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The Magic Beanstalk


The tape jumps like Hakim Warrick!


I just jumped the watchman
Right outside the fence
Took his ring, four bucks in change
Now ain't that heaven sent?

(Grateful Dead)

It's been a nutty morning, to say the least, as there are a lot of moving parts in today's market. For the most part, the bulls are maintaining control after the gap higher and the noisy wires have begun to quiet down. As the emotion subsides and the tape settles in, truer themes will slowly emerge.

Thus far, Hoofy's heroes are holding fort as they encircle the bears. The dollar has held its bid (although well off its highs), crude and oil remain under pressure and equity breadth is a 3:1 positive (better in the NYSE). Our stateside tells are equally impressive as the banks, brokers, semis and transports all exert leadership. The flavor on the street, meanwhile, can best be described as euphoric and that begs the natural question: how long can it last?

I see the news that you see -- the war is "good," the SARS virus has (supposedly) slowed and the bulls are being given the benefit of the doubt. I'm unsure if this war rally will end on good news or bad but, regardless, I continue to feel that volatility is cheap (relative to the world, not historical values) and I've added some into this jig.

There are two primary ways I've traded this morning's tape. I used the early gappage to roll some option positions up (to higher strikes) and I initiated some new positions as a function of price. I've always been a fan of selling extended names as they approach resistance and there seem to be plenty of those going around. Yes, there remains upside risk to the market and I'm respectful of that. I'll always be honest with what I'm doing, however, and that's where I'm at. I think the market is too optimistic right now.

There's been a lot of reactive flow in the market today. Somebody, and I believe it was a mistake, put a bid underneath the Nasdaq "minis" that equated to 40 million QQQ to buy. That got the tape juiced early, but it has since been removed and the "leaners" got shaken out. The macro flow, meanwhile, is large and two-sided and the gorillas are surprisingly quiet.

Names I'm involved with? Financials (brokers and service names), consumers, industrials and retailers. I said a while back (and 100 S&P points ago) that I wanted to fade these names into the next strong lift and, well, here we are. I don't know if it's today's business but as I'm trading May paper, that's a moot point for the time being. My goal is to identify advantageous risk/reward and I believe one is setting up.

As always, I hope this finds you well.
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