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Discipline over conviction, both ways, leads to market longevity. Keep your eyes open and your right hand up, one step at a time.

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"Mother always said you were greedy."
--Randolph Duke



Warren Buffett once offered that investors should be fearful when others are greedy and greedy when others are fearful.

In other words, we should sell hope and buy despair.

It's been a long time since there's been angst on Wall Street. In fact, we would have to head back to early 2003 to find the last ten percent correction in the S&P. Remember the duct tape run and Shock & Awe? Nobody wanted to buy stocks.

My, how times have changed.

There's no debating that there are plenty of reasons to put money to work.

We've got the private equity bid and merger mania, with US-based M&A on pace for a trillion dollar '07 run rate.

Stateside equities continue to cheapen through a dollar denominated lens as wealth transfers overseas.

There is technical confirmation in the mainstay indices, with record highs beckoning through every media orifice.

And we've got that momentum thing, the underlying bid that has conditioned our collective behavior.

If we view market moves in the context of three phases-denial, migration and panic-it would seem that we're in the latter stages of that trifecta. The bulls seemingly welcome bad news as an opportunity to increase exposure and the most fervent bears have been tamed to buy the first dip.

The result is that the scope and depth of the pullbacks continually tighten, constructive on the surface but potentially telling from a psychological standpoint.

The rub is that the panic phase typically offers the most acute price action, which is either a blessing or a curse depending on which side of the sword you're swinging. Yes, this rally could conceivably have legs but what's clear-one thing we can all agree on-is that the upside is no longer obvious.

News is always best at the top and worst at the bottom. In that vein, perhaps the bears should worry that there is still a salient, short-side argument.

Think back to how you felt in March 2003. The bulls had no credibility, the news was horrid and corporate America had no visibility.

It was a tough time to buy stocks.

It felt wrong, until it was proven right.


Odds and Ends

  • The fly in the bovine ointment has been the banks, as they've yet to confirm the new S&P highs. Keep an eye on support at BKX 116, which is being challenged and may be offering a stealth tell.

  • SunMicro was roughly 9% of total NASDAQ volume yesterday with no discernible news. This continues to be one of my few tech cores and, while I'm not digging the price action, I like my company on the long side.

  • While the institutional flow remained muted yesterday, we saw some beefy put buyers in Washington Mutual (WM), Wachovia Bank (WB) and the IWM (I-shares Russell).

  • S&P 1527, the most recent breakout, seems to be a bovine backstop for newbie longs. There are likely "sell stop" orders on the other side of that ride.

  • The action in Google and Apple suggests higher prices still. As high beta stocks are vehicles for the catch-up crowd, we should keep them on our radar as we fit together the pieces of this intricate market puzzle.

  • Discipline over conviction, both ways, leads to market longevity. Keep your eyes open and your right hand up, one step at a time.


R.P.

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