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ZZ Top?

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My time will come -- I just have to make sure I'm in a postion to be aggressive when it does!

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H to the izz-O, V to the izz-A
Fo' shizzle my nizzle used to dribble down in VA
Was herbin' em in the home of the Terrapins
Got it dirt cheap for them

(Jay Z)

The I to the ISM non-manufacturing report hits the wires at 50.7 (vs. expectations of 49) and the equity knee-jerked higher in response. My contacts tell me that alotta fahginas, er, futures were offered into the poppage that quelled the initial rally. We've started to settle down a bit and as the tape grinds higher, I wanted to share some quick thoughts.

The all-important banks are fluttering a bit but after the recent rippage, that's not a shocker. As long as the BKX holds 800, it's game on for the bulls and their breakout game. Some smart fellas I know are looking for the brokers (XBD) to "confirm" the financial follies and that would occur on a move through XBD 465. Overall, the early morning breadth is constructive as winners are trumping losers 9:5.

The dollar (once again) acts heavy and that, in a nutshell, is the bear case. It's bad -- but it won't matter until it does. In the meantime, the Minxy musical chairs continues and traders are dancin' to the beat. Watch S&P 935 as the first upside level followed by S&P 942. In Dow land, DIA 86 confirmed the breakout and IF (big if) we're to "blow off" higher, is the latest to develop acne.

My initial thought, as alluded to this morning, is that the potential for further blow off exists before the people all say roll over. How am I playing that? I'm using rallies to scale into out-of-the-money puts and renting upside exposure intraday (with tight stops). This way, I can (hopefully) participate if (big if) the upside continues, but I've defined my risk if it does not. Furthermore, I am putting myself in a position to use price to my advantage and accumulate volatility at (what I perceive to be) advantageous prices.

For new readers, please understand that this column doesn't constitute advice -- this is an educational site. I'm simply sharing my process with the hopes that it adds value to yours. Either way, we hope you dig our humble little town and please make sure to swing by Main Street on your spare time. The critters have been working diligently and we think you'll like the results.

Fare ye well!

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