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Cereal Killers!

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Central Banks have pushed this market around and politicians have shaped psychology for so long, making the bet that they'll now fail is a pretty powerful assumption.

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As I sit here and watch the Captain Crunch in the financials---from Citi to Goldman to Merrill to Lehman--my eyes are flickering between that action and the still sticky S&P futures. As go the piggies, so goes the poke, we know, but IF (massive if) that complex finds an underlying bid (as it had this morning), the tape could snap, crackle & pop higher.

I'm hanging tough with my fade trade from this morning (setting stops removes emotion) but I'm conscious and respectful of the agendas in play. Central Banks have pushed this market around and politicians have shaped psychology for so long, making the bet that they'll now fail is a pretty powerful assumption.

To be clear, I don't think anyone is bigger than the market and, further to that, the structural imbalances have been cumulative for the last few years. We've been conditioned to trade a "bend not break" tape and I'm certainly not smart enough to know if this time is indeed different. I am seasoned enough, however, to appreciate the considerable risks (whether they manifest or not).

Current tells include the financials, breadth (now flat), the dollar-yen (flattish) and the VXO (-11%, which could be helping some funds out of a negative gamma hole). Other concerns remain the homies (BZH -8%, CTX -7%, RYL -7%, TOL -5%, LEN -6% and KBH -5%) and Fannie Mae (-5%).

Discipline over conviction as we find our way through this fray. And I'll remind Minyans anew that it's very thin out there and liquidity isn't what it once was. Trading smaller helps manage that risk and sometimes, the ability not to trade is as important as trading ability.

Fare ye well.


R.P.

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