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Canary in a Coal Mine

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It's a fantastic trading market if you've been in a rhythm but if you're half a step slow, it's been a recipe for serious whippage.

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"First to fall over when the atmosphere is less than perfect.
Your sensibilities are shaken by the slightest defect.
You live your life like a canary in a coal mine.
You get so dizzy even walking in a straight line..."


(The Police)



I hear ya, Minyans--I don't blame you for being a bit dizzy. Over the last month, the S&P has seen more swings than a Hedonism vacation! Up, down, up, down--it's a fantastic trading market if you've been in a rhythm but if you're half a step slow? It's been a recipe for serious whippage.

We've talked about the "double top with a lower high" in the S&P and that's a technical crutch for the bears. Another element worthy of a mention is the higher lows in the VXO.

We know that liquidity is the opposite of volatility, which makes sense if you think about it. Have you ever tried to buy a thin stock and watched it scatter away? The same dynamic works in reverse when the market is flooded with liquidity, as evidenced by years of VXO 10-ish as Greenspan kept the spigot open.

As we've seen various gut checks and rebounds this year, the dip shtick is good and thick.

But the above mentioned inputs, along with the fresh '07 lows in the banks, continued credit concerns (as measured by the ABX indices), uncertainty surrounding the super-conduit (although Fannie Mae (FNM) is precedence that exceptions to reporting rules are allowed), the narrowed leadership in tech and imbalances that are cumulative (as so many folks are quick to dismiss them) are all reasons to keep our right hand up.

I'm not smart enough to know if these will finally "matter" but I'm seasoned enough to respect that the conditional elements remain in place. As I wrote this morning, that caution has cost me opportunities---and yes, at times, real money--but that's not a viable reason to abandon discipline. In fact, one could argue that it's all the more reason to practice it.

That's about it from where I sit as we stare into the Invisible Sun. And while we're on that topic, I gotta give my buddy Bobby snaps for A) his philanthropic work and B) his incredible pictures that were featured during this tour. If you haven't had a shot to see 'em, take a look--and look right into the eyes. It's the window to the soul.

May peace be with you.

R.P.

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