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Musical Chairs and Dancing Bears


One baby step at a time!


What fixation feeds this fever
As the full moon pales and climbs
Am I living truth or rank deceiver
Am I the victim or the crime

(Grateful Dead)

Good morning and welcome back to the furry flack. After weeks of impressive gains for the Minx, the Matador Crowd has finally blinked. It isn't yet clear if this much needed rest was the start of a test or a pause to digest. "We have yet to probe support for the tape," said Hoofy the bull as he brushed off his cape, "I'm pretty sure that this recent red scrape will leave Boo to chew on some green sour grapes." Is the dip shtick alive and ready to thrive or will a burnt Boo soon step up to drive? It's a new freaky week so you better stand still as we ready to rock with a roll through the 'Ville!

Sir Isaac Newton and Sir Elmer Greenspan squared off last week to compare theories of relative performance. Few were surprised to see the orderly pullback after such a violent upside move--it's the first time the bulls breathed in a month--but that, as they say, was the "easy" move. The question we must now pose is whether this is an opportunity for Hoofy to reemerge or if that one-way thinking smacks of denial. And the answer to that question will have far reaching implications for our precious performance in the race to '05.

Boo correctly notes the false breakouts in the SOX (above the 200-day) and BKX (brief glimpse of '04 highs) as a textbook trap. The "how high is high" try was undercut by harsh language from our fearless Fed, fresh spikage in crude and meltage in the dollar. We've been watching the USD/YEN vis a vis our fixed income market and they flashed warning signals on Friday. Those macro elements must be monitored and juxtaposed with the near-term and traditional trading tells.

I'll continue to use the camel analogy as an apt way to view this market. The straws are stacked on his considerable hump but a little liquidity (and a lot of cheering) can embolden the beast to find his feast. It's not a linear assessment--the action in the attendant variables will either further the self-fulfilling fantasy or shift psychology as suddenly as it did prior to the election. Both outcomes are possible but profitability isn't dependent on picking a path. The mechanics of the swing, Mon Frere, will allow for favorable footing and unemotional execution.

This is a short holiday week and liquidity will dry up on Wednesday and be sparse Friday. While my big picture concerns are well known, I've choked up on my trading bat as I look to hit for average. After slipping two legs in my metaphorical bear costume on Thursday (50% conviction on the short side), I'll be rolling down my "mental" stops to secure a gain and define my pain. And as I'll likely be scooting to Baltimore to drown myself in a family hugfest, I'll be away from the fray on Friday.

We power up this frisky pup to find Japan down a deuce, Europe wearing a noose and the ursine on the loose. Breadth (horrid Friday), leadership (cyclicals, semis, financials, internets), crude, currencies and fixed income will all factor into the equity mix as we baste our taste. With regard to levels, S&P 1175 and NDX 1562ish are upside levels to monitor while BKX 100 should provide initial support. The first half of the session will serve to sober up the expiration hangover and attention will slowly shift to the holiday shopping and eating season. Where's my scale?!?

Good luck today.

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