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Chip Shot


Pace yourself--this is gonna be a long week.


"A lot of holes in the desert, and a lot of problems are buried in those holes. But you gotta do it right. I mean, you gotta have the hole already dug before you show up with a package in the trunk. Otherwise, you're talking about a half-hour to forty-five minutes worth of digging. And who knows who's gonna come along in that time? Pretty soon, you gotta dig a few more holes. You could be there all friggin' night."

-Nicky Santoro, Casino

Good morning and welcome back to the red and black. The roulette wheel is spinning fast as the dye is being cast. With chips stacked high and tensions raised, it's leaving traders deeply dazed. "This back and forth is getting old," said Hoofy from his bovine fold, "I was once feeling strong and bold but now my hot streak has turned cold." Can he regain his upside luck and pocket the elusive bucks or have his wheels now gotten stuck in the forbidding Red Dye muck? It's up, it's down, it's sure to thrill so join us as we toast the 'Ville!

The fourth quarter began with seasonal inflows and unbridled optimism setting the stage for a year-end ramp. Just as the tape appeared to follow the script, however, several subplots emerged and littered the landscape with cause for pause. Rude crude has been tenaciously persistent, fundamental data points were less than thrilling and technical catalysts, as they tend to do, reversed to give sell signals after bids were hit. Adding insult to portfolio injuries, the witch hunt is back on in the financial space as the insurance sector joins Citigroup (C:NYSE), Fannie (FNM:NYSE) and the hedgies in regulatory crosshairs.

The bulls can take solace in the fact that the underlying bid to the market for the past two years has been structurally driven (publishing currency tends to do that). While the long-term ramifications are frightening, the near-term effect is obvious. Selling pressure has been absent from the marketplace simply because there's been more dollars than alternatives. And while the potential for exhaustion is certainly plausible, the corporate bond market doesn't seem all that concerned yet.

The wildcard in this equation is the election and this is where it gets tricky. Conventional wisdom dictates that once clarity emerges (either way), the sidelines will rush to position themselves accordingly. That's certainly possible (perception is reality) but there are two derivative probabilities. First, what happens if the election is contested and, more importantly, when will the collective wisdom focus on the fact that our structural imbalances outweigh the ability of either man?

The journey from here to there is a twisted tale of small details. We've got our technical backdrop, which finds all there major indices under their 200-day moving averages. Earnings will pour into the mix this week as 179 S&P 500 companies report (fourteen Dow components). The commodity markets are a focus as the base metals seem to be proxies for Asian demand and global liquidity. And finally, the U.S. dollar is precariously close to breaking all sorts of support (DXY 87).

We power up this Monday pup to find the S&P sitting on the 50-day, the Russell 2000 on the 200-day and the cyclical index meandering under double support. Asian markets were flattish, Europe is mixed and the metals and greenback are on either side of unchanged. Earnings are pouring out fast and furious and that'll set the sector specific tone as we edge into the meat of the line-up. Keep an eye on the internals, monitor the financials for collateral damage and note the tone in the net and semi space. That's where alotta hedgies continue to hide.

Good luck today.

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