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Tuesdays With Story


...we try to provoke thought in the 'Ville and sometimes we've gotta squint to do just that.


Here comes the story of the Hurricane,
The man the authorities came to blame

(Bob Dylan)

Before we get started today, I would like to draw your attention to the following quack count. The Minyanville community is joining together to support the Special Olympics and, through the magic of our masses, we're making a difference with a very low dollar commitment. Please click here for more information on how to pluck your duck and join us for a swim down the river! And please, Minyans, feel free to splash this effort throughout your entire network--that's how we grow and that's how we'll help.

Turning our attention to the tape, yesterday's action was the definition of wishbone dressing. On the one hand, we had an upside probe in the S&P as equities tried to stand up and step out through technical resistance. On the other side of the ride, we saw the sharpest probe yet of the five year trendline in the CRB (commodities index). How does this "fit" and why do we continue to highlight it? Well, if the past is a prologue, asset classes may continue the curious tendency to swim in the same direction (opposite to the dollar) and we must respect the forces of nature.

Speaking of which, does anyone else sense that something is amiss as we attempt to fit together the pieces of our current puzzle? Ernesto is bearing down on Florida , almost a year to the day after Katrina swept the Gulf Coast , and commodities, led by the energy sector, got jack hammered yesterday. That doesn't fit with conventional wisdom and rest assured; higher crude (commodities) would have been the front page story if they rallied ahead of this looming storm. They didn't, however, and that begs the question of why? I would offer that there are other forces in play---Hurricane Liquidity perhaps, or Tropical Storm Risk Aversion. Maybe I'm overthinking the price action, but we try to provoke thought in the 'Ville and sometimes we've gotta squint to do just that.

So where did that leave me on a trading basis? I entered this five session span with two legs in my bear costume (50% conviction on the short side) and an entry level of S&P 1300ish. While I originally set a stop above BKX 114ish (all-time highs for the piggies and a viable level for those with a heartier risk appetite), I tightened that leash as a function of the thin and thinning hair, er liquidity this week. S&P 1306 (where we broke lower in May) seemed like an intuitive spot and while we got thisclose yesterday, the fur emerged to live another day. It might be tight--again, the levels you choose are subjective to your style--but for (and with) my money, I'm content with that bent for the time being.

But wait, there's more...

Mini-Minyan Mailbag

"Hi Toddo, I'm having trouble following you lately. It seems you expect a downside break in the CRB index, which, to me, would indicate lower prices for metal equities.

However, it also seems you continue to hold positions in these stocks. Are the positions long term holds? Or perhaps, even with a downside break, you still expect these stocks to outperform? Or are you waiting for the break, at which point you would sell out? Thanks for the help, Minyan Steve"

Minyan Steve,

Sorry for any confusion---I would imagine that you're not alone. Yes, my 'sense' is that a downside break is underway in commodity land (as measured by the CRB) as we've already taken out the 200-day and continue to poke at the aforementioned trendline. And yes, that would likely lead to lower levels for both metals and metal equities.

I've set up for this particular juncture primarily in the "trading" side of my book although, as it stands, my thesis (that a break in the CRB would drag down the entire equity realm) has yet to unfold. In fact, as the S&P tried to sneak higher, I'm almost at my predetermined "stop" level for that particular slug of exposure. I "see" the trade unfolding and perhaps I've tied my hands too tight (from a risk management standpoint) but I don't wanna be the Greatest American Hero during a thin, slow, holiday week.

As far as my longer-term holdings are concerned--which is a different risk profile and elongated time horizon--yes, I own some metal equities and have plenty of dry powder to add at lower levels, if I should choose to do so. I'm uber-aware that I may indeed have that chance but, as I'm trying to play a spectrum of potential outcomes, I'm comfortable with my core holdings in this complex as I dabble "in between."

And finally, some Buzz Bits on this Turnaround Tuesday...

  • Adding spice to the commodity mix is the looming deadline for Iran's nuclear ambitions. Given the fact that a senior Iranian official has publicly said that Tehran would pursue nuclear activities despite international pressure and they have gone so far as to invite Western companies to bid for tenders to build nuclear plants, I think it's myopic to believe that they'll simply step aside and play nice.

  • I continue to watch the HGX (homebuilding index) as a key tell for the broader tape. Two quick thoughts in that regard. First, we're tickling the top end of the pennant formation that we've been watching. Second, there is a real difference between homebuilders and real estate as the former has already endured a 50% correction and the latter is a lagging indicator of liquidity.

  • Minyan Jim asked me yesterday what my sense of the "short base" is. While my tire kicks are purely anecdotal, the hedgies I speak with are seemingly lined up behind Hoofy. I haven't unearthed if they've set up for a month-end mark (it's difficult to game invisible catalysts) but, given the big Breakfast with Beeks on Friday, I would offer that there's risk to that trade.

  • Finally, we're trying to put the final touches on an early December MIM3.5 (Minyans in Manhattan) that would highlight Panels ala Vail in the afternoon and bring our community to life at night. Please stay tuned for more information as we're working feverishly on making this vision a reality. And yes, Minyans, this would be 100% for the kids. Because that's how we roll.

Good luck today.


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Position in financials, metal equities
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