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The Trading Radar


It's always good to see all sides of every trade!


Good morning and welcome back to the critter shack. With Monday's dull zoo now in the rear view, it's again time to dance with the market anew. "I was almost asleep during yesterday's creep," Boo said from atop his favorite black sheep, "but after the steep climb from down deep, I wanna be there when the bulls cry and weep!" Will the bovine shampoo cleanse away the bull tears or are things not as rosy as they first appear? It's a spankin' new session of minxy obsession so let's make this count and leave an impression!

After the spurt and dirt that's been 2004, traders are desperately trying to wrap their arms around the true nature of the tape. Are the powerful forces and electoral agendas that dominated last year still in play? Or, perhaps, might this be the quintessential Burned Razor that we identified (but failed to follow) in October? Remember, under that scenario, we dipped into November, ripped through the new year and, if form holds, the Minx would then (is) set up for a meaty melt that capsizes the overcrowded boat. Razor...or Blazer...and how can we assign reason to the rhyme?

Sometimes the subtle nuances can offer assistance in our never-ending search for clues. While Hoofy (sportin' Prada) won't entertain this conversation (he's heard it all before and, at this point, is immune to concerns), I thought it might be helpful if I earmarked some potential flags as we trudge ahead. This list is by no means inclusive but, hopefully, it will add value to your current market process.

  • Citigroup (C:NYSE). The financials are, without doubt, the single most important sector in the marketplace. Throughout the bull run, the traction in the money center banks (and brokerage stocks) has been THE sign that Elmer's easy money controlled the supply/demand equilibrium. After seemingly breaking out above 50, Sandy's stock has struggled to stay the course. Watch $48.60 (50-day) on the downside and $51 (recent high) on the upside as the closest technical levels.

  • Mood Swings. Sentiment, as defined by multiple measures, is near what could be considered an all-time high. Taking a look at the four major polls (Investor's Intelligence, Market Vane, Consensus, and AAII), we are seeing a degree of overwhelming bullishness unmatched in 17 years. While this in itself is not necessarily bearish, it leaves us quite vulnerable to swift, sharp declines. Waning sentiment is typically accompanied by lower prices but, regardless, we should remain vigilant in watching for any abatement in the current euphoria (read: increased risk aversion).

  • Government. As Mel Brooks likes to say, "politics, politics, politics!" A few weeks ago, conventional wisdom dictated that Dubya was a shoo-in for four more years on Pennsylvania Ave. With John Kerry gaining momentum (and recent polls actually showing him in the lead), the specter of political uncertainty has officially been introduced. As we trade ahead, each and every economic release--particularly on the jobs front--will be increasingly scrutinized. Moreover, we can expect the mud slinging and accusations to get loud down the stretch--and with the psychology bubble inflated to the max, the current optimism is ripe for disappointment.

  • Master Betas. One of the more troubling aspects of the recent rally has been the parabolic frolic among the high fliers. You know the usual suspects--they're featured on bubblevision and touted by the teletubbies--so I'll stop short of naming names. Suffice it to say that the speculative excess will continue until it doesn't--but when it doesn't, it'll show up in these names first. Frightening factoid of the day? Bulletin board trading in January 2004 alone (57.4M) has already equaled nearly 50% of 2000's entire year (117M) and 75% of 1999 (81M)! Monitor the Russell 2000 as a broader proxy as well--small caps led us up, and they'll likely lead us down.

  • Fixed Income. As a long time dollar bear, I've been monitoring the greenback slack quite closely. With equities shrugging off the dollar squalor, however, the inherent devaluation "obviously" doesn't matter. John Succo has written some fantastic columns on the flighty plight of our currency and he hits the nail on the head that it'll matter--or, at least it'll start seeping in--when our bonds start reflecting those concerns (via higher rates).

  • Internals. The breadth of the market (as well as the ratio of upvolume to downvolume) is a running thermometer of the market's health. Rallies that aren't accompanied by advancers markedly outpacing decliners (or sell-offs characterized by losers swamping winners) are red flags that something stinks. Look for these (and other technical dislocations/non-confirmations) as shots across the bovine bow.

  • Overseas. While we're surely the horse that leads the global cart, we must always appreciate the intricacies of the global financial mechanism. Yes, there's been downside head fakes in the bourses and pacific rim but it's surely not something to ignore. Most recently, Japan (6%) and Brazil (8%) have gotten hit in the last two weeks and that's raised some furry brows. It's "nothing yet," we should continue to keep a watchful eye on the spinning globe.

  • Corporates. As Professor Reynolds has repeatedly reminded us, corporate bond spreads tend to offer ample warning of equity issues. The ol' joke (among bond guys, at least) is that the fixed income market is much "smarter" than their equity brethren and when it comes to flagging trouble, they might be right. Watch for potential widening of these spreads as the major fly in the upside ointment.

The current tape is meandering through the recent range and many oscillators (and technical measures) are in "no man's land." The powers that be--low rates, protracted stimulus, giddy momentum, intense optimism--certainly may continue as the laws of inertia often apply to financial instruments. Still, on the heels of a massive rally and against the backdrop of the largest bubble in history, it would be fiscally irresponsible to assume that past reflation is indicative of future elation.

If nothing else, please read the writing on the wall before stepping on the ride. That, of course, doesn't mean you can't enjoy the fruits of the follies, you've just gotta understand the ingredients that make up the minxy mix. Nobody said it was gonna be easy, my friends, but with a little luck, a lot of discipline and a lucid approach, we'll find our way to the other side.

Good luck today.

No positions in stocks mentioned.

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

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