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Nesting in Newport


Fifty bucks to fill up the gas tank? Oofa!


Good morning and welcome back to the summer shack. In the seasonal vibe and in search of some rays, the critters set course for a short restful phase. They traveled due north to a place by the sea where they frolicked about, ran wild and free. When Monday arrived and the tape (gasp!) stood still, our favorite clan gathered high on a hill. Over a large buffet brunch and a few bloody drinks, the convo eventually turned to the Minx. The chat went a bit like this:

Hoofy: (wearing a blue preppy sweater over his shoulders and pointing to the regatta) Hey Boo, you notice all of those sailboats traveling in the same direction? That's what is called "riding the tide" and going with the flow. Please pay particular attention to the collective philosophy--they're letting nature set the course and navigating the crosscurrents with a simple nudge of the rudder. Do you see where I'm going with this?

Boo: (dressed in a tie dye because, well, he's a non-conformist) Yeah bro, and have you ever seen Dead Calm? That's the movie where Nicole Kidman and her husband are enjoying a leisurely sail and despite purely benevolent intentions, their lives are forever altered by a freaky series of events. I've got the DVD if you wanna brush up on your analogies.

Snapper: (lounging on the lawn and taking in the view) But didn't Nic and that lucky duck live happily ever after despite some rough waters? Look at the facts--the financial markets ripped higher last year on the heels of an improving economy and in the face of doomy gloomers like yourself. And despite some overtly bearish evolvements--rude crude, geopolitical uncertainty, rising rates and decelerating earnings--the Minx, for all intents and purposes, is flat for 2004. If this is the "one step back" then I, for one, am looking forward to the next three steps forward. And we may not have to wait long--history tells us that the Dow averages a 2.9% gain during June of election years. Wasabi!

Sammy: I agree that the momentum shifted back to the bulls after the Red Dye try failed to breach some important technical levels. But this election year is distinctly different from political pow wows of the past. We all see it--now we just gotta figure out if it's a massive wall of worry (which is how most are positioned) or tangible cracks in a foundation no longer supported by multifaceted stimuli.

Hoofy: But doesn't the first 10% correction in a rally typically occur 60% through the cycle? If that's true, we should be kewl through November.

Sammy: One of two scenarios are unfolding, Hoofy, and you should be aware of both. We're either back in mo'mo mode after the recent downside retracement or the bi-polar reversal from hate to great was a Pavlovian response that served to irradiate the short base. The mojo clearly shifted--and quickly--and the bullish bravado got proudly loud. All you gotta do is take a gander at Tuttle's goose this morning--he paints a very clear picture of the current technical landscape.

Boo: And let's not forget that many of the measures that preceded this past pop were short-term and trading oriented. There was a fair amount of technical damage done to this tape and some very respected folks--while allowing for a bounce--had dynamic shifts to their intermediate term view. It's human nature to focus on risk in a heavy tape and reward in an upside phase but be wary of Kool-Aid stands in the hot summer months.

Daisy: (sun dress and barefoot) We should get some data this week which will help us discern the churn. Mr. Beeks swings by Tuesday (construction spending (exp. .4%), ISM manufacturing (exp. 61.5, prices paid 89.3)) and will then drop off the mongo crops report Friday (payrolls). In between, there is a much anticipated Intel (INTC:NASD) mid-quarter update (expectations are above average) and a host of other company specific situations. If you wanna full menu, check out Collin's trading radar--it's fabu.

Sammy: True, true. In the meantime, as we wait for the chapters to slowly unfold, I'm gonna continue to key off of the financials (BKX 98 is pretty important), breadth (best intraday tell), volume (confirmation), semicaps (tech tell), the Russell 2000 (small caps=liquidity) and the cyclicals. Keep in mind that lotsa folks are taking the vaunted four-day weekend and, as such, volume today may be more muted than usual.

The critters watched the sunshine dance on the water and let the moment sink in. They knew that the next week was gonna be busy and, perhaps more importantly, that the world was a dangerous and scary place. If something good indeed comes out of everything bad, then the global tensions served as a reminder that we should be thankful for every moment we have. For if tomorrow is promised to nobody, it's up to us to make each day count.

Good luck today.

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