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Tinsel Town


Please allow for some "wiggle room" as traders shake off the post-expiration hangover.

"Suppose there's this guy, and he's standing on the shore of a big wide river, and the... river's full of all manner of disaster, you know, piranhas, alligators, eddies, currents, stuff like that... nobody'll even go down there to dip a toe. And on the other side of the river's a million bucks, and on this side of the river... is a rowboat."

Roy McAvoy, Tin Cup

Good morning and welcome back to the scene on the green. After grinding our way through a slow summer slither, the bovine arrived last week to come hither. They rolled with the homies and banked with the Duke's, leaving behind any thoughts of a puke. "The tenor was firm and the tone sounded sweet," said Hoofy the bull of the upside retreat, "It's been a long time since I've tasted defeat and my run isn't over, not nearly complete!" Will the Matador Crowd laugh long and stand proud or can Boo and his crew usher in a red cloud? A new week is here so sit up and get set as we try to avoid any minxy regret!

After Friday's option burial, the critters arrived at the office this morning to tee it up for the back nine. 2005 has been a tough and twisty road, thus far, as the flickering ticks featured a lot more motion than movement. Indeed, while the S&P is flat as a mat and barely in the black, the action under the hood has offered opportunities to separate the meat from the bone. Someone once said that we gotta make hay while the sun shines and, although I'm not quite sure what that means, actionable edges will continue to dull as we trek down the post-bubble road. In other words, the onus is on us to identify the pockets of profitability before they're zipped shut for good.

We only need to peek at the scorecard to see which sectors have been flexin' their chest. The key, from a capital preservation and proper positioning standpoint, is to decipher which sector standouts are sustainable and why. To do that, we must ask some tough questions while effectively removing emotion from the mix. Anyone can buy a stock but the ability to properly define risk and identify an appropriate time horizon will ultimately set us apart.

A few weeks ago, I humbly opined that the homebuilders looked like they wanted to break out and freshly squeeze the bubble bashers. I'll be the first to admit that I'm Homiephobic as I see the writing on the wall and have little (if any) doubt that this group will get fugly. Ditto on the brokers, which I believe are "structurally flawed" and vulnerable on a number of fronts. Still, with a learned respect for the "other side of the trade," I keyed on both groups as important tells while navigating the recent rambling and effectively danced through the musical chairs.

My stylistic approach in these two instances is much different than, say, how I am approaching the energy complex (the OSX enjoyed some acne of its own as crude spiked higher and pulled the energy patch with it). I prefer to nibble on dips in this complex (they're pretty extended right now) as I believe we remain in the early innings of a multi-year rotation. The same psyche applies in the metal arena although, as I've been allowing for the perception of deflation, I wasn't aggressive enough in the silver complex (which I firmly believe will be a teenager one day).

I could, of course, be wrong in my belief that the energy and metals will be the tech and financials of markets past. There's a risk to any trade (reward doesn't come for free) and we must each define our own individual parameters. Further, the systematic risk seems to be building in the market (compression) so we must remain open-minded and adaptable for seismic shifts under the surface. As John Succo correctly pointed out last week, the time to respect risk is when most people have written it off completely.

We power up this frisky pup to find Europe pink (slightly red), the dollar and metals firm and the stateside futures marginally lower. Post-expiration hangovers are par for the course and given the "squaring" that needs to occur, truer tea leaves should emerge by mid-morning. Key levels to watch include the BKX (99.60-100 is big), TRAN 3600, S&P 1225-1230 ('05 highs), DJIA 10,600 (past resistance is future support) and, of course, we'll be sniffin' the breadth as the single best intraday tell.

Finally, and before we turn our attention to the flickering ticks, I wanna keep Minyans in the Mountains II in front of ye faithful. We're two short months away from our "Sundance of Finance" and the mojo is building below the surface. While we encourage folks to bring their fam-there simply isn't anything better than building memories with those your love-I assure you that nobody will be alone once we get to Ojai. That simply isn't the Minyan way.

Good luck today.

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