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Changes in Behavior



Observing patterns in the markets allows us to identify potential changes in the character of the market. There's no doubt the first three days of this month are markedly different than past months. Note the following:

• For the first time since August 2003 and only the second time since the March 2003 low, the ND futures declined more than 4% over the first three days of the month.
• The SOX declined more than 2% for three consecutive days for the first time since January 2003.
• The German DAX posted six consecutive daily declines for the first time since September 2002.

Since the March 2003 low, the market's behavior has been fairly consistent. First of month in-flows helped to boost the indices and Boo's been unable to sustain any follow-through to the downside. So far, this quarter is headed in a different direction. Historically, none of the above stats offered any conclusive evidence going forward. But by noting the change in behavior, we should be on alert. If a true change is upon us, trades setups that worked over the past year should begin to fail. As traders, we need to recognize this.

Today we'll get earnings from YHOO. Below is a table summarizing the stock's performance surrounding the release for the last eight quarters. If Snapper's looking for a reason to spark a short covering rally, he'll likely talk up the stock's 14% rise following last quarter's release.

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No positions in stocks mentioned.

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