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Bear Hunting Season


To be sure, these hunters are an emboldened species stepping into the deepest, darkest most dangerous regions of the forest to stalk Boo and all his critter friends.

Lost John's sitting on a railroad track
Something's out of whack
Blues this mornin' fallin' down like hail
going to leave a greasy trail

--Bob Dylan (from Nettie Moore)

Brother can you spare a hug for Boo? It's been so long since he had a good growl, he's forgotten what a honey of a ten percent decliner feels like.

Back in February just as he began to lick his chops, had his bags packed for a rout, his salmon wrapped, he came dancing out of hibernation courtesy of a spicy Schezwan dip, only to get ambushed.

My take away in hindsight is that the hunters who ambushed Boo and his band of merry shorts were option expiration arbs. They Shanghaied all those who shorted at the March lows. To be sure, these hunters are an emboldened species stepping into the deepest, darkest most dangerous regions of the forest to stalk Boo and all his critter friends. These hunters aren't necessarily as smart as they are emboldened. How so? Well they have one hell of a weapon - the Bernanke Bid. They don't need no stinkin' camouflage. Although the fed has pulled M-3 from its quiver of public scrutiny there are a few sportsmen out there who know how to track the Green billed, White Collar, double throated hawk (which I'm told does a fine impression of a helicopter ).

One of these is Adrian Van Eck. By Mr. Van Eck's reckoning, since the end of February "Fed chairman Ben Bernanke has nearly doubled the rate of M-2 growth from four hundred eighty billion per a year to eight hundred billion a year." Van Eck postulates that the broader M-3 may be expanding by as much as three trillion a year. That's T as in Mr. T. Seems to me that someone's nervous about something. Yet day after day I hear money manger after money manager dismiss any concerns about a slow down or something worse with the promise that the Fed will cut if things get out of whack. Folks, isn't that a bit redundant at this point given the money creation? The Behemoth Bernanke Bid is to the Greenspan Put what an AK-47 is to a Saturday Night Special. Poor Boo, duck and weave! He may never have had a chance.

What started out looking like a China Syndrome two months ago played out like a Chinese fire drill. Just another buying opportunity – just another barbecue for the bulls – a weenie roasts for the shorts. But that was then and this is now.

The sixty-four billion dollar question is whether the move up from the March lows was the beginning of a fresh new leg up or is it simply a return rally test of the highs? There is more than some indication to consider that it is just such a test. We remember the old axiom the market usually (not always) gives a graceful exit. February 27th was anything but a graceful exit.

Significant tops (and bottoms) almost always trace out an initial thrust which over balances any previous correction on the way up and in accordance with the Principle of Test rallies back to test the highs.

Ditto market lows. Such was the case when the S&P waterfalled into its July 2002 low which was tested in October 2002 (and then again in March 2003). We remember there is a saying: as above, so below.

In fact the S&P currently has carved out a potentially bearish 1-2-3 Swing Snapback on the daily chart to a test of the February high.

This pattern is a fractal of the bearish 1-2-3 Swing Snapback on the S&P weekly chart into September 2000 which tested the highs after the break from the March 2000 high.

The market many times displays a remarkable proclivity to carve out incredible symmetry. As W.D. Gann, the famous market observer said, "God Geometrizes." For example the advance off the October 2002 low saw the S&P run-up 390 points in fifteen months prior to a first pullback of six months to 1060 S&P into August 2004. Note that the six month pullback was a monthly 1-2-3 Swing Pullback. Then from 1060 S&P a measured move up of another 390 points gives 1450 in thirty months into February 2007. The high in February was 1461 just above 1450.

A) The midpoint of the high bar month of March 2000 was 1450.
B) Note the Surge off the July 2002 low and the subsequent test (C) in October 2002.
D)1-2-3 Monthly Swing Pullback.

Next time, more symmetry and why 1474/1475 S&P is beaucoup resistance. Seeming to confirm a turn is at hand, all the world market's declined on Thursday (along with oil and gold) except the US'. Did the US market hold steady due to option expiration? We will see next week what kind of greasy trail is left after expiration burns out.
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