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Tape of the Living Dead


Just like Mary Shelley
Just like Frankenstein
Clank your chains and count your change
And try to walk the line

(The Grateful Dead)

Good morning pumpkin, and welcome to Halloween in Minyanville. October has played tricks with traders as the Minx's manic swing treated investors to surprisingly stellar returns. With the chatter of mutual fund markups making the rounds, we enter the final day of the month with wide eyes and eager anticipation. Children of all ages are watching to see which critter will be the costume of choice when the averages finally make the break from this recent range. We begin our daily masquerade with a call to L.T and the boys across the pond and find the European bourses marginally higher while the Asian markets slipped a bit on the back of a disappointing reform package.

With Wall Street awakening from a deep sleep and finding new life, it's fitting that the equity séance would occur this month. Stocks, by and large, were left for dead three short weeks ago when the masses were spooked from the market. As is the norm when sentiment reaches an extreme, the tape put in a cusp and reversed course rather sharply. Now, as the psychology pendulum has swung to the opposite end of the spectrum, the fear of losing has almost completely morphed into the fear of missing.

The stock market equivalent of the ghost of Christmas past is undoubtedly last year's relentless ascent through year end. You can be sure that portfolio managers remember trying to explain to investors why they purged exposure before that vicious rally. Many of these same professionals must now be having a surreal sense of déjà vu if they puked stocks in early October. I mean, how can you rationalize making the same mistake two years in a row?

In my mind's eye, that's a flawed reasoning for accumulating equities and a potential caveat to put on our radar. A massive amount of liquidity was injected into the system after that fateful September as it was truly a unique (and very sad) period in American financial history. I understand that performance anxiety can be a self fulfilling phenomenon but, ultimately, the market is an efficient animal. If funds are buying in anticipation of a repeat performance and it fails to materialize, there will be more blood than Dracula knows what to do with.

Speculation aside, the averages have been running in place for the last week as we've been trading in a tight range. Continue to use S&P 875 (then 850) as support and 905ish as resistance and, for the techs, NDX 950 (then 900) is support while 1000ish will once again be resistance. As you know, I'm of the (humble) opinion that breakouts are unlikely when the tape is overbought, but there is certainly a camp that's viewing this recent back and forth as a simple consolidation before a continuation of the upside.

As always, viewing the big picture as a series of little pictures will help us to ease our way through this environment. We'll be getting a handful of economic data this morning and that should help us to craft our daily thesis. Take a deep breath, treat yourself to a small piece of chocolate and approach the day with a positive attitude and fresh perspective. In nine short hours, October will be history and we'll be enjoying the holiday with our family and friends. Let's head out tonight with a little jingle in our jeans and a smile on our face.

Good luck today.
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