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Slippery Sally

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May peace be with you!

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Lay down, sally, and rest you in my arms.
Don't you think you want someone to talk to?
Lay down, sally, no need to leave so soon.
I've been trying all night long just to talk to you.

(Eric Clapton)


So you wanted to be a trader, eh? The most anticipated turnaround Tuesday in years has been a hairy affair as Hoofy looks for a feeble foothold. When the Minx gapped open this morning, we opined that downside probes were inevitable and the bulls wanted to get them out of the way early. Five hours and three tries later, Boo continues to tap the drum as we rattle and hum. The question that remains is whether the late day lethargy is simply a function of contra-hour or the seeds of a rather nosty failure.

While earnings are dominating the headlines, there are clearly bigger agendas in play. You don't have to be rocket scientist to see the migrating money--out of bonds and metals and into the dollar. The natural extension of that is lower equities and therein lies the crux of our debate. While the bulls are enjoying their best day of the year, it is the most fragile triple digit gain I've ever seen. That doesn't mean the rug will get tugged (there are reasons for near-term optimism--stochastics, NDX 200-day, broken clock), it just means we should be extra careful.

They say that a trapped animal is a dangerous thing, with Elmer backed into the corner, we need to be on high alert. One of two things is inevitable--either (pick an asset class) deflates or the dollar devalues. 2005 has been the year of the former but if that's deemed unacceptable by the powers that be, the tape can get juiced at anytime. Sound paranoid? YES! But how can you not be after what we've seen, heard (BLS) and watched over the past coupla years? The conditional elements for serious meltage are in place but we've been conditioned to believe they no longer matter. Oh, the irony of ironies...

The best we can do is follow our clues and remain lucid in our approach. We've got a slew of fundamental inputs in the pipe, Iraqi elections on deck and a co-dependent economy in our midst. I sensed a bounce today but would have preferred A) lower opening B) a brief technical breach or C) some semblance of fear (VXO is off +6%). Maybe that would have been too "easy"--and nothing is easy these days--but this lift feels almost obligatory. Early stages of ursine denial? Maybe...but only for a trade.

Fare ye well into the bell.


R.P.
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