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The Seuss Truce

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Yesterday's 2:30 spike smelled like a buy program into month end!

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You will come to a place where the streets are not marked
Some windows are lighted. But mostly they're dark.
A place you could sprain both your elbow and chin!
Do you dare to stay out? Do you dare to go in?


(Dr. Seuss)


Good morning and welcome to the jumpy hump. If April showers bring May flowers, a blossoming bliss may seem like a can't miss. With Hoofy flexing his green thumb the last few weeks, the seeds of hope have been firmly planted in the collective mindset. Will the long suffering bulls finally reap what they sow or will Boo do the voodoo that you knew he could do? It's Hump Day in Minyanville, boys and girls, so lets lose that yukka and grow some dough!

I often say that the only difference between mistakes and lessons is the ability to learn from them. That adage is particularly apt when discussing our financial decision making process. In early January, I penned the "Shim Sham" thesis when the S&P was at 850. In my mind's eye, I envisioned a head fake rally to S&P 870, a "Shim" to 805 and then a stiff, violent lift (the "Sham"). Looking back, it was a helluva call and if I stuck it out and traded it that way, you would have never heard about it again (not my style). The reason I bring it up, however, is that I failed to adhere to my own thesis and examining why may offer insights on how to improve the process.

I suppose, in hindsight, my time frames clouded. As a big picture bear, my concerns were (and are) numerous and well documented. What I failed to respect was the resiliency of hope and the potential for the structural shift. When the rubber hit the Iraqi road, the internal mechanisms were (and are) much less attractive than they were in 1991. The market is fatter (valuation), the sentiment is constructive (too many bulls) and we're (still) coming off the biggest bubble in financial history. It smelled like a bull trap and, while the market continues to impress, I still believe it is.

All of these concerns are valid but perception is reality in our business. At the time, the focus was on a quick resolution of the conflict and, in the process, expectations were ratcheted down. Bad economic news was given the free pass and that very same "get out of jail free" card was waiting for corporate America. Low and behold, the Minx offered some upside validation and, well, here we are. You may not agree with the action but we all know that in our business, the only right answer is the one that puts some jingle in our jeans.

As that was then and this is now, we're left with one simple question: Where do we go from here? The bull case is predicated on an improving fundamental backdrop and a more docile world. The bears will argue that the recent rally reflects a best case scenario and the Minx is ripe for an oops. The truth is, both camps have a leg... or hoof... or paw... to stand on and we must incorporate the potential for all outcomes as we craft our risk profile.

I hopped to work today with one leg in the fur and, when I arrived at the office, Boo was quick to point out the sagging dollar (broke the March lows) and the jump in I.I bullish sentiment (bulls 48.3 from 42.7, bears 29.2 from 34.8). Hoofy, who was lounging on the couch filing his nails, smiled smugly and didn't say a word. He knew that the Dow Jones and BKX were spittin' distance away from fresh breakouts (8521, 800) and his pals would be gunnin' for them. If (big if) they can manage to turn that trick, the vacuum of hope would likely suck in every available dollar (bearish).

Either way, we'll take our journey one step at a time and the truth will show itself given time. Watch the financials (Goldman Sachs (GS:NYSE)), the semis (Intel (INTC:Nasdaq) and KLA-Tencor (KLAC:Nasdaq)), the retailers (Wal-Mart (WMT:NYSE)), the breadth (been firm), the dollar (been soft) and the rest of the macro tells (gold, bonds, crude). And keep an eye on the volatility measures (VIX, VXN, QQV) both as a guide and for potential opportunities (stock replacements either way).

Keep your heads up and your hearts strong, Minyans, a positive attitude mixed with the proper perspective goes a long way. The rest of our lives starts right here, right now, so let's move forward and end this month with a little mojo.

Good luck today.

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