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Crunch Time!

By

Prayers to those suffering in Spain.

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Good morning and welcome back to the swarming. After yesterday's melt and the pain the was felt, Hoofy now must take stock of the cards he's been dealt. He was a big klutz from the soup to the nuts but if he's to live, he'll have to show guts. Can he suck up his pride and stop this fast slide or are he and his brethren about to get fried? It's Thursday anew in the city of critters so settle on in and let's shake off those jitters!

If a broken clock is right twice a day, there have been some serious malfunctions in young Boo's timepiece. It's been a year (to the day) since Hoofy and his beleaguered brethren turned their frown upside down but, once they did, they never looked back. Indeed, the 365 day gigglefest deflated the wallets, ego and mojo in Red Dye Junction and the obvious question on everyone's lips is whether their time has finally come.

Now, I'll be the first to admit that I was too cautious throughout the lift but, with that said, we were fortunate enough to flag the divergences and non-confirmations early last week. That was the biggest (albeit subtle) clue that something was amiss and as such, Boo would have his best chance in a mighty long time to do some damage. Sure enough, he's jack hammered trendline after trendline and officially put Hoofy on his heels. Now he's gotta finish what he's started.

With the techs down almost 10%, the angel on Boo's left shoulder is starting to whisper caution. "The Nazz stochastics are gettin' pretty oversold, the TRIN is screaming for attention (closed above 2 for two straight days for only the sixth time since October '01 and the following two sessions were higher 67% of the time), the banks remain above important levels (BKX 995-G-Spot is a convergence of support) and the VXO (volatility index) is now up 31% since Monday (and at its 200-day moving average)!" All good points, I suppose, and certainly factors in our trading brew as we trudge ahead through the muck.

On the other side of the head and shoulders, a pitchfoked pessimist is not havin' it. "This market has broken more trends than the '70's, my man, and while there was certainly an uptick in vols, they've now broken out above VXO 18. Further, the put/call has been ho/hum as investors seem more inclined to ride it out than hedge their doubt. That doesn't bode well for the Hoofster and until some of the dip shtickers turn to wound lickers, there should be overhead supply."

That's the near term battle that will be fought in this morning's trenches. From a broader perspective, there are some serious pricks floating around--and with so many bubbles inflated, that's a recipe for potential poppage. I have a few random thoughts mulling around my head and, well, I'm just gonna toss 'em out there 'cause they've been nibblin' at the backs of my eyelids.

  • If the global economy is so strong, why is the ECB (and Canada and...) talking rate cuts? This Minx has had more stimulus than Barry Bonds but we're still in clip rather than rip mode?

  • If the psychology bubble is in the biggest trouble (as I humbly believe), what will turn the tide? Surely lower prices will ding it but is there something out there that'll splat it? Will it emerge during a vicious and nasty electoral battle? Could it have something to do with the rumblings (and finger pointing) between CIA director George Tenet and the White House? Surveys suggest that current optimism is higher than it was during the bubble peak and there will be a point when the momentum pops.

  • The Transports (Dow theory) and cyclicals (recovery thesis) don't bode well for the broader tape but, as it stands, the banks are the last bastion of hope for the bulls. They encapsulate liquidity, (relatively) tight corporate spreads and "system smoke" concerns and as long as they "hold," Hoofy has a shot at the golden pot.

  • I don't see any "discernable" S&P support until S&P 1050-1060

  • The stochastics and other overbought measures were seemingly perpetual during the rally. They can certainly act the same way on the other side of the field.

I've got an entire head full of thoughts (shocker, right?) but in the interest of keeping this column relatively digestible, I'm gonna tie it up here and ready for the opening bell. Remember, Minyans, past support is future resistance so S&P 1125, NDX 1450, SOX 495 should be on your trading radar along with breadth and the internal measures (TRIN, put/call). And think positive, Minyans, while keeping it in perspective. There are 131 families out there that would give anything in the world to switch shoes with you.

Good luck today.


R.P.

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 todd@minyanville.com.

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