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Lovin' Spoonful


Bring the noise!


So come on baby, squeeze me tight
Don't you want your daddy to be all right?
I said baby, now it's for sure,
I've got the fever, you got the cure

(Grateful Dead)

Good morning and welcome back to the downside snack. The ursine arrived in the 'Ville yesterday and crashed the Matador City soiree. With resistance above and demand below, they stepped up to offer some red quid pro quo. "The bovine were loud with smiles so wide," Boo said to his crew now beaming with pride, "and if this demand begins to subside, there's no place to run and no place to hide!" Is he one and done with his crimson fun or has the downside surprise just begun? We'll know soon enough as we get set to jump and ready ourselves for a hike up the Hump!

On Monday, while the Minx was enjoying an Andy Dufresne style breakout, I humbly offered that a short-term top was evolving. While Boo and I were spittin' into the technical wind (S&P and DJIA), a few flies in the upside ointment that were buzzin' in our ears. After a soft close and the requisite turnaround Tuesday, we now find ourselves sitting on S&P acne support (1218) with a four-letter feather (Xilinx (XLNX)) tucked in Hoofy's hat. And as I offered yesterday, today will be the true test to see if the minxy moxie is gonna pay off.

While we could debate the merits of Xilinx (vs. the Texan (TXN) two-step), I prefer to spend our time looking at the broader battle. The semis have been a dogfight as the hedge fund heroes stand in a circle and shoot for performance. I'm not currently involved in the sector but have been keeping close tabs on the action as a mainstay tape tell. SOX 420 seems to be the bovine line in the sand (double secret support and the right shoulder of reverse dandruff) and a breach of that zone will be problematic to say the least.

While the subsectors continue to hold clues (please keep an eye on the piggies, trannies, homies, cyclicals and small fries), there are bigger agendas in play. 2005 seems to be the year of monolithic asset class migrations and we've seen a fierce rotation of world class capital. Yesterday was yet another example of this dynamic as merchandise shifted away from the dollar, out of bonds and into the metals. All the while, and as traditional commodities continue to enjoy a parabolic frolic (CRB at 24-year highs), crude is testing a double top at $55/brl.

I have a few questions as we ready ourselves for a fresh fray. First, how will stocks react when the inevitable commodity pullback arrives? If the rising liquidity tide lifts all boats, the intuitive answer is that equities (soybeans, schnitzel, metals, Brazil) will all soften as the dollar bounces. With psychology as it is, however, you can bet that a chorus of "lower input prices are good for corporate margins" will try to spur the herd (perception is reality). I'm not sure on that one (yet) but wanna toss it on your radar so we won't be shocked when the decision making process arrives.

The other query is whether this light-volume pullback to S&P 1218 is textbook technical testage or something a bit more ominous. One of the reasons I put my right paw up was that I sensed the potential for yellow flags to fly as the hedgies jumped on the acne bandwagon. That adds to the importance of today's session as a break of this zone will remove the catalyst for alotta performance chasers. I am respectful of this level but will also remind the bovine that S&P (and DJIA) stochastics are toppy while NDX 1550-60 remains resistance.

We power up this Hump Day pup to find mixed bourses, a dollar that is dangerously close to dandruff and stateside futes that got all-of-a-sudden heavy. Please keep in mind that we've got a slew of mid-quarters on tap (Altera (ALTR) tonight and Intel (INTC) Thursday) and Beeks will soon arrive with macro moving data. Keep your head up, your eyes open and your thoughts positive. With a little luck and a lot of discipline, we'll find our way to another day.

Good luck today.


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