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A Tale of Two Tapes


Rolling stops and defined discipline allow any critter to play their hand without making a stand.

"As to what I dare, I'm a old bird now, as has dared all manner of traps since first he was fledged, and I'm not afeerd to perch upon a scarecrow. If there's Death hid inside of it, there is, and let him come out, and I'll face him, and then I'll believe in him and not afore. "

--Charles Dickens, Great Expectations

Good morning and welcome back to the summer shack. After two weeks of snoozin' to start off the season, it's time for our chime to add rhyme to the reason. The weather is hot and it's making some sweat, a feeling that festers with upside regret. "With quarter-end looming and tensions so high," said Hoofy the bull to his friends in Red Dye, "I simply don't see alotta supply as we edge through the dew on our way to July." Will the bovine opine that everything's fine and crown a new king to the Matador shrine? Or can Boo and his crew step up and define a short-side attack that's designed to malign? We'll know soon enough as we step from the grill and roll up our sleeves for a romp in the 'Ville!

We often opine that there's a bull market and bear market in play each day and the residual grist is what defines the price action. That's been readily apparent in the June drama as Hoofy and Boo have fought to a virtual draw. We opined a few weeks ago that the best case scenario for the bulls, on the back of the late spring rally, would be a rolling rotation (S's over N's) that served to alleviate the overbought tech condition as a function of time (rather than price). That's what we're seeing and we must respect (not defer to) the seemingly strong path of least resistance.

Of particular note is the inability of the bears to pounce on some bovine inconsistencies. The dollar, for starters, has been stronger than a mule's breath and we're seeing the same equity rationalization (demand for US-based assets) as we did when the greenback had slack (which helped US multinationals abroad). Ditto for the rate debate, where anticipation of the last out fueled the recent fires of frenzied desire. Elmer put that discussion to rest last week with his measured pitch but Boo left the bat on his shoulder and couldn't swing sentiment.

There is, of course, the risk that we're being lulled into a false sense of security. Only 20.9% of those polled in the latest Investor's Intelligence poll lived in Red Dye, a scarcity unseen since late December 19, er, 2004. That was a tough time for the bulls, if memory serves, and a painful reminder that risk is a two-sided equation. When coupled with the compression--as evidenced by VXO 11 and as a function of 8000 hedgies pressing for performance--a very visible, if not fully appreciated, warning label must be affixed to any upside equation.

So where do we stand? Potentially in the eye of a rather volatile storm. The upside argument is a combination of structural forces with the added spice of an improving technical landscape. The downside dilemma is that we're stuck somewhere between stagflation and deflation, dependent on debt and desperate for return. The one constant, at least from where I'm sitting, is that each day draws us closer to an inevitable and unenviable date with our downside destiny. Whether there's another (potentially vibrant) lift before we shift is the task that we together share as we truck through the muck.

We'll get fresh clues this week as we hear from the wizards of Wall Street (Lehman on Tuesday, Bear on Wednesday and Goldman on Thursday), enjoy breakfast with Beeks (PPI on Tuesday, CPI, Inventories, Industrial Production and Capacity Utilization on Wednesday, Philly cheese on Thursday and the Wolverine Sentiment on Friday) and wade our way through yet another expiration. BLINK!--and just like that, we're on the other side of the '05 Hump.

I'll tell ya--time waits for no man. it's passing quick. Let's enjoy our journey, be mindful of each other and keep the proper perspective.

Good luck today.

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