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The Holiday Hand-off


Deja Boo?


Good morning and welcome back to the final trek. With Thanksgiving gone and December near, it's time to now climb towards the end of the year. The spirits are high although risk still remains as we weigh jingle bells against maximum pain. "The flows are quite strong and my spirits are higher," said Hoofy the bull as he flamed the green fire, "and holiday sales will freshly inspire the chorus of cheers that this lift may require!" Will the market break out and lay rest to the doubt or can Boo and his crew put an end to their drought? We'll know soon enough as we gather to thrill and take a fresh breath as we romp through the 'Ville.

2004 has been the year of the range littered with several spurts and upside flirts. While the averages have posted modest gains to date, the path of least resistance has felt undeniably higher for quite some time. With unmotivated selling giving way to coordinated buying, it's been far more profitable to ride it rather to fight it. The question then becomes one of balance as we weigh our eyes vs. the respect for a fresh splash of frustration.

Despite a golden opportunity to knock out a backpedaling Boo, Hoofy lacked the muscle to put the technical test to rest on Friday. We power up this morning's pup to find a fresh spate of "GREAT!" echoing through Madator City and the bovine taking another running start. S&P 1188 and NDX 1580ish are the last bastion of bearish bravado as they represent '04 highs and numerous tries. The complacent backdrop, evolving macro concerns (Ukraine, dollar), perceived inflows (Microsoft (MSFT:NASD)) and permeating performance anxiety add spice to already saucy mix.

The multidimensional prognosis will invariably circle back to the delicate global game of chess. We're all staring at the greenback and, despite sentiment skewed deeper than their equity cousins, it continues to trade near nine-year lows. But it's not the dollar, in and of itself, that is at issue. Rather, it's the collective reaction and response from those positioned around the world. The U.S. has made it clear that isolationism is the policy of last resort. How and when that manifests in the debt market (54% owned by foreigners) will start the domino effect that is higher rates.

The drama of the foreign exchange evolution is lost on all but a very small segment of society. Not many professionals--much less individuals--even know that the greenback has given 31% of its green back since 2002. I call it the 'stealth bear' as real net worth, as measured by the ability to buy a basket of global goods, is eroding without fanfare or notice. There can surely be a counter-trend rally (it's been widely expected given the lopsided psychology) but hints from China and stubborn rumors that crude will denominate in Euros are potential disasters.

The holiday shopping season will be another focus as investors watch to see if stubbornly high crude has trickled into the gas tank rather than to the retailers. That will help shape sentiment, along with the Intel (INTC:NASD) mid-quarter update on Thursday and the November payroll data on Friday. Obvious reads in the interim will be the breadth, financials, cyclicals, trannies, crude and the fixed income markets. And, of course, we'll juxtapose the whole shebang against the backdrop of our technical framework.

We awake to find the world a rather cheerful place as Asia, Europe and the dollar are tinted pine green. With past resistance acting as future support, look for active traders to flip the switch and use the above mentioned levels as a bullish backstop (if and when we power through them). For purposes of metaphorical imagery, I am trading naked (so to speak) after a few valiant attempts at the old school Minyanville mambo last week. With regards to real-world posture, I've got a handful of underneath protection puts on my sheets vs. a slew of "situational" upside exposure. I plan to keep it that way and take a fresh sniff at the tape once the initial noise settles at 10am.

Good luck today.


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