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Tuesday Muse


I don't wear jeans!


Good morning and welcome back to the yawning. Yesterday's snoozer, a tech driven loser, did little to shake the brash bovine cruiser. Despite growing signs of a near-term decline, Hoofy shrugged his broad shoulders and said that it's fine. "We were just overbought," he says rather smugly, "that's all that it was, it won't get very ugly." Young Boo, for his part, just laughed at the crowd, "I've given you plenty, that's all you're allowed!" Will Hoofy's crew rally and climb from the valley or have they already played their upside finale? It's a spankin' new day in the ol' friendly fray so settle in, Minyans, and let's try to get paid!

Monday's depression ended the session with several impressions and unanswered questions. Sure, the semiconductors got smoked and are teetering on a sizable gap...but aren't sharp and short corrections par for an upside course? Yes, the rate-sensitive issues were hammered in the last few trading days...but doesn't a rotation make sense after the incredible run they've had? Yup, the breadth stank as the good news got spanked...but where's the volume? And while sellers are there to put up a scare, we've (thus far) held important support in the S&P, NDX and BKX.


Thus is the dilemma for fund managers as they try and set a course into year end. The bulls will argue that we've seen this movie before and the half step back will be greeted with two giant steps forward. The trend is up, the tape got a little overbought and this is the ebb to the fortuitous flow. Until proven otherwise, they'll assume the benefit of the doubt and barely blink as we slip and sink. The ursine uglies have been wrong all year, they'll argue. Why start listening to them now?

Well, perception, for starters, as we eyeball the horizon. While rates are historically low, a reversal in the perceived trend could crimp the accommodative psychology that's gripped and ripped. Too vague? Maybe. How about the eroding sentiment regarding Iraq and, by extension, the administration? Without passing judgment (for purposes of this discussion it's academic), we're shoveling money into a seemingly endless black hole. Granted, the greenback isn't worth what it used to be but, with a deficit that's growing faster than my waistline and people are starting to take notice. Factor in a complacent market, fat gains and a convergence of technical sell signals and, well, you do the math. We're ripe for a can of whoop ass.

While the catalyst front remains quiet (bonds are closed today), this juncture should continue to offer clues. The Minx is sitting above support at S&P 1044, NDX 1415, BKX 940, BTK 450 and SOX 510. These aren't mamaluke technical levels (like, for instance, the summer acne) but they will matter in the near-term. Expect the bulls to try and toe those lines and, if they can, we'll need to closely monitor the voracity, scope and breadth of that lift. For my part, and as a function of my belief that the potential downside far outweighs the upside at these levels, I plan to use strength to reinitiate some underneath exposure.

A walk through the morning dew finds the Jinx on the wrong end of some chin music (down 3%), Europe soft across the board (-1%), gold tickling a seven year itch (high), the dollar flat and the early futes marginally red. For the better part of yesterday's session, the weakness felt corrective (not impulsive) but that'll likely change if we either break support (mentioned above) or the rally attempt creates a bottleneck of sell-side interest. Until then, the bulls will be happy to unbutton the top of their jeans, lean back and rub their fat belly.

Good luck today.

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