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Clarity Chase

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Make the right decision for YOU.

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Good morning and welcome back to the front running pack. With one day to go in the race for control the bovine are ready to go on a roll. It started last week with a preemptive lift, a rally that started viciously swift. "The bears thought the tape was under the gun," said Hoofy the bull after the fun, "but they haven't seen the meat of the run as we're gonna rip when the voting is done!" Will clarity spur the herd higher still or will crimson soon spill throughout the 'Ville? The election is here so roll up those sleeves and let's take a read of the minxy tea leaves.

Public perception and conventional wisdom have cast their votes for tomorrow's tussle and "clarity" has won in a landslide. You know the drill--as long as somebody wins, no matter who it is, the market will light a fuse and land sometime in '05. That's the universally accepted opinion and the anxious masses are already endorsing our new leader (even if we don't know who it is yet). The technicals are lining up, the fundamentals are hanging tough, crude (-9% last week) has started to behave and corporate bonds are chill. And as the tape scrapes higher, the risk of underperformance is forcing the hands of the few money managers who don't believe the hype.

Last week, while the bears still held the benefit of the doubt, we spoke about Hoofy's perfect storm. He wanted to see a sharp rally into the election (a stretch then but 'obvious' now) coupled with a sharp spill in crude and a runaway win by the incumbants. We've seen the first two elements unfold and a consensus evolve that either candidate will suffice as long as it's a clean win. That puts investors in a fix, of sorts, as further upside is considered obvious but that, in and of itself, is a pretty scary assumption.

The question I must ask is that two of the three probable outcomes are bullish, how much of that trade has already occurred? Virtually every media outlet I watched, read or listened to over the weekend was calling for an electoral relief rally. I understand the thought process and can visualize self-fulfillment but how many times has the media successfully mapped out the market? It would be considered reckless to take the other side of that trade--particularly into year-end--but we must remind ourselves that the path of maximum frustration--by definition--confounds the masses.

I've struggled with proactive positioning as a function of these crosscurrents and will continue to err to the side of caution. While I'm aware that I've muted my returns by choking up on the bat, I plan on maintaining that posture into the election. That means that both sides of my pad are defined and smaller than usual. It's not as aggressive as I would like but it's consistent with my view and, as we're all responsible for our own decisions, I'll live with the ramifications of those choices.

In the interim, and until I identify a discernable edge, I plan on reading the tape and taking my trades. The short-term "tells" have worked exceptionally well and I'll continue to dance with the ducks as I find them. The brokers (XBD), semis (SOX), breadth, crude, cyclicals and small caps remain on my trading radar and I'll juxtapose my profile against the backdrop of technical analysis. Along those lines, watch S&P 1120 below and NDX 1500 (BKX 100) above. And above all else, Minyans, think positive--it all starts with you.

Good luck today.

R.P.
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