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Monday Morning Quarterback


...corrections, by definition, must feel like "something more" in order to be effective.


I told Althea I was feelin' lost
Lacking in some direction
Althea told me upon scrutiny
That my back might need protection

(Grateful Dead)

Good morning and welcome back to the flickering pack. We power up our weekly pup with great expectations and mixed emotions.

On the one hand, it was a fantastic weekend of trippy tunes as Bobby Weir played his heart out at the Beacon. Anytime I hear a set-list that includes Cassidy, Hell in a Bucket, Lovelight, Friend of the Devil, Althea, Scarlet Begonias, Dark Star, One More Saturday Night, Gloria and Brokedown Palace in one sitting, it's hard to feel slighted in terms of weekend enjoyment.

And then, of course, I woke up this morning to find that Syracuse is the first team in Big East history to win ten games and be jilted by the big dance. It could be worse, I suppose-my Raiders could be the worst team in the NFL-but it's a sour patch during a sweet spot for sports fans.

What to do? Shift my focus to the tape, I suppose, which is what I'm now gonna do…

Last Monday, as the market was hugging the flat line, I humbly offered that a three-point plan was resonating in my crowded keppe. It called for a heavy close (got it), a wire-to-wire Turnaround Tuesday that closed on the highs (got it) and then a resumption of the supply (stay tuned). To that end, and in an effort to help Minyans visualize my process, I slipped two legs in my metaphorical fur (50% conviction on the short side) into the teeth of Thursday's rally.

The downside "catalysts" are seemingly old hat. There's the sub-prime mess, with chatter of the imminent demise of New Century Financial making the rounds. To that end, there's been a big "defense mechanism" in play, assuring investors that the sub-prime space is a pimple in the broader financial complexion. And it might be, although I will offer that in a finance-based, globalized economy woven together with hundreds of trillions of dollars in derivatives, the potential for contagion must be respected.

There are other culprits as well. The Yen Carry Trade has become all-of-a-sudden popular, although there are alotta folks offering that this too is a non-event. I'm far from a currency expert but my sense is that this is serving as a proxy for liquidity in the absence of M3 (money supply). And as liquidity has lifted all asset classes (at the expense of the dollar, which is off 30% since 2002), we gotta keep our eyes peeled for the other side of that trade (lower asset classes including commodities, higher dollar).

Hoofy, our resident bull, is quick to offer that corrections, by definition, must feel like "something more" in order to be effective. That, if everyone believed it was simply a requisite and necessary rest, the cleansing wouldn't be pure. He's right, of course, although I'll again offer that we could still be in the midst of the denial process. Remember the "duct tape low" in 2003? It's been a long time since we've seen despondence on Wall Street and it will serve us well to remember that the news is always best at the top and worst at the bottom.

We've got alotta earnings coming down the pipe this week (including the all-important brokers) and a massive expiration on Friday (look for cross-currents midweek). With regard to the former, I'll remind Minyans that earnings in the financials are rear-view (and they trade forward looking) and, in terms of expiration, my exposure is of the out-month variety. As for the fur, I'm operating with a "mental stop" above S&P 1415 (BKX 116) and I'll look to roll that lower should S&P 1400 morph from current support to near-term resistance.

Good luck this week, Minyans. Let's hit 'em hard.

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Position in financials
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