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Monday Morning Quarterback


I'll give it a go, fellas, but pay close attention to your trading tells for confirmation.


Good morning and welcome to the new dawning. Hoofy's long glide (and a measure of pride) were hastily halted with Friday's late slide. While a few short hours does not a trend make, Boo (who's been sleeping) is now wide awake. Can our banged up burnt bear now muster a scare or will he, once more, taste bitter despair? It's a new week of play in the minxy buffet so saddle up strong and let's now find our way.

The structural metric and its flood of liquidity have, to date, drowned out the bevy of warning signs that have emerged in the marketplace. Complacency? No worries. Insider selling? They're wrong. Lopsided sentiment? You're in denial. Geopolitical risk? Under control. Valuations? Business will catch up. With price acting as the ultimate arbiter--and the electoral agenda in full swing--there have been few concerns from Wall Street to Main Street.

The widespread belief is that we'll see any "real danger" emerge, if and when, and there will be plenty of time to make sales and lock in performance. After all, defined uptrends are in place and until they're broken, few sweats will be. But is it possible to identify a potential sea change before it's confirmed by lower prices and, if so, what might possibly give it away? The inability of the market to react positively to good news? A faltering in the leadership sectors? Outperformance of defensive issues? Sustained strength in the safe haven metals? Hints of a slowdown in the consumer or, worse, a widening scandal that spooks the same?

To be sure, the tepid reaction to the "resurgence" of the job market and "robust" earnings is a nose scruncher. The fence sitters will (correctly) opine that this might be a healthy basing rather than an ominous churning but, nonetheless, the antennas are up. With the notable lethargy of the biotechs (seven lower highs) and internets (under distribution), two of techs leading indicators are racing under a yellow flag. More telling, perhaps, is the story on the big board. The financials, the featured foul-ups that have been the front page focus, have been heavy Betty's. With Friday's funk, the piggies broke support (BKX 940) and the brokers are now flirting with the 50-day moving average (which, aside from a blink-and-ya-missed-it moment in August, hasn't been touched since March).

Perhaps this is a healthy rotation of leadership and this will prove to be a (necessary) pause in the bull's cause. But take a step back and think about what would make you more aware, if nothing else, of the potential for downside risk. The warning signs are there. Away from the sectors highlighted above, the tepid reaction to Applied Materials (AMAT:NASD) and the shot across the bow from Wal-mart (WMT:NYSE) may portend a weakening trend. Sure gold has been a stellar performer (much as the VIX has been a non-factor and the bull camp has been crowded), but these are all ingredients to the minxy mix.

Our task at hand, heading into this week, is to identify whether these issues are aberrations or a cry for attention. The good news is that we know where to look and what to monitor. S&P 1044 and NDX 1390 (50-day) will serve as near-term support as we monitor the breadth (internals), the financials (BKX 942 is now resistance), the semis (that gap remains below SOX 510ish), retail (consumer proxy) and the dollar (flirting with seven year lows) for clues. Remember, trading is a function of probabilities and the more inputs you can utilize in reaching a decision, the more likely you are to succeed.

A quick walk through the morning dew finds the junky Jinx getting clipped for almost 4%. This latest dance with the whoop ass can brings the (still in motion) month to date loss to 10% (and through Nikkei 10k). Europe, which had been a beacon of strength, has now succumbed to the global pressure and the bourses are down between one and three percent. Gold is flat which, after the run it's had, is no shocker (particularly as it pokes gently at $400) and the dollar is softer (although off its overnight lows).

The teletubbies will offer that the market is lower as a function of terror concerns or geopolitical developments. That certainly may be contributing to the lethargy but the truth is that investors have bellies full of equities and the forces of reflation are squaring off with the mounting pressures of reality. The psychology bubble has avoided pricks all year (fear has been fleeting) but, as discussed last week, this (juncture) is likely Boo's best opportunity to assert his will. Exercise discipline over conviction (regardless of your posture), don't be penny wise and pound foolish and, most important, think positive cookie--it all starts within.

Good luck today.
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