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Fire in the Hole!

By yesterday's false alarm once again proved, structural smoke won't matter until someone actually sees a fire.


"This is like déjà vu all over again."
-Yogi Berra

Tensions were tight throughout Manhattan yesterday. From Wall Street to Midtown, New Yorkers were reminded of the fragility of life and the trappings of the tape.

As I returned from an afternoon meeting and took stock of the session, I received a call from a frantic friend who was screaming about an explosion that nearly knocked her from her feet. "There is smoke everywhere and people are running from falling debris!" she cried into the phone, "Nobody knows what to do!"

My first instinctive glance was towards the S&P futures, which were sitting pretty after the late day lift. I furiously scanned the newswires, unable to find fresh information as I listened to sirens wail and watched smoke begin to rise from ten blocks away from my office window.

(Click the chart to see a larger version.)

Having witnessed the horrors of 9/11 first hand, I noticed my heart racing as the S&P futures began to slide lower. "Not again," I thought to myself as I tried to calm my friend, "Please God, not again." The echoes of terrorism have faded for many but they suddenly surfaced in that moment of uncertainty.

As we know now, the cause of the explosion was a steam-pipe blast that blew a 15-by-25 foot crater in the street and shot debris 120 feet in the air. And while there was one fatality and many casualties, some critical, the broader concerns quickly evaporated as the futures recovered their gains.

That scare could well serve as an encapsulation of yesterday's market. With sub-prime concerns running rampant, financials falling hard and big-cap tech taking it on the chin, thanks to Intel (INTC) and Yahoo (YHOO), traders were briefly reminded of darker times and trickier tapes.

Adding fuel to yesterday's fire was Fed Chairman Ben Bernanke, who cut his 2007 GDP growth forecast while fingering inflation as the predominant concern and housing as continual drag. Whether or not his hand is being forced by China is unknown but the headlines weren't friendly any way you slice them.

Be that as it may, despite the horrid action in the financials (which have led the market both ways) and nasty market internals (the best daily tell), traders defended the tape and squeezed the shorts into the close. It's an all-too-familiar frustration for the bears, who have been conditioned to buy dips with everyone else.

The level of lore for traders galore remains 1).gif">S&P 1540. That's where the market broke out and it's the bovine backstop for the bevy of bulls who have recently climbed into the market. While we briefly breached that technical level intra-day, we were well above it by the time thy closing bell tolled.

As last night's earnings were largely positive, including IBM (IBM), Citrix (CTXS), Vodafone (VOD), Juniper (JNPR) and SAP AG (SAP), the first thrust from this morning's gate is higher. I continue to have concerns about contagion stemming from sub-prime and hidden losses across the financial continuum but we'll have to take our journey one step at a time.

After all, as yesterday's false alarm once again proved, structural smoke won't matter until someone actually sees a fire.

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