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Freaky Friday Potpourri: Breakout or Fakeout?

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Bulls looking to build momentum.

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Following a slithery four-session span-the Dow Jones Industrial Average is 45 cents lower than last Friday-we power up this frisky pup for Mary Jane's last dance.

To be sure, the tape feels a lot better than it looks. After what we've recently seen-most notably Ambac (ABK) and the reaction, or lack thereof, by the financials- Hoofy has some pep in his step as we ready for the Freak that is Friday.

Late yesterday on the Buzz, which is real-time and real good, I offered the following vibe:

If you were to ask me what I think, I would offer five very frightening thoughts:

1. Cumulative, structural imbalances that are debt dependent and derivative-laden.

2. The redheaded teen that is the VXO is back at levels that have past preceded periods of pain just as the S&P flirts with S&P 1405.

3. The dollar has found a bid, commodities are coming in hard and equities are vulnerable through our oft-discussed lens.

4. Somebody is holding a whole lotta toxic paper on the other side of the monolines (ABK, MBIA (MBI)).

5. Carnies. Circus folk. Nomads really. They've got small hands and smell like cabbage.

Now, if you were to ask me how I "felt," I would offer they wanna trade higher. The S's have some reverse dandruff and IF (huge, monster, engorged IF) Hoofy can spur the herd through S&P 1405, we could see a squeal of pleasure relief that would friggin' kill a horse.

How am I positioned? With discipline, thank you very much. I day-traded from the long side and I'm going home flat on that inventory. I've got some longer term plays in the newspapers (Gannett (GCI) calls, McClatchey (MNI) stock)--as well as some 'situational stuff'-which I'm holding. The balance of my book will wonder twin its way (form of dry powder!) into the final fifth of this freaky week.


Random Thoughts

  • As Pepe offered yesterday, the collective exhalation you're hearing is a function of the system having held together. The question, quite naturally, is when attention will shift back to the slowing economy, strapped consumer, dilutive transactions and the aforementioned imbalances. The answer, quite possibly, may be Wednesday's FOMC meeting.

  • Merrill Lynch (MER) is holding talks with Private Equity firm TPG regarding a potential investment? Every step begins with a single journey.

  • File this FT article about banks cutting hedge fund lending in the back of your mind. While it makes sense from a risk management standpoint, it could have profound implications given the role hedge funds have assumed in the capital markets liquidity process.

  • Mike O'Rourke, the talented Chief Market Strategist at BTIG, reminds us "During the 2001-2002 bear market, there were 5 major rallies generally lasting anywhere from 1-3 months trough to peak. The approximate gains were 8%, 21.5%, 25%, 9.5%, 24.5%. During those years, the high was 1383 and the low was 768. We will not be surprised if this current rally, which is 10.5% off the March low, has another significant leg."

  • While speaking at a function a while back, someone asked me what my proudest professional accomplishments were. After a pensive moment, I offered "My failures. You never know what you're made of until you're tested." True dat. If I've come to learn anything over my career, it's that tenacity, resolve and desire are the hallmarks of any successful venture.


Answers I Really Wanna Know…

  • Does S&P 1405 have to join the Nazz, DJIA and TRAN on the other side of resistance before the path of maximum frustration kicks in?

  • Or will we migrate at a massive, four-front perfect technical storm into the massive catalyst that is the FOMC?

  • Given the two-sided risk, doesn't it make sense to stick with the (Winky Wright) style that got us here?

  • Through our oft-mentioned lens, how long can the dollar rally before equities feel the heat?

  • If you're not humble in this business, won't the market do it for you?

  • Is Darren McFadden the right fit for a silver and black squad with a stacked backfield?

  • Will Microsoft (MSFT) launch a hostile bid for Yahoo (YHOO) despite its insistence that it's ready and willing to go it alone?

  • Is Baidu (BIDU) proof positive that the ability not to trade is sometimes as valuable as trading ability?

  • Will Minyanland achieve the six-figure tick before June 23?

  • And now, for the most important question of all. Are you enjoying your journey?


R.P.

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Positions in GCI, MNI
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