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Air Conditioning

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Watch the semicaps -- if they start to turn harder, it could spur sentiment.

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How many times must the cannon balls fly?
Before they're forever banned?
The answer my friend, is blowin' in the wind
The answer is blowin' in the wind.


(Bob Dylan)

It's only natural -- the human mind is conditioned to act and react in a certain way. No, I'm not talking about Fokker's Pavlovian response when I mention the letters "S.A.T.," I'm referring to the collective psyche in the marketplace. Identifying momentum can be a profitable endeavor if it's "seen" early. Acknowledging the caveat of blind faith, however, is necessary if you're to walk that path.

We've discussed the phenomena of negative gamma before. In a nutshell, dealers who are short calls (puts) are forced to buy (sell) as the market rallies (fails) and the delta exposure increases (decreases). In layman's terms, it comes down to this: the buyers are higher and the sellers are lower. Naturally, as a function of the recent lift (and performance anxiety), the street is expecting a ramp job into quarter-end. We must note, however, that if the tape turns (lower), the ammag (negative gamma) will "kick in" the other way.

I know, we've heard that song before and, as it hasn't happened (yet), it's easy to discount the likelihood that it will. Blackjack players tend to run a table until the tide turns and the bulls have torn a page from their book. In the process, the bears have had their cannons replaced with rifles, those rifles replaced with knives and those knives replaced with a sling shot. At present, they've taken to spit balls as their weapon of last resort. That's troublesome in a few regards, not the least of which is the fact that virtually nobody believes the market can tank from here.

While we obviously won't know the outcome without the benefit of hindsight, we also don't need to make that call every day. Within the market, there are sector opportunities and, within sector work, there are individual names. It's not necessary to trade every move, it's only necessary to win the moves you choose to play. Exercise patience and edges will surely emerge.

Turning our attention to today's tape, the Minx is digesting yesterday's meaty gains and the tone is relatively constructive (thus far). The pharma rotation trade stands out (on the heels of Pfizer (PFE:NYSE)), the autos are strong, gold is starting to regain some luster, the dollar has pared its gains (and hovering around the October '98 lows) and optimism abounds. With regard to our levels, the Minx has (thus far) held S&P 1007ish and NDX 1230ish and those are the zones of stickiness in the near-term.

That's about it, my friends, as it just continues to continue. I'm being conscious not to overtrade as I scan the tape and I'm well aware of the two-sided risks. I'm fairly certain that there are gonna be some juicy opportunities on the short side but until we see the whites of their eyes, I'm trying to stick and move (both ways) and grind my way.

Finally, I wanna thank ye Texas Minyans for the handshakes and smiles this past weekend. There's a lotta good folks down yonder and I left the Lone Star state with some really good vibes. A special thanks to Joe Dubrof and Steve Livitz who, despite their inability to play basketball, opened their home and hearts to this particular Yankee. Much obliged!

As always, I hope this finds you well.
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