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Monday Morning Quarterback

By

...this is the hand we've been dealt and we can't hate the players or the game.

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Good morning and welcome back to the flickering pack. With the wildcard weekend behind us, traders get set for the next round of the '07 payoff chase. Last week's freak was dominated by the Bears, who stuffed an early rally attempt and upset Hoofy's Heroes. The obvious themes involved continued dollar traction, commodity meltage and some eerily familiar slippage in the emerging markets.

The action was reminiscent of the May fray, when the two minute warning was sounded by a similar set-up. That volatility rolled into equities and roiled the collective mindset before finding a meaningful bottom in the summer months. THE question for investors is whether we're in the early stages of a downside reprise or if we're simply unwinding some of the extraneous year-end ketchup exposure.

I recently offered ten themes that I felt could unfold over the next twelve months. What remains to be seen is the timing and sequence of said events. The key, in my estimation, remains the greenback, which should trade inversely to asset classes as a whole. That "monolithic microscope" may be myopic but it's been the one true tell since the back of the bubble. It's admittedly a big picture theme but, as the big picture is made up of thousands of little pictures, it's a lens that warrants respect.

A few folks whom I hold in high regard have offered that if you widen the time horizon on this dynamic, the correlation isn't as relevant. I would humbly reply that the markets have changed over the last five years. The dot.com bust and the subsequent reflation efforts (on the back of the bubble, after 9/11 and into both the war and the elections) have created historic imbalances and coordinated agendas. This shift is evident through both the price action and the vernacular of those pulling the purse strings.

Be that as it may, this is the hand we've been dealt and we can't hate the players or the game. We can only assimilate as much information as possible and watch our key tells for guidance. In addition to the DXY (dollar index), market internals (daily tell when skewed 2:1 in either direction) and the all-important financials, I'm also keeping close tabs on the net space, small caps, semis and, of course, the emerging markets (Brazil, EEM and TRF are good proxies).

Random Thoughts to Kick Off the Week

  • Old School Minyans know I dig the fade trade, meaning I like to buy dips and sell blips. In that vein, I used the energy smack down last week to add some Weatherford upside calls. I didn't chase this fave into the high $40's, waiting instead for the break, and scaled into some exposure after the first 7% dip.

  • I also added some Herbie the love bug puts (H&R Block). I think that space has smoke and, as I expect vols to uptick (in general), I figure there are two ways to win. This isn't advice--I couldn't possibly do that without knowing your time horizon and risk profile--but it's consistent with my stated vibe of "energy and metals" vs. "tech and financials" over the long haul.

  • Ix-Nay on the May replay? Professor Tom Alexander had some sharp insights on Friday's Buzz regarding similarities between last May and today's tape.

  • The upside of anger? The Raiders have the top pick in the upcoming NFL draft and I sincerely hope they use it to pick up JaMarcus Russell of LSU. This kid is a thoroughbred and I wanna see him--and Bill Cowher--wearing silver and black next season.

  • Snaps to Minyan Michael Santoli for his awesome new column in Barron's. Quote of the week? "Wisdom resides near the border of patience and stubborness." True dat.

  • Watch for our very own Jeff Macke as his Fast Money montage becomes a daily ritual starting tonight on CNBC.

  • This is the longest stretch in history without a 10% correction in the S&P. Bulls and bears alike should keep that in mind.

  • Home Depot's CEO Bob Nardelli took home $210 million in severance after six years and a flat stock? I'll have what he's having.

  • Remember our humble assertations that lower energy prices could lead to lower equities? Crude is at its lowest level in 19 months as stocks seem to be struggling. Just tossing it back on ye radar.

  • The U.S. equity bull case is predicated on the notion that we'll ride global growth powered by India and China. That's also worth remembering as both countries seek to slow their economies.

  • We saw several large put buyers in the EEM on Friday (emerging markets ETF). Keep EEM 110 front and center as it was a level of support throughout December.

  • Good luck today.
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position in wft, hrb, financials, metals
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