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Machine Parts


Trade to win. Never trade "not to lose."


Welcome my son
Welcome to the machine.
Where have you been?
It's alright we know where you've been

(Pink Floyd)

Good morning and welcome to the dark side of the moon. The Tuesday affair was a wing and a prayer that left the red Minx in need of repair. Despite the good news and giddy stock views, the bulls were the crew that went home confused. "What more do you want?" asked Boo nonchalant, "cause I've just begun my massive bear taunt!" Is it true (can it be?) a new Red Dye spree? Or will Hoofy and friends start a green jubilee? It's Hump Day anew in the Minyanville Zoo so let's take a sniff and see what to do!

We entered yesterday's fray with the knowledge that price would provide the final arbiter. If equities popped, it would "clearly" be a function of economic strength and strong earnings. Fail as it did, however, and the collective psychology focused on the inability of the market to react to good news. Thus the question is begged: Is this the "failing rally" that some have been looking for or yet another burp in a much bigger meal? I'm not sure, cookie, but for the first time in quite a while, the landscape is shifting under our feet.

The "story" yesterday wasn't necessarily earnings, in my view, it was the structural shift in the asset class allocation. Whenever you have 3...5...8% moves in sectors--in a day--it is potentially "telling." And despite the 13% pop in equity vol (VXO), expectations of future movement seems out of whack vis a vis what we're seeing in the world. Along those lines, we saw some gorillas "locking in" current vols (delta neutral) out to 2006 yesterday, something Professor Succo and I have discussed repeatedly in recent months.

One thing for sure, the trading antennas are standing on end as we power up today's pup. The retest of S&P 1150-1160 (and the pervasive view that an acne is a matter of time) definitely lends itself to the equation. That's the caveat of technical analysis--things are often 'better' higher and 'worse' lower--and with yesterday's (downside) breach of the S&P 50-day, some players have not only lost their catalyst, they were given a fresh signal the other way. Toss the piggy slaughter, spooky historical roadmaps and a little expiration nuttiness into the mix and, well, welcome to the machine.

Monitor the internals, BKX 98 (multiple 2004 support), SOX 500 and the cyclicals (CYC 680) as we edge unto the Hump. And please do me (and yourself) a favor--if you're an active Minyan, don't let missed opportunities usher in rash decisions. More often than not, those are emotional responses and place you at a natural disadvantage when trading. Just picture William Wallace to your left and Maximus to your right. And, of course, the critters will be right behind you.

Good luck today


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