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Capitulation? Not Quite


Never let your ego stand between you and making money

Good morning. You are reading the Kevin Depew Linear 2K5.6.3 Auto-Commentary Failsafe ServoWrite Program v.3.2 on financial markets. It's interactive! In the spaces underlined below, please circle on your computer monitor the desired linear descriptor which will satisfy your morning market comment needs.

In financial markets this morning the Nikkei is up/down/unchanged and Europe is rallying/declining/flat-lining. Here in the Big Apple/Canary Islands/subway turnstile, U.S. futures are green/red/yellow as traders anticipate/dread/manufacture economic data expected to show surging/diminishing/heretofore inconceivable signs of inflation/deflation/stagflation. Meanwhile, in the world of commodities/bonds/The Apprentice, all eyes will be focused on crude oil/Treasuries/Carolyn Kepcher until the next Federal Reserve meeting at which economists widely doubt/hope/fear the Fed's next move/blunder/hiccup will derail/bolster/paralyze the stock market...

Whoa, sorry about that! Was running a tad late this morning and the linear auto-commentary program kicked in before I could sit down and catch it. Never mind all that software spewed gibberish. Let's get to work... human work.

When we left yesterday afternoon, Boo was nervously eyeing the Dow 10,600 level and a handful of long-term bullish percent indicators ready to send him packing. While the Dow sits below the line in the sand Boo has drawn, and although the short-term technicals are reaching well into overbought territory, the positive technical reversals in Point & Figure land have changed the context in which he's operating. Discipline requires a more cautious approach for our furry friend.

The big picture problems remain of course, but they've been part of the financial landscape for quite some time, and certainly they were prominent throughout 2003 and 2004. A broad macro thesis is certainly necessary for a successful trading and investment strategy, but a thesis is designed to face up to, and occasionally defer to, the slings and arrows of the forces of supply and demand. For now, demand is in control.

Is this capitulation? Not hardly. There is a difference between contextual indicators and timing indicators. Boo's contextual indicators, the bullish percent measurements of supply and demand, are telling him the conditions of the broad market have shifted from supporting lower prices to supporting higher prices. Tradable moves both up and down will still be there for the taking. But for now, the mode for Boo is one of discipline, caution, and capital preservation.

Know your risk profile as we prepare for economic data that will generate at least some short-term posturing today. But keep in mind too the non-linear aspects of these tiny pieces. What we think we see coming is rarely what we find ourselves greeting.
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