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Of Traps and Cheese


Minnie who?


Good morning and welcome to the Hump. Yesterday's range did little to change the critter exchange that's now become strange. "You push and you pull and argue all day," said Sammy the Snake from the minxy buffet, "but try as you might and try as you may, you sway and you stray by the end of the day!" Will the slither continue and keep the tape mild? Or will Elmer's arrival usher in something wild? In an effort to "get it" and make some things clear, the critters all gathered for bagels and shmear. The convo went a bit like this:

Hoofy: Frooooomage anyone? That cheesy squeeze in the S&P's is a function of this morning's hostile Disney (DIS:NYSE) bid! M&A is back, baby, you're gonna tell me that's not bullish?

Boo: (scanning the floor) I smell a rat! And, just for the record, the collar stay and cuff link crowd was quite busy when the market pooped out the last go 'round. Comcast Holdings (CMCSK:NASD) pounced on a vulnerable mouse and is trying to use their stock as currency. Thassall...and I wouldn't be shocked if a higher Minx proved to be a trap as well!

Snapper: You don't need to make that call yet Boo--we've got Elmer taking the hill (and taking some heat) at 11am, S&P 1150-1160 resistance above, potential reverse dandruff in the short-term NDX (resistance at NDX 1515), lotsa nowheresman oscillators and, of course, a new round of rumortrage on the heels of the mouse print. Lots going on.

Sammy: (lookin' plump) Well, I don't know about you guys but I've been enjoying the recent sideways action. While the rest of you beat each other silly, I can sit back and collect premium (as options decay). Seriously, for all that chatter last week about "vols popping" (fear increasing), they sure got whacked in a hurry. In fact, the VXO (volatility index) broke last week's low!

Boo: (borderline denial and picking crumbs off his shirt) Another sign that traders are complacent and comfortable? Fat cats, fat snakes, fat bulls...I'm in the Twilight Zone diet!

Hoofy: Let's play devil's advocate. Last week, you pointed to the uptick in vols, the troublesome breadth, lack of leadership (semis and financials) and a disappointing Cisco (CSCO:NASD) report. Then, after slacking through a three day weekend, you chimed in that the payroll data was fugly and it did nothing to derail your sail. Don't you know that shruggy tapes are a sign of strength not ignorance? Don't rationalize, Boo, adapt!

Sammy: (mouth full) Hezgotta point brah. It doesn't seem like the best time to be a midget.

Daisy: (dabbing her chin) There's nothing wrong with short people as long as they remain disciplined. Besides, it's impossible to discuss a posture without identifying a time frame. Are we talking the next percent? Five percent? Twenty percent? I mean, honestly, if the Dow rallies to 11,000 and then trades to 9,000, who's right?

Sammy: The critter that makes money?

Daisy: Exactly.

Boo: What's your point? If you're gonna have style, have some substance to back it up Milkshake.

Hoofy: (irked) Her point, cookie, is that trading shouldn't be about who's "right" or "wrong" on a thesis, it's about who captures the moves and cashes in.

Sammy: He's right Boo--you may be spot on with your stagflation thesis, dollar Monopoly peg, the staggering amount of US paper in foreign hands, $3 of debt for every dollar of GDP--these are all valid concerns. Just be sure to frame your risk profile such that it overlaps with your time horizon. One doesn't help you without the other.

Boo: Understood. A little factoid for ya'll before we get rollin' though. The S&P futures closed higher four straight sessions into Elmer's Sadie Hawkins speech. That's only happened once before (Feb.'99) and, if form holds, an early move towards S&P 1150 could turn decidedly lower. That's from Minyan Jason Roney and, as you'll soon find, he's pretty sharp.

The critters sat back and digested the litany of information. After a long pause, Daisy broke the silence. "I'll tell ya, this animation space is hotter than a summer sidewalk. It's too bad that we're not cartoon characters living in an animated community. Now THAT would be something!" "Keep dreaming," said Boo as he got up from the table, "because you sure do have a vivid imagination!" As do we all.

Good luck today.

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