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Morning Story


I wish this weather would make it's mind up!


Good morning and welcome back to the fluttering flicks. Yesterday's snoozefest was much ado about nuttin', honey, as the Minx evidently wasn't told that the long holiday weekend had ended. After an initial blip and subsequent dip, the tape settled into a five handle range that was as exciting as Fokker on a first date. Will today's traders get luckier than our aforementioned nurse or is another spanking in the cards? Saddle up, settle in and simmer down, Minyans, it's a new day of fun and games!

We power up our systems this morning to find a mixed (to lower) Europe and the Nikkei down a deuce. The SARS chatter continues to dominate the Pacific Rim headlines as China's reported infections surged 43% (and its death rate by half) in the last three days (Bloomberg). The economic impact in that region is immense (both commerce and tourism) and, as Japan and Hong Kong struggle to find their footing, we should , at the very least, remain aware of the developments.

The dollar also stands out as well, as the DXY (dollar index) is down almost 1%. Our trusty greenback has now violated the late March lows and has set its sights on the pre-war lows (just under 98). Again, there are a lot of balls in the air these days, but my humble sense is that the dollar will tell the tale on many different levels. With the structural metric playing such an integral role for equities (allocation rotation), we need to monitor this currency regardless of what market we're in.

On the fundamental front, aggregate earnings have to be considered a relative uptick. A few weeks ago, we were pondering whether corporate America would use their free "war pass" to explain away their lethargy. Granted, many of these reports met guidance that was already lowered but, in a world where perception is reality, the bulls embraced these releases. Now -- and this is the wildcard -- time will tell when perception shifts from the "OK" earnings to the historically lofty valuations that are dependent on a second half pickup (again).

Technically, the recent pattern of higher lows and the longer term pattern of lower highs continue to eye each other at the pass. Every Saturday, when I open Barron's to Michael Santoli's excellent column, I eyeball the three charts that he features. The first thing that jumped out at me this past weekend was the consolidation/triple tops in each index. My initial reaction was that these tops need to be taken out (to suck in the last man standing) before a more meaningful slippage can occur. When everybody is using the same levels (S&P 900-905 and NDX 1085-1100), they typically don't work (especially in a bear market). However, as we entered the new week and most everyone I spoke with expected the breakout, it made the pattern more difficult to game.

In morning research, JP Morgan downgraded Intuit (INTU:Nasdaq); Smith Barney dumped Alltel (AT:NYSE) and raised numbers Lexmark International (LXK:NYSE); Morgan Stanley kicked Arkansas Best Corp. (ABFS:Nasdaq); UBS Warburg downed Capital One Financial (COF:NYSE); CS First Boston upgraded Netegrity (NETE:Nasdaq) while downgrading Pioneer Natural Resources (PXD:NYSE), 3M (MMM:NYSE) and Cheesecake Factory (CAKE:Nasdaq); Goldman downed Mack-Cali Realty (CLI:NYSE); Prudential dumped Royal Dutch Petroleum (RD:NYSE) and, finally, Lehman booted American Electric Power (AEP:NYSE).

I enter this morning's action with one leg in my metaphorical fur and my right hand up. The crowded long side and depressed volatility is enough to keep me dressed as I find my way. My strategy, as it stands, is to hold a smattering of out-of-the-money puts (financials) and augment my risk profile daily via day trading. Most importantly, if I don't "see it," I don't want to force it. Patience and discipline will eventually usher in opportunity.

It's a new day, fresh with promise and filled with life. Take a deep breath, find you groove and let's get some Tuesday mojo rocking. Bear markets, by definition, weed players out by hook or by crook. Take your time, understand that it's gonna be a long road, and settle in for the ride.

Good luck today.
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