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Training Day


Gold continues to be bold!


Good morning and welcome back to the lazy haze. Last week's bruising snoozer was a Sammy treat in the August heat and the tight band is set to expand as traders wash off the weekend sand. Will today's fray pave the way for the next leg of bovine play? Or will the ursine kick Hoofy's shtick, grease the slide and make it slick? It's a new week of wiggles and giggles, Minyans, so settle in and settle down...and let's get this party goin' on.

After spending a few days with their two favorite Mini-Minyans, the menagerie boarded a train last night and headed back to their humble little town. As they gathered in the cafe car and enjoyed some delicious schnitzel, the conversation took a turn towards the tape. A nearby fly picked up the following exchange:

Daisy: I don't understand why everybody's staring at'd think they've never seen critters before! (winks at a shocked passenger who's walking through the car)

Boo: Maybe they're shocked to see Hoofy hasn't high tailed it out of town yet. (looks at Hoofy) Dude, you're the bovine equivalent of the Boston Red Sox. You rally, get the hopes of your fans up....and then fall apart for all to see. (looks at his watch) And it's getting about that time...

Hoofy: Last time I checked the standings, sports fan, you weren't exactly leading the league in hits. As a matter of fact, you're so far down in the standings, you'd need a case of Viagra to get up!

Snapper: OH SNAP!

Boo: Well, let me ask you this fellas. If things were really that good, why are corporate insiders dumping stock left and right?

Daisy: You mean the same guys who never saw the pin heading towards the bubble? If they didn't see the cliff, what makes you think they'd see the bottom?

Sammy: That's not a bad thought Daisy but I wouldn't discount this fact so quick. While there's been anecdotal evidence that the economy has shown signs of life, end demand remains questionable at best.

Hoofy: What about the whole "stocks are a leading indicator" argument? There surely wasn't anything good happenin' in March but the market exploded higher. Isn't that textbook bottoming stuff? By the time business picks up, the train will have already left the station.

Boo: Seriously, if we're to break down demand into two segments (consumer and corporate), tell me where I should have concern? The job market sucks, interest rates (while historically low) are starting to trend higher, people are up to their eyeballs in debt...and the bear market hasn't even begun in real estate! On the corporate side, the marginal improvement in earnings has been a function of cost cutting, not end demand, and while that's all well and good, it'll only last so long.

Daisy: Here we go...

Boo: Seriously, it's ludicrous to think that the biggest financial bubble in history will just go away after three short years. I know these are big picture concerns but please don't discount them entirely.

Hoofy: It's that type of thinking that will give us our next leg higher. Have you seen the short interest figures? They're off the charts!

Boo: You can't look at those as a stand alone figure, boss--the proliferation of the convertible bond market has skewed those numbers in a big way! Listen, I'm not saying that we're gonna dive into the abyss today and never look back. I'm simply asking you to maintain perspective and not believe things are better just because the market rallied. Our goal, when trading, is to identify the disconnect between perception and reality and I just want you to keep an open mind. Just as the rally seems "obvious" with the benefit of hindsight, the reversal will seem equally intuitive.

Sammy: If we're to take our journey one step at a time, we've got to view the market one frame at a time. This coming week is shaping up to be pretty meaty. We've got an earnings docket that includes Applied Materials (AMAT:NASD), Wal-Mart (WMT:NYSE) and Dell Computer (DELL:NASD), a full economic calendar, a cameo by Elmer, some important technical levels and, lest we forget, Friday is August expiration. Man, where the heck did the summer go?

Snapper: My first order of business is to get over these 50-day moving averages that stand in our way. Watch BKX 877, S&P 987 and NDX 1240 in that regard as they're the upside humps. Also, with the Nazz down six days in a row, I know a lot of traders are betting against another red roulette spin. I will say this, Monday is the quietest session of the week and the price action will be a function of psychology.

The menagerie sat back and listened as the train rumbled along the tracks. They knew that the seasonal calm was a precursor to the coming storm and these next few months would likely be wild. As they stared out the window at the damp marsh, they played out the potential scenarios in their head. The answers would arrive soon enough and when they did, one of these critters is bound to be bitter.

Good luck today.

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