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The win/lose market


Not in OUR house!

The collegial atmosphere of Minyanville can make it easy to forget the waters in which we have chosen to dip our heads, shoulders, knees, and toes (knees and toes) is infested with sharks. This is an adversarial game we are playing. While it is healthier and more profitable to think of trades as profitable and unprofitable, we all refer to them as winners and losers. It's inherent to the atmosphere.

Everyone should understand by now that bears and bulls get together and talk about what the market is doing. It isn't too much of a stretch to imagine that conversation eventually turns around to "Well, what are we going to do about it."

In the first two months of 2000, it was widely accepted by the bears and more than a few bulls that the close each day was "painted" in order to make chart patterns look better. Build a better chart pattern, attract the chartists, and get new money into a stock to drive the price higher. As a chartist at that time, it was really tough trying to eliminate those patterns from consideration and look at only "natural" patterns. (Can you believe I used to avoid charts when they looked too perfect? Now you know why I do fundie work instead.) This behavior was about the elongation of a period of unprecedented optimism in the market.

If I'm a bear and I look around at the state of bearness, it's one shabby place. The great bear macro construct was finally front page news for the financial journals. Popular financial and business magazines were fretting about the dollar, money supply, and debt. The great bear trojan horse - known to you and I as Fannie Mae (FNM) - finally blew up just as the bears predicted.

And nobody - and I mean N-O-B-O-D-Y, cared.

What's a frustrated bear to do?

Lean on them and lean on them hard. A bull market cannot survive without investor optimism. Break that optimism and then the bears can have their day. Break the optimism that leads bond investors to fund just about anything with a bond rating. Break the optimism that leads people to raise multiples for growth companies. Above all, break the optimism that has people considering moving 401(k) money from money markets to equity funds.

Break that optimism, and it is pic-a-nic baskets for Yogi and all the rest of his ursine brethren. As I've pointed out, the macro market worries are real - but they are accelerants, not causal in themselves. Break the back of the optimistic market and perhaps there will be something to accelerate.

I wish I was smart enough to see this coming a few days ago. Everyone, and I mean everyone, was expecting a beginning of the year rally. Blue skies and nary a worry. I'm not a contrarian by nature, but all that optimism makes a push to the downside all the more effective.

I could be wrong. Goodness knows I often am. But this is the last chance for at least a couple of quarters that the bears have to break the back of the bull market that started in 2002. My guess is they have enough firepower to make the battle interesting over the next week or so. My guess is they've decided to do something about it and take a last shot at breaking the optimism in this market before it buries them.

Me? I'm going to sit back and watch the spectacle as the bears take their shot. My view on biotech is that we've got plenty of room to run this year. If I'm full of hot air here and the bear attack is a one-day or two-day phenomenon, I can afford to miss the first few points of the 2005 rally in my chosen sector.

Dad used to watch a lot of westerns. We always used to count along with the shots because any fool knew not to pop his head up from behind the watering trough until the black hat was out of bullets. 1-2-3-4-5-6, then take your shot.

Be careful out there, folks. It's hunting season for bovines and I only count one shot.

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No positions in stocks mentioned.

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