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The Saucy Béarnaise

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IF (big if) they're gonna rally, they HAD to test the downside first.

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She will promise you more
Than the Garden of Eden
Then she'll carelessly cut you
And laugh while you're bleeding


(Billy Joel)

Quick, somebody call Lili Von Shtupp--all we've seen this morning is traders coming and going, coming and going and coming and going! Indeed, my flow indicators are filled with hedge fund traders moving blocks of QQQ and SPY back and forth but there are obvious commitment issues. Vat are ve, a bunch of wabbits?

Themes this morning include softness in software, weakness in the consumers, slippy semi-caps, a drubbing in defense, cynical cyclicals, dry financials (thus far) and firm pharma. The bulls were sure to defend BKX 700 the first test--it's that important--and I'm watching Citigroup and Goldman for signs of slippage.

There's been a fair amount of chatter about yesterday's TRIN reading (over 3) and the fact that the last ten times that happened, it led to a bounce. This is Tony territory and I'd like to hand the baton to him on this one. He's done some great work in this regard and, hopefully, he'll address this in his next piece. Am I acting on this signal? I'm respecting it--and while I continue to trade around a short bias, I'm not pressing per se.

I've also been giving a lot of thought to the "war trade" and while I have my inclinations, I don't sense that I'm gonna make a big bet. We work too hard for our profits to blindly throw exposure on the sheets and the Minxy reaction to the first bomb is conjecture at best. That's not to say I won't trade--I'm just saying that there are a lot of variables involved and I've seen marbles with more of an edge. My tactical strategy is to identify advantageous risk/reward and deploy my capital effectively. I can't justify losing money because my "feel" was that the first trade is down.

With that said, I continue to trade around my April put positions and augment my profile with intraday exposure. When the ball revolves and the nighttime calls, I plan on any overnight risk being super-defined such that I can sleep. You never want to be in a position of vulnerability by being one news item away from failure. Our goal, again, is to be in a position to proactively trade when we've "got something" and exhibit the discipline to sit on our hands when we don't.

In any event, that's what I'm thinking and how I'm trading. I'm gonna hop and wrap my paws around this "test" lower. Yes, I've still got a paw in my fur as my risk profile dictates that imagery and, of course, I'll let you know if that changes. Oh, one more thing--please email Fokker@Minyanville.com if you've got an interest in the March 23rd College Hoops Minyanfest. I'm eyeing a place with a bunch of pool table, televisions and taps--I just want to make sure that I've secured enough space.

As always, I hope this finds you well.

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