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Hump Day Madness: Why Did We Rally?


Trading was tenuous from bell to bell yesterday as headlines swirled about the deepening credit crisis.


"Here goes: I sped. I followed too closely. I ran a stop sign. I almost hit a Chevy. I sped some more. I failed to yield at a crosswalk. I changed lanes at the intersection. I changed lanes without signaling while running a red light and SPEEDING!"

Fetcher Reade, Liar Liar

Does anyone get the sense that traders and investors have been wound tight of late? Multiple and repetitive triple-digit swings have a way of wearing down the collective psyche such that the last man standing-and the last price remaining-is a function of pure will, determination and resolve.

Man, you really gotta want it. And when you get it, you most certainly have earned it.

Following yesterday's upside gap, downside trap and late day snap, Turnaround Tuesday staked its claimed its fame. Trading was tenuous from bell to bell as headlines swirled about the deepening (and now mainstream) credit crisis. Think BusinessWeek, the Economist and such. That, to me, is one of the more bullish elements currently in play.

Despite the headlines of an
Abu Dhabi rescue, that news wasn't the spark in the dark. Heck, Citigroup (C) was up a paltry fitty-cents and fought for each and every one of them (trust me, I know this as I spun like a dradel in the name).

And it wasn't about the 3.5% decline in crude. The markets rallied hard as crude doubled and we've monitored that evolution through the lens of "asset class deflation vs. dollar devaluation." To attempt to now draw a correlation between the two is assigning blind reason to the rhyme.

No, we rallied because... we rallied. 10% correction from the highs. Directly at the August lows in the S&P. A tad too negative and nervous. It seems obvious with the benefit of hindsight but as we bear down on DJIA 13K, the first of many resistance layers, the clouds thicken on the horizon. That's not to say it's gonna pour, it's simply a nod that visibility is unclear.

What's it all mean? An oversold bounce, for starters, at least until we poke through the series of lower highs and higher lows. Until then, all this noise is a simple churning under resistance as opposed to basing over support. That's through a technical lens (one of our four primary metrics) and, while more of a context than a catalyst, is worthy of a mention as we saddle up anew.

I've been trading from the long side, as Minyans know, although I got stopped out of a slew of exposure in select financials. Hey, it happens and there's no time to dwell. Opportunities reside in the ride ahead rather than the rear-view and we've only got so much mindshare to go around. I enter this session with some tertiary exposure, alotta powder, an open-mind and an empty belly. Engine room, More Steam!

Random Thoughts

  • Man, those homies traded heavy yesterday. The sharpest rallies occur in the context of a bear market but these names continue to be under distribution. In the interest of full disclosure, I'm been picking at some Pulte Home (PHM) for a bungee Snapper but I'm keeping a tight leash on it as I'm not into guessing bottoms. This is, so you know, the first time in years that I've rolled with a homie.

  • Volatility tends to roll through asset classes as a function of the (upwards of $500 trillion of notional value in) derivatives. As such, note the motion and movement in energy and metals and ready yourself for a wild ride. It's coming.

  • And see that double top in gold. It sorta fits the "contra-trend" dollar rally thesis.

  • If that's how Citigroup trades on good news, I don't wanna be around when the next shoe drops. I'm not, mind you, and that's alright. Whenever I feel emotionally involved with a stock, it's a sure fire sign to find another vehicle. And yes, this does have a Countrywide (CFC)-Bank America (BAC) feel to it, just much bigger with entirely broader implications.

  • So, Snoop Tony Dwyer thinks that, while the next 2% is a toin coss, the next 20% is higher?

  • What's he thinking? Why not ask him yourself next Friday?

  • So, we nix the CNOOC (CEO) bid for Unocal (UCL) and turn down the United Arab Emirates when it bid for US ports but we're alright selling our financial institutions, from Bear Stearns (BSC) to Citigroup, to China and Abu Dhabi?

  • I'm not passing judgment; I'm just asking... where do we draw the line?

  • If we say "at our ports," I'll buy that. But why would we nix oil and open the gates to our banking system?

  • Desperation?

  • Separation?

  • Condemnation?

  • Revelation?

  • In temptation?

  • Isolation?

  • Desolation? (LET IT GO!)

  • Do you think that Russell Crowe is still pissed that Denzel stole his 2001 best actor Oscar?

  • "The Safety and Liquidity Bid for Treasuries. The demand for safe assets has hit the highest levels since the early 1990s, eclipsing LTCM and Y2K." Steven Abrahams

  • The average S&P company missed analysts' expectations on the day of its earnings announcement by 2.1% -- the first time in the 13 years Thomson has been keeping data that the market as a whole "surprised" to the downside." (WSJ)

  • If you haven't read Pep's Mr. T Gold Indicator special report, you're missing the boat.

  • We quietly edged through our 15,000th Minyanville article 80,000th Buzz & Banter this week. Wow and wower, Minyans, and thank you for your support!


Holiday Festivus is here! Come join us and support the Ruby Peck Foundation For Children's Education at an old-fashioned Southern-style hoe-down in the heart of New York City on December 7th. Click the image below to learn more!

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