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Psychology Patience


Good morning, and welcome back to the flickering ticks. With month end a scant four sessions away, investors are eager to see which costume the Minx will choose for Halloween. Indeed, October has been a treat for the bovine of the world, but only time will tell if we can escape without a spooky swan song. We power up our systems this morning to find the European bourses in rally mode on the heels of Friday's late spike and in spite of a soft German IFO (business confidence) report. It's gonna be one of those weeks, my friends, so let's roll up our sleeves and get down to it.

As we round the corner and set our sites on another year, portfolio managers are beginning to focus more and more on job security. In a world where performance is worn as a badge of honor and you're only as good as your last trade, these people will go to great lengths to preserve their livelihood. It's surely been a difficult few years, to say the least, and Wall Street has an air of desperation to it. If absolute returns aren't possible, you can be certain that relative performance is on the forefront of everyone's mind.

I bring up this point to highlight the importance of the psychological metric in the current environment. This latest bullish phase was triggered by technical conditions and (potentially) buoyed by isolated fundamental data points-but don't underestimate the importance of "performance anxiety." Think of your own angst associated with missing a rally, add a bunch of zeros on the end and factor in having to explain yourself to anxious investors. It's easier to see how stocks appear to be more attractive 15% higher than they were three weeks ago.

Of course, absent a material shift in the underlying metrics, stocks aren't more attractive at higher levels and identifying the next psychological sea change will help us capture that disconnect. We'll have plenty of events this week to help us clarify if this latest lift was indeed justified. There are two storage conferences (Storage Networking World and Lehman Brother's) beginning today and Prudential's much anticipated technology fete kicksing off tomorrow. In addition, there's a software conference, a handful of company sponsored meetings and seminal economic date due out later in the week. Juxtapose all of this information and the pending price action with the fact that Oct 31 is year end for some mutual funds, and you have all the makings of a wild ride.

We walk into a few positive data points this morning (including a Lehman upgrade of Citigroup), so it seems Hoofy & Co. are trying to press their bets. It remains an emotional market but our ability to remove emotion (poker face) will only increase our odds of success. With a scant nine weeks remaining in the year, the clock is ticking and the stakes are high. Trade to win, but don't toss your chips into the game unless you're fully prepared to play your hand. Take a deep breath and wait for your card. It's surely in the deck.

Good luck today.
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