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The Hair Scare

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Has anybody seen my cowlick? I'm losing hair by the tick! Oy!

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Another week springs out of the gate and our downside support zones are immediately put to the test. Again, the levels are S&P 900 and NDX 1050 although I've spoken to a handful of trading types who feel S&P 895 is the "rip cord." Meanwhile, it just hits the tape that Dubya will officially announce his economics team at 10:45am and while the consensus calls for Mr. Snow and Monsieur Friedman, Daisy continues to harbor hope that she'll be on that short list. Imagine that!

The most notable action out of the gate is the softness in our two key tells. The SOX is now 19% lower than it was exactly one week ago and it's flirting with Friday's low of 322 ('a' level). Meanwhile, my eyes continue to migrate to the brokers as this group has been a decent proxy for the tape. XBD 430 is the 200-day moving average there and that should be thrown on the trading radar. Retailers are also a bit weaker to start the, er, week while pharma (biotechs and drugs) and energy (oil and oil services) are showing early signs of traction.

A check of the morning breadth shows decliners firmly in control although we know that the first half hour of trading is typically "noisy." Again, don't expect the bulls to toss in the towel without a fight as they watch the sand slip through the hourglass on the year-end rally thesis. The fate of the tape will likely be a function of the aggressiveness of the sellers and the reaction (and patience) of the longs (who've been waiting for the year-end ramp). I'll say it again, it's a high stakes game of chicken--watch your step.

I hopped into the office this morning with one leg in my metaphorical bear costume (25% conviction on the short side) and I've been in "pick not press" mode into the opening weakness. Yes, I'm quite conscious of my year-end thesis but I'll always defer to discipline when trading. Emotional and reactive tapes have a way of whipping the cream out of traders and a methodical approach is often helpful in removing emotion. Operate as a function of time or price and try to let the market work for you

I'll be back.

R.P

positions in spx, qqq

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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