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Dylan's Candy Store

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May peace be with you!

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Outside in the cold distance
A wild cat did growl
Two riders were approaching
And the wind began to howl


(Bob Dylan)


It's just another manic Monday as Hoofy's heroes look to build on last week's late gains. The semis--up 14% in three sessions--are pacing the race as anxious hedgies try to save face. You know the game--fund managers are nervously eyeing their pens in anticipation of those third quarter levels. Having a tough year is one thing--but having a tough year while others are doing well is simply unacceptable. That's why buying begets buying and trading with other people's money often exacerbates volatility.

We've discussed a few reasons why folks may be bullish and how that could self-fulfill to the upside. Those elements should be put to the test rather soon as we simultaneously tickle the top of the S&P trend channel and the NDX 200-day moving average. Further, and while there has been no motivation on the supply side of the equation, we're extended, vulnerable (VXO) and exposed as we dribble towards September expiration. I don't know what the catalyst will be but we must respect the violence of a trapped bull.

Should it matter--does it now? (Stephen would answer if he only knew how!) The bulls will argue that the VXO (eight year lows) and the VXN (all-time lows) have been lousy indicators and the wall of worry is a healthy precursor to further gains. I would ask thy bovine to define "worry" as the fear of missing doesn't count as legitimate concern. Granted, overbought can get more overbought (particularly during an expiration week) but I, for one, have chosen to keep my right hand up.

Away from the equity fray, crude (+2.5%), the dollar (+ 21 bp), the metals and fixed income are all enjoying a swim in the Green Sea. In fact, I'm not sure I remember a time when everything rallied in synch and nary a bovine blinked. Is it a pure liquidity wash? Perhaps--but that still doesn't explain why the greenback would have gotten an invitation. Either way, I don't think the dynamic will last very long as I sense some slippage into the end of the day.

That's about it from my perch as we edge through yet another session. I sincerely hope ye faithful had a fine day and you're acting in a manner consistent with your unique time horizon and risk profile. The quickest way to say goodbye to your pie is to "go along, get along" as a function of price. That was the lesson learned during the dot.com spurn and we should remember the tutorial. Respect the price action but don't defer to it. If you did that, you'll only lose your catalyst after you've lost your coin.

Good luck into the closing muck and have a peaceful night.

R.P.
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