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Monday Morning Quarterback: Positioning For a Critical Week


Lower highs in major indices define the downtrend.


Good morning and welcome back to the snickering pack. Following the worst week in five years-a memory that takes us back to March 2003-we power up our strut for a fresh five-session set.

The price action this year has been fierce, two-sided and at times quite frustrating. Indeed, if Charles Dickens merged his musings with the modern day music of Jamiroquai, they would likely birth the Virtual Insanity that mirrors what we've thus far seen.

Boo and his crew have wrestled top billing from the bulls with the DJIA, S&P and NASDAQ notching losses of 8%, 9% and 13% respectively. And yes, the volatility in many individual issues is deeper and more pervasive than the top-line averages. The best of times and worst of times indeed, depending on how you've positioned your portfolio.

There are a litany of reasons why the bears have been large and in charge, from credit contagion to the shifting risk appetite and social mood.

The tricky aspect of this juncture is that we can rally sharply within the context of the lower highs that define this downtrend. Toss in the potential for a higher low in the financials vs. the double bottom in the S&P-and sprinkle in the unknown that is the bond insurer bailout-and you have the recipe for the two-sided ride.

Hang onto your hats, my friends, the coming fun promises to be chock full for hair follicles.

Random Thoughts

  • Consistent with my preferred stylistic approach and given the near-term two-sided uncertainly, I continue to trade opportunistically with alotta powder in my pocket (and yes, I am happy to see you).

  • Along those lines and keeping you up, I continue to hold that snivlet of Apple calls (AAPL) that I added on Thursday on the dip below $120. As discussed Friday, the stock has room to the high $140's and while I plan to trail my stops, I'll likely feed some ducks into strength as a function of discipline.

  • The lead story in this morning's Wall Street Journal is that "a broadening array of problems has begun to hit banks, asset managers and investors, threatening to create a new wave of the credit crisis." Minyans certainly shouldn't be shocked by this proclamation.

  • The G7 met over the weekend and the centerpiece of discussion wasn't Hannah Montana or the Giant's Super Bowl shocker. Their focus was that the slowing U.S economy may downtick still, eroding global growth, as officials forecast further market turmoil.

  • Not to be left out, Treasury Secretary Hank Paulson said the global economy faces "downside risks" from the "serious and persisting" capital market rout.

  • OK, so there you have it-we're "officially" in trouble. I would argue that the writing was on the wall last summer and, while the odds favor further fall foliage, some of that risk is already priced in on a trading basis.

  • So where do we net? The chasm between the credit and equity markets is massive. If the former improves, we'll see a sigh of pleasure relief that could kill your average horse. If it doesn't or-Egads!-deteriorates further (credit card delinquencies, auto loans, the commercial side), we'll have ourselves one heckuva mess.

  • And yes, it's quite possible that we could see a "monocline bailout-induced rally" first, followed by steady deterioration over time. It's all about time horizon, Yo.

  • Along those lines, please note that some mortgage insurers report earnings this week. MGIC Investment Corp. (MTG) and Triad Guaranty (TGIC) are on Wednesday and Radian Group (RDN) on Friday.

  • So Yahoo (YHOO) snubs Microsoft (MSFT) and is flirting with Google (GOOG) and AOL (Time Warner (TWX)). I'm telling ya, this plot has more twists than my personal life! After playing this into the initial hook-up-and despite my gut feel that Yahoo trades higher-I continue to like my (flat) position.

  • Does anyone else believe that there's a connection between the Britney-Lindsay-Paris bubble popping last year and the social mood shift we've since seen. Again, this isn't about Britney (more empathy than acrimony), I'm talking about the mainstream reaction to the news.

  • Big Ben will chime in on Thursday and for the life of me I can't get the phrase "Valentine's Day massacre" out of my crowded keppe.

  • Finally, I will ask ye faithful to check out our two latest initiatives:

    • The first is Minyanland, our children's initiative dedicated to teaching the basic tenets of business (earning, spending, saving, giving) to kids.

    • The second is The Exchange, which allows Minyans to connect to Minyans around the world and offer their thoughts on pertinent issues. Both are fabu, both are free and both are natural extensions of the Minyanville mission.

  • Hit 'em hard today and I'll see you on the Buzz.


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