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Analyze This


Good morning, and welcome to our daily financial therapy. With last week's bipolar reversal fresh in our thoughts, we'll once again attempt to peek inside the head of the Minx and measure her mood. Her swift transformation from depressive to manic certainly warrants attention as we know she's capable of violent swings and a vicious temper. Surely, in the days ahead, the sensory overload that is earnings will attempt to play mind games with the masses. Yes, the fundamentals are "bad," but with the bar being lowered to where it is, how much of that is reflected at current levels? Further, how does this past rally alter the field position of expectations? The psychological metric is going to play a huge role in the days ahead as we walk through a modern day version of the "theory of relativity."

Each and every person that reads this column has a unique methodology and distinct goals. Some are passive investors who are intrigued by the process while others actively trade and aggressively position themselves. This is not an advice column, but if my shared insights enable you to make more informed decisions---no matter your style---I've surely done my job. Personally, I've been approaching this tape like a boxer would fight an opponent he greatly respects. I'm looking to score points via a high punch count and if I see an opening, I'll take a hard swing. All the while, I'm keeping my right hand up and trying not to get knocked down.

As you know, my bullish antennas we're piqued last Wednesday as the sentiment became excessively glum. Once we got our requisite rally, it was amazing to watch how quickly the pendulum swung back to the "fear of missing." As a trader who lives in a bunny hole within a tree inside the forest, my initial reaction was to "take my trade" and look for the next opportunity. Certainly, if this turns out to be "THE" rally instead of "A" rally, I was clearly too conservative. However, we make decisions on what we know and feel and, while we should always learn from our mistakes, we should never look back. I still sense a bigger upside move between now and year end but I can't shake the thought that this latest move was a bear trap. Perhaps I'm being too pensive and granular (me?), but my instincts have served me in good stead and I will continue to incorporate them into my process.

All of that said, being wrong is the cost of doing business and we should never allow our trips to turn into falls. Our style calls for viewing the big picture as a series of little pictures and by doing that we can make up opportunities while limiting losses. With earnings pouring out of every sector this week, we'll have fresh information from the fundamental front to juxtapose against the psychological and technical metrics. In that vein, watch S&P 850 and (more importantly) 870 as upside resistance zones for the old economy and S&P 810 (former resistance) as support. For the techs, let's call NDX 900 resistance and NDX 850 as support du jour.

These next five sessions are going to be intense, so pace yourself as we dig in your heels. Patience and discipline are the hallmarks of successful trading and necessary if we're going to find our way to the other side and better times. There's been a lot of talk about comparing this period to past markets, but I would argue that we're experiencing a unique time in financial history. We've never experienced a bubble quite like we've seen, and the resulting unwind will chart its own course. Loosen your grip on the handlebars, keep your eyes active and alert, and focus on the journey. As we find our way along the path, the destination will show itself.

Good luck today.
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