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Forks and Corks


Keep an eye on the internals--they've been the best intraday tell!


I have spoke with the tongue of angels
I have held the hand of a devil
It was warm in the night
I was cold as a stone


Good morning and welcome back to the anxious pack. Autumn is here and the leaves are russlin' as the critters clock in and it's time to get hustlin'. "Take a deep breath as we edge towards the fray," said Hoofy the bull as he started his day, "Boo seems to think that they'll soon get their way but be wary, my friends, of the tape he portrays!" Will the bears press their bet with the trend as their friend or will goofy games start as we reach quarter-end? We'll know soon enough so let's brush off our skills as we ready anew for a romp through the 'Ville!

There are always two sides to every trade but this juncture seems particularly distinct. On our left shoulder, Hoofy has focused on the drum tight corporate spreads (credit markets yawning), performance anxiety (buyers are higher) and the lurking (yet taboo) electoral agenda. Yes, while it may seem unprofessional to discuss the "hand stand," the seed has been planted in the back of our crowded keppe. Would anybody really be that shocked if crude was $40/brl by the election and the mercury rose on the world's largest thermometer?

On our right shoulder, Boo continues to spew about the fallout from Fannie (FNM:NYSE) (a ton of negative weekend press), the defined downtrend in the major averages (charts don't lie), rude crude (implicit tightening), the whisper of further pre-announcements (tech still back-end loaded). Further, and while this hasn't mattered to date, the gap between perception (low volatility levels) and reality (lotsa potential potholes) may be one of the biggest disconnects on the global stage.

One market, two scripts and polar opposite outcomes. And while the prognosticators prognosticate and the anticipators anticipate, the reality of the situation is that either one--or neither--may come to fruition. Indeed, the dark pall of potential terror (into November) may quell the upside swell or it could, conceivably, serve as a somewhat steep wall of worry (although vols don't support that). That's what makes our choices so difficult and it's why our decision making process must remain lucid and sharp.

While I've been harping on the Fannie pack forever, I'm quite aware that Snapper likes to focus on crowded situations. That's why I've been keying on Franklin's rain and will continue to do so in the sessions ahead. It's difficult to assertain if (when) this thrill will spill (virtually every major dealer has counter-party risk) but the food chain is inclusive. And if the financials fail, the tape will have a tough time making any headway regardless of how pronounced the "N's over S's" dichotomy becomes.

For my part, I'm gonna stick to my downside guns and define my risk via levels and premium. If the S&P or BKX takes out their respective 200-day moving averages (nestled above), I'll lighten my load and tighten my posture. The beauty of this approach is that it offers an advantageous risk/reward profile and removes emotion from the equation. It's not fail-safe (few things ever are) but it's consistent with my view and adaptive with the tape. Discipline over conviction, cookie, and positive thinking throughout.

Good luck today.


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