a rolling rotation, the bovine will live to fight another day. No small feat given the recent non-confirmation of the BKX but certainly something to watch as we hike up the Hump.

Daisy: What else are guys noodlin' around?

Boo: I'm wondering if Livedoor is to the Nikkei what Microstrategy was to the Nazz in 2000.

Snapper: I'm looking at the 200-day in Yahoo as the potential "easy trade" of the day.

Hoofy: I'm curious if money flows into pharma as a perceived safety play?

Sammy: I'm watching volatility--with the twisted sisters (VXO, VXN, QQV) up smartly yesterday, I'm beginning to sense that we've seen the lows for these widely watched fear indices.

Daisy: Don't forget about the looming expiration either. There's meaty open interest around S&P 1275 and QQQQ $42 and, given the spate of hedging we've already seen this year, those levels may not be dust in the wind quite yet. (Standing up and putting on her jacket.) Just do me a favor boys, while you're out there trying to prove (capture) your points today, remember that discipline trumps conviction. 2006 is nary three weeks old and we've gotta lotta battles before us. Let's choose 'em wisely.

The dairy diva walked towards the door as the other four critters watched her carefully. They knew she was right--today was gonna be a barn burner--but it is one day of many, one battle in a long war. Hoofy and Boo eyed each other one last time and left to rally their troops. -This one would go to the video tape and that tape was barely an hour away.

Good luck today.

R.P.
position in jpm

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.

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