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Monday Morning Quarterback: Masters of the Obvious

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Investors tee up earnings season.

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"It's easy to grin when your ship comes in and you've got the stock market beat. But the man worthwhile is the man who can smile when his shorts are too tight in the seat." --Judge Smails, Caddyshack

It was a thrilling Sunday in Augusta as three duffers vied for the green jacket in a sudden death playoff. Kenny Perry, up two strokes as he stepped to the tee on the seventeenth hole, looked like a lock to claim his fame as the next Masters champion.

The 48 year-old from Franklin, Kentucky-the crowd favorite with a humble grassroots demeanor-suddenly succumbed to the pressure, paving the way for Argentinean Angel Cabrera to emerge victorious as the sun set in northern Georgia.

Perry offered no excuses. In fact, he was the first to congratulate Cabrera when he sank the put that forced the playoff. "I lost the Masters today," he said nobly, offering he may never get another chance to be fitted for the most famous blazer in sports.

Such is the thrill of victory and the agony of defeat, an emotional dichotomy investors know all too well. Fortunately for those who drive for show and trade for dough, we tee off anew this morning with an opportunity for redemption.

That's the beauty and the beast of this business and we'll need to be at the top of our game as the crowd gathers for earnings season.

As discussed last week, I entered Thursday with a bag full of dry powder and a small Apple (AAPL) put position. The game plan was simple-play for a quick dip with defined risk and enter this stretch with one eye on the bullish reverse dandruff pattern in the banks and the other on our oft-discussed notion that banks took a bunch of lumps in their last quarter so they can "beat" the headlines in Q1.

My drive was blown off course by Wells Fargo (WFC) when it pre-announced record earnings on Thursday. This is the second time in my career the western banking giant served as a spoiler, the first being the infamous Letter I fiasco that ushered in a ten-figure swing while I was at Mother Morgan (MS).

To be sure, technical analysis is a better context and catalyst and the bullish chart patterns (the S&P will 'confirm' above 870) are a singular element in a multi-linear equation rather than a panacea that paves the way to better days. I offer that context as we also note levels of lore in the S&P, including downside support in the S&P 780-800 zone.

While the path of least resistance seems to be pointing higher (as go the piggies, so goes the poke), there are notable causes for pause. The light volume and thin ranks heading into the holiday surely added to the zest and we would be wise to remember that field position into earnings must be assimilated into the trading equation.

Following the best five-week run since 1938-and the best percentage stretch ever for technology stocks-the margin for error is thinner than Occam's Razor. In other words, when the dust settles following this five-session stretch, the reductionist philosophy of normalism may simply dictate, "buy the rumor and sell the news."

After getting stopped out on Apple Friday-and more frustratingly, failing to position for the bank shank-I enter today with an understanding that profitability resides in the ride ahead. I plan to watch the opening, keep tabs on the technicals (BKX 32.5 is newfound support and BKX 40 is resistance) and operate with a stylistic approach that respects the litany of overnight catalysts waiting in the weeds.

Good luck Minyans, and be the ball.

Random Thoughts:

  • The Sunday NYT Business section feature article, "Poor in Palm Beach (It's Relative)", reinforces a theme that Pepe Depew first scribed in February 2008, that of voluntary thrift. And I quote:

    "The most important takeaway from this evolving shift in social mood is this: it is not about "living within one's means," it's about redefining what those means are, adjusting the boundaries lower and embracing voluntary thrift.

    In our current economic structure, involuntary thrift pales in comparison to voluntary thrift. The coming age of voluntary thrift will redefine what Americans view as "means" and "luxury
    ."

  • Is this a brand new bull or a bear market rally? I'm firmly in the latter camp but again, as we discussed a few weeks ago, that doesn't mean it can't have legs. Three points of perspective.
    • Bear market rallies, by definition, need to suck optimism into the trading equation for them to serve their purposes. That's what we mean when we offer they're littered with false hope and empty promises.

    • The major averages firmly remain in a pattern of lower highs and lower lows, which is bearish no matter how you slice it.

    • A 50% retracement of the October 2007 to March 2009 decline would arrive at S&P 1120, upwards of 30% above Friday's close. In other words, dance while the music plays but make sure you've got a seat when it stops.

  • A Goldman Sachs (GS) issuance following the 150% pop in the stock? Minyans will say alotta things but "shocker" certainly wont by amongst them.

  • Biggies this week include Johnson & Johnson (JNJ), Goldman Sachs and Intel (INTC) on Tuesday, Google (GOOG) and JP Morgan (JPM) Thursday and Citigroup (C) and General Electric (GE) Friday.

  • WWBD? Prolly point to the LQD (corporate credit proxy), which has yet to give the credit wink to the equity rally.


I'll be shooting down to Orlando on Thursday to meld with our friends at Atlantic Advisors and share a hug with Nan and the fam. Please remember, Minyans, all donations to the Ruby Peck Foundation through the end of April will be donated to a children's educational causes consistent with the RP mandate and selected by the Sedaccas. Many kind thanks as we do our part to honor our fallen friend.

It's Monday and you know what that means--less than 12 hours till Jack! In a world gone mad, its nice to know there are people we can count on, however fictional they may be.

Good luck friends and I'll see you on the Buzz.

R.P.



In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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