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Of Ropes and Dopes


Stochastics aren't timing instruments...just remember how twisted they got on the upside!


It was later than I thought
When I first believed you
Now I cannot share your laughter
Ship of Fools

(Grateful Dead)

Good morning and welcome back to the trading track. Yesterday's brawl was more like a crawl as the critters prepared for the big Cisco call. When Chambo spewed on about the new dawn, a sparkle emerged from those once withdrawn. "Get out of the way," I could hear young Boo say, "and get ready to dance at the ursine soiree!" Is it true--can it be?--a Red Dye jubilee? Or will the bears again twist from a branch on the tree? It's Hump Day anew at the Minyanville Zoo so settle in now for our minxy review!

The Cisco disco (CSCO:NASD) danced the expectation limbo last night and, by all accounts, beat the numbers on both sides of the line. As trading is the conceptual disconnect between perception and reality, however, investors were clearly punk'd by the tone of Sir John. "The majority of our customers are cautiously optimistic but more conservative on capex (capital expenditures) and hiring than you would expect at this stage of the recovery." Coming from a guy who was "well positioned for the inevitable recovery" of the "show me" economy, it's no shocker that traders raised an eyebrow and cocked their shotguns.

This, of course, sets the stage for Friday's massive orange crop report. With the Democrats circling the soup kitchen and gaining traction in the polls, the specter of political uncertainty is starting to seep into the collective mindset. I'm not offering my opinion in this regard--although I certainly have one--I'm simply stating that as early as two weeks ago, the notion of a legitimate challenge to Dubya was deemed absurd. The markets hate uncertainty and with the psychology bubble fully inflated, we must remain vigilant in our efforts to identify a potential prick.

It would be ironic, I suppose, as most everyone is pointing to the election as the backstop for the bulls. Hoofy, of course, will argue that employment is a lagging indicator and Elmer proactively positioned himself with last week's ominous omission. And, to be fair, robust payroll data would likely trigger stochastic buy signals (cyclicals, semiconductors), quiet the critics and squeeze the bejezus out of the bears. This is the crux of our trading dilemma and, as always, we must always appreciate both sides of every trade.

First things first, we have two full sessions before we hit the citrus and further data points warrant discussion. The above mentioned stochastics (not timing indicators) are "out there" and those, coupled with support below (S&P 1115-1120 and NDX 1450), are the rally cry. On the other paw, Boo reminds us that we had a somewhat rare "outside down" signal in the S&P last week and that's pointed to lower prices every time it's happened (5 for 5) since 1997.

I'm gonna take my read and lead from the frisky financials (struggling at BKX 1000), internal breadth (tremendous intraday read), saucy semis (sitting on double secret support), retail (crowded), the Generals (GM:NYSE, GE:NYSE), internets (been heavy), biotechs (threatening acne) and the trannies. I also wanna play close attention to the "hot" telecom space for signs of slippage/traction in the face of a crimson Cisco.

We power this morning to find Europe (marginally) lower, the dollar flattish and the heavy metal flirting with $400. I would think that Snapper tries to rally the troops early but if he can't convince the masses (read: breadth), the plot will thicken. We've been in this theater before, Minyans, and while the movie may have a happy ending, I'll be more comfy with a seat by the door. Watch your tells, remove emotion and above all else, think positive. It all starts within.

Good luck today.

Note: Professor Brodsky is experiencing technical difficulty and will post as soon as he is able.

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