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Juvenile Delinquent

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I'm getting Pedro'd!

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Slow down you crazy child
You're so ambitious for a juvenile
But then if you're so smart tell me why
You are still so afraid?


(Billy Joel)



The tape scrapes through sour grapes as the bulls all search for an escape. Indeed, if this is the camel back market, the straw has started to pile up on our double humped bud. Crude is eyeing $55, General Motors (GM:NYSE) messed the bed, technical levels are falling faster than the Red Sox bravado and we're two short weeks away from a wide open election. It's enough to make the bovine blink and, from what I can see, they're already rubbing their eyes.

Technical levels aren't failsafe but they surely provide a framework with which to trade. Entering this morning's glory, we were a few short handles away from double resistance (S&P 1120/NDX 1440) and bad news littered the landscape. That provided an advantageous risk/reward, in my view, and allowed me to quantify my trading parameters. The lion's share of my risk is already defined (via options) but in an environment like this, you can't be too careful.

I've been keying on the financials (BKX -1.5%, XBD -2%) and the semis (SOX -3%) as that duopoly typically offers good tells when trading in synch. The missing duck to the downside equation is the NYSE breadth (flat) but that may have to do with bond funds influencing equity internals. Either way, with all three sisters (S&P, NDX, DJIA) already broken, Boo has the ball for the time being. That's an important point in the context of the prevailing psychology, which has been extremely bullish into the "inevitable" year end rally.

For my tactical trading exposure, I'm using trailing stops such that Snapper can't eat my lunch if he happens to stop by. I don't sense that he will but the tape is reactive and there are a ton of agendas simultaneously in play. Along those lines, the incessant rally in crude reeks of 'behind the scenes' action and while I'm not smart enough to tell you how or why, I'm seasoned enough to respect that emotions are high. That raises the risk of outsized moves (both ways) and, as equities seem to be uber-focused on the Texas tea, we gotta keep it in front of us.

That's about it from where I sit as we tick towards our requisite two day respite. This has been a particularly long week, I know, but the onus is on us to keep our wits about us. It takes a heckuva lotta energy to make money and a simple lapse of judgment to give it all back (and then some). It's the nature of the beast and a function of the overcapacity in our industry. Remember that weeding out we talked about in 2000? It continues to continue, my friends, but while it's not as fun as it used to be, it's not impossible either. Keep your head up and think positive--it all starts within.

As always, I hope this finds you well.

R.P.
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