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Monday Morning Point Guard


...there are quarter-end and structural forces that we can't yet see.


Good morning and welcome back to the sweltering shack. The mercury's rising in the city of critters as traders dig in for a fresh set of jitters. After last week's round trip and some quick-to-the-podium proclamations of a sustainable bottom, we power up this five-set pup to find the world somewhat askew. Europe is firm and firmer, Asia is pretty in pink, metals are gettin' smelted (gold -2%, silver -3%), crude is a tad less rude (-1%), the Heat are leading the NBA finals, a wizard from Oz took the U.S open and green futes are littering my pre-market screens. A slow summer Monday, you say? Doubtful, not with quarter-end ten short sessions away and portfolio managers chompin' on the bit for every basis point!

I was active last week, dipping two legs into the bull suit on Tuesday and humbly unpeeling the posture into the Thursday jazz. I walked through the thought process early Friday as I eyeballed the 25% one day melt in volatility (as measured by the VXO) and the coincident tickles of important 200-day moving averages (S&P and XBD). As I respect the fact that many of my mainstay stochastic indicators remain somewhat oversold, I chose to balance (my long metal and energy exposure) rather than blindly bet with Boo. I bought some Autumn piggy puts, most notably in JP Morgan and Goldman, with partial stops above BKX 108 and XBD 205 respectively. Just trading, and doing so with the understanding that there are quarter-end and structural forces that we can't yet see.

I've fielded a few questions regarding my long-term love affair with the metals and energy and some confusion when those thoughts are juxtaposed with my deep-rooted concerns on the big picture blues. I will again say, for purposes of clarity, that I respect the potential for a watershed style decline but expect us to toggle (between conventional definitions of inflation and deflation) rather than tip into the abyss. That should provide nimble and disciplined traders the opportunity to make some hay on both sides of the ride as the rest of the world tries to figure it all out. That's why I generally wanna play balanced, looking for secular trends and alpha bits, although I will unleash the directional hounds on occasion as I did last week.

Bullets Over Broadway

  • I'm hearing a LOT of pundits point to "cheap" valuations as a catalyst for further upside gains. It could happen--Lord knows it'll be a reason assigned to the rhyme if we rally---but I will caution you on two fronts. First, margin contraction is quite possible, as the triple digit excess on the front end of the bubble might overshoot the other way (single digit multiples). Second, P/E, by definition, is based on 'earnings.' If business slows, via higher input costs, margin pressure or a slowing consumer, aggregate multiples will shoot higher.

  • That's the "knock" on pure fundamental analysis and why I view the market through the collective lens of four primary metrics--fundamentals, structural, technical and psychology. Each is inherently flawed when taken in isolation but a proper assimilation lends to a more favorable risk reward. That's how I learned how to trade and that's what I hope to project to those who have been conditioned to defer to any single approach or discipline.

  • Buzz 2.0 is nearly ready to roll and we'll be making the transition in a matter of hours. Those who have the current version downloaded to your desktop will be prompted to the new & improved tool, which is 100% web based. This will help to alleviate many of the annoying little glitches that we've endured as a function of our fantastic growth. That's not an excuse--we don't do that in the 'Ville--that's simply communication as we ready to take the turn to the next-generation application.

  • Road Trip! I've got a fairly hectic few weeks ahead as I'll be hosting a few Denver chats this Thursday and taking in the final MIM3 site visit while I'm in the hood. We've got a handful of rooms left at our host hotel and I know a slew of Minyans who have yet to lock their spot. If you're interested in joining us for our "Sundance of Finance," please take the time to do it right--I give you my word that you won't be disappointed.

  • A Hung Jury? I am slated for Jury Duty starting a week from today and while it's not an 'optimal' time, it's my civic duty and I will fulfill it. I'm unsure how long I'll be away from the flickering ticks but I hope to be back in the 'Ville before I selfishly slip away for a European wedding the week of the fourth of July. No, it's not mine--not yet, anyway!

  • Have a great week, Minyans, and I'll see you on the Buzz!


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position in jpm, gs, metals, energy
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