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The Thickening Plot


"Tickle Me" Tuttle is deserving of a Monday sashimi-fest!


Good morning and welcome back to the critter shack. After Sammy's swift gift (and a week long slow drift), the Minx powers up for a spankin' new shift. The come hither slither might have served to confound but Hoofy is certain the tape will rebound. "Just look at the base on the Dow and the Spooz," the dapper bull said as he thumbed through the news, "I might have been dinged by a four-letter bruise but I pity those fools in the furry Boo shoes!" Will the bovine fight back with an upside attack or can Boo's motley crew whack them back with a smack? It's a fresh new five sessions of critter obsession so let's settle in now and make an impression.

The great debate, while constantly shifting, seems to boil down to one simple question: Are we in a de-facto sweet spot of stimulus and liquidity or is the year long rally finally showing legitimate signs of fatigue. To be sure, a quick check of the S&P (and Dow) provides a graphical illustration of a sideways basing pattern akin to last summer. The former has been firmly entrenched between S&P 1120 and S&P 1160 while the latter is in the Dow 10,400 to 10,750 zone. The financials remain strong, housing and biotech look to have acne and IF Hoofy can rally through those ceilings, the bears will lose one of their big paws. That's the bull case.

The differences between now and last summer must be noted, however, as we edge into March. The first (and most obvious) discrepancy is the non-participation (or confirmation) from the tech sector in general and the semis in particular. While it may simply be yet another case of intra-market rotation (into more "stable/boring" sectors), the NASDAQ is mired in a series of lower highs and lower lows. Until that trend is broken--and it IS a trend--the bulls must respect the lethargy. From a technical (and trading) perspective, it's really that straight forward--watch the band width, monitor the breadth (leadership sectors) and respect the laws of supply and demand.

As traders duke it out in the pits, the big picture battle is starting to heat up as well. After a few years of deflation fears, the inflation crowd is now screaming for attention. They've got a point, I suppose, as a lower dollar and rising commodity prices make a pretty toxic combination for the investing and consuming public (particularly if they're unemployed). I was in the deflation camp until Elmer super-sized his printing press and starting minting fresh greenbacks. For what it's worth--and I'm not sure what that is--I joined the (minority) stagflation crew last year and continue to believe that's where we're heading. Think about it--sluggish economic growth, a high rate of inflation and unemployment. When the stimuli hits fume status, I believe that this scenario will come into increasing focus.

A bit broad for a Monday morning, I know, but as the weekend press picked up the tug-o-war, I figured I'd weigh in with my vote. After a relatively slow five session span last week, we'll gain some clarity and vision as we edge into this fresh set. The Morgan Stanley semiconductor fete kicks off today and the chatty chips (and the Street reaction to them) should help set the tone (please note JP Morgan's group boot this morning). Further, for those looking for action, Xilinx (XLNX:NASD) will update their quarter tomorrow, Disney (DIS:NYSE) will take a vote on Wednesday and Lehman will host their annual healthcare conference March 3-5.

In a housekeeping item, the 2004 passport rates will take effect this afternoon. Annuals (who have expired) and monthly Minyans (who have enjoyed introductory rates) must choose to "opt in" or "opt out" of the new and improved Minyanville format. Please note that (expired) annuals must go into their "manage account" section (on the left tool bar) and convert to a monthly passport if you wish to continue to chill in the 'Ville.

Good luck today.
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