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A Matter of Trust


May peace be with you!


"When you love someone, you've gotta trust them. There's no other way. You've got to give them the key to everything that's yours. Otherwise, what's the point? And, for a while, I believed that's the kind of love I had."

--Ace Rothstein, Casino

The roulette wheel continues to spin as the bears look to book their win. Conventional wisdom dictated that the tape would get hit Friday (in front of the three-day) and pop nicely today. Someone evidently forgot to tell the Minx, however, as she's been scrubbed and drubbed all day long. Now, as we cast an eye towards the other bell, traders must look past the daily action and ascertain if something bigger is afoot.

I just got off the phone with Minyan Jeff Saut of Raymond James who, if you haven't noticed, I have tremendous respect for. We talked about the grindy action (the averages are flat for the year) and the necessity of a trader to have the proper mindset when approaching the market. He opined that very few are ready for a "range bound tape" and I offered that the same traders who were "too long" at S&P 1080 aren't "long enough" at S&P 1140. That type of momentum mindset will go a long way towards weeding out the overcapacity in our industry.

It's hard to say why, exactly, the Minx is listening to today's chin music. Higher rates? Maybe, although Hoofy will argue that they've been telegraphed more than Samuel Morse. Geopolitical worries? Possibly, as the collective angst level edges higher as month end approaches. Technical resistance? Could be, we were pretty extended (just as we tapped the '04 trendlines (S&P/NDX), breakdown levels (BKX 98) and an important 200-day (SOX). Complacency? Probably, as the multiyear lows in the volatility measures seemed out of whack with the world we live in. More likely than not, it was a combination of these factors and it caught traders leaning the long way.

We should get some food for thought tomorrow when Senor Beeks drops by for breakfast. He'll deliver the CPI (exp. .5%, ex-food/energy .2%), business inventories (exp. .4%), empire manufacturing (exp. 30.5), Wolverine confidence (exp. 90.8), the NAHB housing market index (exp. 68) and the ABC consumer confidence (exp. -20). We'll also get our first taste of the fundamental landscape as Circuit City (CC:NYSE), Lehman (LEH:NYSE) and Pier One (PIR:NYSE) all tell their tale. It will begin what is, by all accounts, a very important earnings season.

Good luck into the close and, as always, I sincerely hope this missive finds you well.

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