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Hang on to your Hat!

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This market has more cracks than a plumber's convention!

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Sloopy lives in a very bad part of town
And everybody yeah, tries to put my Sloopy down
Well, Sloopy I don't care what your daddy do
Cause' you know Sloopy Minx I'm in love with you


(The McCoys)

It's another brisk morning in the city of critters and the entire Menagerie has gathered in my office for our daily chat. Hoofy seemed particularly concerned as he watched the pre-market futures as he knows S&P 840 is that important. You could cut the tension with a knife and, as I unwrapped my bagel and schmear, I listened in on the conversation.

Snapper: Dude, relax...markets don't typically break down when they're this oversold. The bears are pressing this level 'cause they know the technical crowd will pull the cord if we break it. Remember, Hoofy--sell hope, buy despair!

Boo: (walking over and pulling a slab of salmon off my bagel) Despair? I agree that the market is oversold--I'll give you that. But remember, Slapper, oversold conditions tend to persist in a bear market. And...it's not like people are freaking out--the VIX barely moved yesterday!

Daisy: (rubbing Hoofy's shoulders) Right, Boo, the market will do what hurts the most people. With traders getting comfy fading rallies (gives me stern look), one of these upside trades is gonna stick and clip the claws of the ugly ursine!

Hoofy: (staring at the futures and bumming) Yeah...the B.O.E cut rates this morning and WMT guided higher (above consensus)--and nobody cares. This sucks.

Sammy: The thing is, Hoofy, everybody's focusing on the geopolitical mess. North Korea is talking about a pre-emptive strike, the looming war with Iraq is freaking people out and, to top it off, France, Russia and China have chosen not to support us (as of now). It's messy...and it's spilling over into the market.

Boo: Don't forget the technicals, Sammy--all of the major averages have cracks in the foundation. The NDX and SOX have head and shoulders while S&P and BKX broke support. To top it off, the recent sideways churning occurred under support and, historically, that's a bad sign!

Daisy: Don't go popping the champagne corks yet, Boo--we've got an entire session to trade and there's air pockets both ways. I'm gonna watch the financials for any signs of traction as they're the most important complex . AIG put the kibosh on the group but they're trying to hold in--and as the banks go, so goes the market.

Sammy: I agree Daisy...I know Toddo's got one leg in his metaphorical bear costume and he's gonna key off the financials (Citigroup), the retailers (WMT), the horsies (CSCO, MSFT), the dollar and the internals. If his silly Shim Sham thesis plays out, this is part of the hard sell-off that will precede the stiff lift. The trick, as you guys know, is trying to ascertain the timing of such a turn. No small feat!

Snapper: Yeah, we'll I hope it happens soon man...these spankings are starting to hurt my toukas! I'm going to spend some time trying to get those stochastics to kick in--they've been coiling for a while and the longer they pretzel twist, the more vicious the move (the other way). It's, as you say, a timing issue. I'll tell you one thing--if we break S&P 840 and suck the bears in, a Snappa would catch everyone looking the wrong way!

I continued to listen to the debate and nodded my head in agreement as I wiped the cream cheese off my chin. They all made good points and I knew that, as a trader, my job was to assimilate the various crosscurrents and factor each of them into my tactical strategy. With the market this whippy and the near-term so cloudy, discipline and patience remain our staunchest allies when trading. And in this environment, we need all the friends we can get!

See you after the opening.

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