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Corporate Policy


Just another day in paradise!


Company, always on the run
Destiny is a rising sun
I was born six gun in my hand
Behind the gun I make my final stand

(Bad Company)

Good morning and welcome to the friendly bend. With yesterday's smile (and some bovine beguile), the bulls won the race by a long country mile. "Say what you will 'bout the low volume drift," said Hoofy after the sharp Monday lift, "but the downside is slow while the upside is swift so why not enjoy this Minxy green gift?" Will Boo once more take some heat on his chin or will he reach deep and gain strength from within? It's a spankin' new session of critter obsession so put down that fork and let's make an impression!

It's no coincidence that the S&P is knocking on resistance while the VXO (volatility index) is probing support. The correlation between the two is well documented and chances are that if the S's impress, the vols will undress. Further, we know that the more times support (resistance) is tested, the more demand (supply) it'll eventually chew through. That's part of the reason big levels tend to hold the first test but become more convoluted with each passing try. Case in point, Fannie Mae (FNM:NYSE)--think what you will of the stock, but odds were that $75 would hold the first press.

I mention this mechanism as we edge ever-closer to the much discussed ceiling and nerves begin to fray. In an environment where there are more hedge funds than stocks (and they're all focused on the exact same chart), these levels have a way of playing mind games with the Minx. There's surely a plethora of "buy stops" set directly above the top of the channel and everyone knows it. That, in a nutshell, is the rally cry from Matador City--if they can just trigger those orders, they believe, they'll have the bears tripping over themselves to cover (thus providing a bid to sell into).

The game, for lack of a better word, gets tricky when traders reach for the stars. That happened the last go 'round at S&P 1160 and the bulls had 25 handles to digest their purchases. Again, each test makes the ceiling (floor) more fragile and prone to cracks so past probes are no guarantee of future failures. And, to be fair, the housing stocks (HGX), financials (BKX) and breadth are supportive to a bovine climb. The missing elements to the equation are the muted volume and laggy techs. In fact, the NDX closed yesterday's session AT its 50-day and the top end of its (down) trend channel--not a coincidence given where the other major averages are.

To add spice to the already crowded mix, the potential for a false breakout has a higher probability than during other junctures we've endured. Why? The supportive elements (which no longer "matter") are dancing in the red zone and have been for some time. That doesn't mean it'll happen, obviously, but the potential for trap doors increases when A) everyone is looking for the rally (bulls > 60%), B) complacency is a given (VXO) and C) negative divergences exist. Yes, we'll cross that bridge when (if) we get to it as the rally has been (and will remain) a function of liquidity. One thing for sure, however--when Elmer finally runs out of ammunition, the last bullet will be pointed at himself (or Franklin Raines, as the case may be).

We power up this morning to find Europe mixed (FTSE is pink), the metals a touch lower, the greenback gettin' some and the stateside futures flat. After a strong (weak) day where the averages close on their highs (lows), we should expect a probe in the prevailing direction. With the fundies (and world) relatively quiet this morning, the technical metric will once again take center stage and mold psychology. Watch the breadth, leadership, levels and listen for volume. And think positive, Minyans, it all starts within.

Good luck today.


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