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Psychology Patience

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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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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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