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Think Twilight Zone Music


Good afternoon folks. I am not sure if it is my cold getting to me, or it is the excitement of taking my wife and two boys to Disney this week (I should say my wife is taking her three kids), but my temperature is rising. Either way, I would like to let you know early on that I will not be writing Thursday-Monday.

The action over the last week is again an example of how many things change in the market every day, but that over time the only influence that is rarely different is human psychology.

· Last Monday excitement was high as the high beta stocks were doubling and "new highs" were made on the NASDAQ. People couldn't buy enough and it was "clear" too most that the momentum was strong enough to carry forward until the end of the year.
· In the middle of last week, it seemed like everyone that was a screaming, "bull market" on Monday was saying the pullback was a normal and healthy correction.
· Today, many are declaring the end of the run because many got excited at just the wrong time and are now underwater on what they bought to beat the indices only two weeks ago.

The risk in the Tape is to let each piece of news dictate whether you are positive or negative on your outlook for stocks. I have received a number of media calls over the past few hours asking if the market was down because of the President's appointment of another CEO. In my view the answer is no. What is driving stocks down now is that people bought stocks over the past 2-3 weeks that they thought would outperform the market and are now underwater. Not only was it a mistake, but also it exaggerated prior underperformance.

Stock held in nervous hands after a three-year bear market doesn't stay around long to "hope" them higher. I could be wrong in my assumption that this rally is very similar to last year, but the insanity is trying to complicate what is very simple and working well. The pullback began after the same percentage move last year, began with the same "good news" out of Intel (INTC) and ended after a similar percentage decline in the Indices.

So what should be next? As I have said before, I believe that 95% of the gains are behind investors and that the market is likely to retest the recent highs over coming weeks. That doesn't leave a lot on the long side and also suggests that one doesn't short right here because of the potential retest of recent highs. Yes - It continues to look like the Twilight Zone.
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