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Dust Ruffle


Migration or rotation?


Are you ready, Are you ready for this?
Are you hanging on the edge of your seat?
Out of the doorway the bullets rip
To the sound of the beat


Good morning and welcome back to the swarming. After two days of glee in Matador City, Hoofy appeared both gusty and gritty. The banks felt alright and the tone wasn't bad as the bovine all rushed to add risk to their pad. But something smelled wrong as we mounted the hump and late day supply caused some swingers to dump. Bad turned to worse as the news was dispersed and we now find ourselves at a juncture perverse. Is it finally here, the big picture fear? Or can Snapper dig deep and shift into gear? We'll know soon enough as we digest the jitters and figure it out with the Minyanville critters!

I'll begin this column with the hindsight admission that fading the rally now seems somewhat obvious. Before self-loathing hinders your ability to focus, however, I will remind you that both a bull and bear market battle it out daily. The massive forces of supply and demand coupled with the collective agenda often proves its point after the fact. When the dust settles, one only needs to look at the right (or left) side of the ledger to assign proper reason to the rhyme.

I came back from the three-day weekend with an inkling of liftage and chose to tactically play from the long side. The best trades in this business are the ones that instantly move your way and allow for an immediately advantageous risk/reward profile. Such was the case after the Tuesday chase and, as this was a short-term play against my backdrop of big picture concerns, chose to roll my stops up (for a credit) rather than leg into an option position or scale into further exposure.

There is a fine line between removing emotion from the process and subconscious complacency. My exposure was stopped out below the S&P 50-day but, to be fair, so many hedgies are watching the same levels that they've lost a bit of luster. It was a classic case of dancing between the elephants as I sensed bear lairs at S&P 1200 and NDX 1580. Still, with several ducks quacking (index stochastics were hooking positive), it was a worthy defined risk try that yielded a marginal return. After 15 years of trading, I've found that positive perception is healthier than focusing on the opportunity cost of the proper fade.

We've been talking about the dark side for some time and I'm not sure that I can shed any further light on it. The fugly sisters (Aunt Fannie (FNM:NYSE) and Ms. Motors (GM:NYSE)) are microcosms of a rate-dependent finance-based economy but that is nothing new. They've been hidden by the collective confusion between actual growth and debt-induced addiction, a dynamic that has been masked by a declining dollar and hidden behind Allan Greenspan's curtain. Betting that the big picture has finally arrived has been a Sisiphysisan task for the bears and one has to wonder if they're now in denial as well.

Causation for a downside dislocation can arrive from any direction or as a confluence of events. News that mo'mo poster child eBay (EBAY:NASD) whiffed, coupled with other less than thrilling reports, has more than a few fund managers uttering the word "deceleration." That should dent the beta fray and may spook the speculative (and leveraged) stock jockeys out there. The question then becomes one of psychology and, looking at volatility levels and sentiment surveys, folks still seem quite comfortable buying the dips. What's more, after meeting with the savvy team at Erlanger Research last night, it seems obvious that many bears are wearing hats instead of tossing them in the ring.

Its no secret that I think "this" ends badly--I've been known to utter the dreaded "D" word in select company--but I'm not smart enough to know when or how. Brian Reynolds planted a seed in my head a few years ago (when corporate America, with the help of Uncle Sam, effectively rolled out their debt) that we--quite literally--bought ourselves some time. While his antennas are now up both ways (watch General Motor debt), we've learned from experience that bubbles--echoes or otherwise--have a tendency to be elastic. With what I see in the Arizona (and other) real estate markets, "when" we shake our heads in vuja de disbelief continues to seem a more appropriate than "if."

A few quick thoughts before I flip lips and dance around bids. Please don't take the geopolitical arena off your radar as the inauguration, Iraqi election and terror jitters are floating around. It's easy to brush off these concerns because they haven't mattered but 2005 has caught alotta folks leaning the long way and reactions differ when operating from a defensive posture. There has been a stealth shift to risk aversion of late and while that may abate, it also has the potential to accelerate. There is a quiet confidence in certain circles that the fear factor has risen these last few weeks but I maintain that there's no such thing as capitulation with the VXO at 13.

On my radar will be NDX 1542 (which will morph into resistance once violated) and S&P 1177 (which could violate a three month head and shoulder formation). BKX 100 is also a clear focus as Citigroup (C:NYSE) is one of the few issues that can buoy the tape. I know that's a lot of pressure for one stock but the price action will offer clues as to whether a rotation (N's into S's) will hold or fold. Market internals, of course, will also factor into the mix and we'll be keeping our ears to the ground for signs of asset allocation. Take a deep breath, center yourself and trade to win--we'll get there.

Good luck today.


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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

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