The Crimson Ride
I sure hope the Minyans got their rest this weekend!
"May I have your attention please. Mr. Hunter has brought it to my attention that moral may be a bit low. That you may be a bit...on edge. So I suggest this...any crew member who feels he can't handle the situation can leave the ship right now. Gentleman, we're at DEFCON three, war is imminent. This is the captain. That is all."
--Capt. Frank Ramsey, USS Alabama
Good morning and welcome back to the high seas. With last week's stand to attention, Admiral Minx kept her impressive chain of command in tact. Buoyed by gains in the tech laden NASDAQ, the ship of fools was steady as she goes as we ready for her forthcoming inspection. The imminent inquisition would offer ample ammunition for the great debate as corporate earnings stand up and get counted. Can Lt. Hoofmo's optimistic assessment find it's much awaited validation or will Lt. Boo's mutiny attempt finally find some footing? It's earning's week in the city of critters, Mr. Hunter, so stay tip top, ship hot and second to none, sir!
While the reason assigned to the recent rally rhyme has been the "inevitable" second half recovery, there's been marginal evidence to support that thesis. The reality is that the stock market has been flooded with massive amounts of liquidity and the rising tide has lifted boats and spirits alike. That's given the bulls a benefit to every doubt and emboldened them to take a walk on the wild side. With this weeks state of the union, we'll get to the heart of the matter and see if the excitement was indeed warranted.
There are a few points that stand out as we're about to face the music. For one, if the rally wasn't predicated on fundamentals, who's to say they'll start to matter now? It's a valid point, I suppose, and while earnings must eventually emerge for a real recovery to surge, we must respect the leadership role of the structural metric. To add spice to the mix, the Minx has already enjoyed a spirited sprint and, as Yahoo! (YHOO:NASD) can attest, there's the potential that "good" news is already baked into the cake. If good news might be bad and bad news might not matter, how are we supposed to navigate these shifty seas?
There are a few ways to approach the madness and the course of action will be a function of your stylistic approach. With expiration looming (further crosscurrents) you must first define your time horizon before loading the missiles into the tubes. The technicals (defined uptrends but extended) offer a backdrop with which to trade but the noise will be considerable as corporate America paints the tape. Define your risk when possible and if you find yourself pressing or guessing, stand aside and identify a tactical advantage.
Bank of America (BAC:NYSE), Citigroup (C:NYSE) and Fannie Mae (FNM:NYSE) get the ball rolling this morning and the financials will then set the tone for the tape. Tonight's relatively quiet but that won't last as Johnson & Johnson (JNJ:NYSE), Merrill Lynch (MER:NYSE), Wells Fargo (WFC:NYSE (morning), Intel (INTC:NASD), Motorola (MOT:NYSE) and Teradyne (TER:NYSE) come tomorrow. In addition, bellwethers such as JP Morgan (JPM:NYSE), Ford (F:NYSE), Mercury Interactive (MERQ:NASD), Apple Computer (AAPL:NASD), International Business Machines (IBM:NYSE) and Qlogic (QLGC:NASD) are released Wednesday with an avalanche of earnings to follow on Thursday.
I would be surprised if the collective assessment justifies the torrid pace of this rally but investors will be looking for any signs of life in the forward outlooks. Further, as the structural forces won't be listening to the conference calls, we must remember that fundamentals are only one ingredient in the trading brew. They'll surely matter--as much for what they are as for their potential impact on psychology--but there are powerful agendas in play and a coordinated effort by central banks around the globe. Granted, the smoke and mirrors will only last so long but as long as they do, the exit to the funhouse remains clouded and shrouded.
In the near-term, watch S&P 1010-1-15 (double top) and NDX 1305ish as resistance with the futes flexing their early morning muscle. Also, monitor BKX 900 as it would confirm a triple top breakout in point & figure work. I would think that if there's to be some tape slippage, it would likely occur later in the week or, more likely, after expiration (when the front month protection is removed). One step at a time, my friends, as we find our way through the earning's parade.
Good luck today.
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