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Aces Wild


Is this the best bounce we can find?


When I awoke the Dire Wolf,
Six hundred pounds of sin,
Was grinning at my window
All I said was "Come on in".

(Grateful Dead)

Good morning and welcome back to the snappy shack. With MidEast elections out of the way, Hoofy is certain that this is his day. The "big bad event" hung over the tape and now the bovine will look to escape. "If traders were waiting to see resolution," said Sammy the snake of the new constitution,"this was a step in a long evolution to clean up the air of Iraqi pollution." Will this be enough to call young Boo's bluff or will focus now shift to other tough stuff? We'll know pretty soon as we climb up the hill and ready to steady this bounce in the 'Ville.

The bulls are putting a lot of pressure on themselves to step up now that Iraq is (cough) off the radar. The geopolitical card has been an easy mark for the optimists looking to assign reason for January's downside rhyme. How else can they explain the tepid performance in the face of seasonal strength, continued M&A and improving short-term technical triggers? One thing for sure, there will be a collective exhalation this morning as the "unknown" is removed from our midst. The ability of the bulls to run with this baton--or the moxie of the bears to stuff the hopeful demand--will be the driver of both price action and the attendant sentiment.

Is the Matador Crowd too focused on the importance of a "step in a long journey" that is our occupation of Iraq? Trading, in its simplest form, has always been the juxtaposition of supply and demand vs. the disconnect between perception and reality. We saw $28B inflows into mutual funds last January vs. net estimated outflows (and record net redemptions) of roughly $9B this month. Between that and the lopsided lean (still in play but not as pervasive), it tells us all we need to know about the structural and psychological metrics.

If the bovine are gonna get something started on the upside, this would be as good a time as any. With both the Dow Jones and S&P sitting near important dandruff lines and the NDX 200-day close by, they'll need to get some mileage out of this recent input. There will surely be some early pizzazz (knee-jerk relief) but if this is to be more than a passing fancy, they'll need to remove the thorn in their side (internals) and find leadership (financials/semis/beta) that is both worthy and persistent. Expect a morning probe to the downside and then watch those tells as near-term tea leaves.

We power up this Monday pup to find Europe getting some groove on, the metals and crude (Iraq hedges) off in synch, the dollar flattish and the stateside futes up (but not jiggy). S&P 1164ish, NDX 1468 (200-day), DXY 84 and BKX 100 (right here, right now) are all levels to watch as we find our way through the minxy fray. Understand that the first hour will be emotional (unwind/addition of risk) and that focus will soon shift back to more traditional metrics and influences. Keep your head on, remain lucid and let's put some jingle in our jeans as we turn the corner into February.

Good luck today.

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