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The Real Deal



Since it cost a lot to win
And even more to lose
You and me bound to spend some time
Wondering what to choose

(The Grateful Dead)

Well, the Bank of England and ECB left rates unchanged and the European bourses initially sulked...but are now attempting to make a stand. Personally, I think rate cuts are like a band aid on a gusher but, in this fragile environment, I suppose sentiment needs all the help it can get. The focus now turns back to our market and traders are wiping their brow as they prepare for battle. If you're feeling maximus stressimus, I would encourage you to do breathing exercises or splash some water on your face. When that opening bell sounds, you'll need to remove emotion and stay extra sharp.

Aside from our standard "tells" (banks, breadth, CSCO, Semis), keep an eye on the retailing sector today. A couple of negatives pinged the group this morning and their ability to absorb the news (or not) will be worth noting. Also add General Electric (GE) (for reaction to the Merrill Lynch downgrade) and those pesky Utes (Utilities) as tells du jour.

My good friend (and former options maven) Jordi points out that the last two times we had a TRIN below 1.25 and the S&P down more than 2 ½% were 7/23/02 and 9/20/01---and in both of those cases, the market staged rallies of greater than 20%. Of course, this is not to say that past history is a good predictor of future performance but I found that statistic interesting and wanted to pass it along.

Next week brings us a slew of earnings reports and options expiration which is usually a wild ride. A quick thought: There always seems to be a view heading into expiration with regard to whether it's "for sale" or "to buy." I've been trading derivatives for twelve years and, while I'll be the first one to tell you I am not an authority on the expiry game, I will offer that trying to game this "flow" is a lesson in futility. My view is that expiration always exacerbates volatility in the sessions that precede the actual day of expiry (Friday). Not necessarily something we can play, but certainly something to factor into the mix.

Meanwhile, the report card from my dentist came back and, well....I have issues. All four wisdom teeth? See ya! Root canal? Probably! My mother always told me to take care of my teeth and I thought she was just being, well, a mother. Next time, Carole...I'll pay attention!

See you after the opening.


No positions in stocks mentioned

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