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Freaky Friday Potpourri: Discounting Marcel Marceau


Will the bears turn up the volume?

Shhh, ya hear that?

No, that.

Exactly, neither did I! It's been so quiet. How quiet? It's been so quiet, you can almost hear a bonus drop!

I mention the muted volume for a reason; yesterday's shush puppy was consistent with the sounds of silence heard during Tuesday's rally and Wednesday's grind.

Traditionally low volume rallies after high volume declines are textbook retracement patterns destined to fail. The twist, at least this time around, is the unforeseen expiration influences at work behind the scenes.

Last night, as I was readying to turn my attention away from the tape, news broke that the Federal Reserve raised the Discount Rate by a quarter point, to 0.75%, to facilitate "the further normalization…of lending facilities."

The move "isn't expected to lead to tighter financial conditions for households and businesses" -- and "does not signal any change in the outlook for the economy or for monetary policy" -- but it remains to be seen whether popular perception will embrace that brave face.

While policymakers have manufactured an eye-popping rally -- they understand that equities are the world's biggest thermometer -- money hasn't loosened up for most of mainstream America. Financial conditions are strapped at best and the specter of belt-tightening, stateside and abroad, will be the true stress test for markets at large

The timing of the announcement was somewhat curious; the release hit after the market closed the night before options expiration. My knee-jerk response was "Cher Horowitz!" (read: Clueless!) before the Jack Bauer in me realized 1) they wanted to give investors the overnight session to digest the move 2) they've likely got something else up their sleeve, if need be.

The bulls will argue better-than-expected earnings validate the economic turn; the bears will counter that 20% underemployment tells the true story. The tiebreaker will be psychology -- perception vs. reality, hope vs. despair and fear vs. greed.

Therein lies the importance of social mood; we've discussed this through the years and focused on it the last two weeks. On Wednesday, "bombs and lawsuits and riots, oh my!" jockeyed for attention. Yesterday, a coup (in Niger), Royal Navy warship posturing (Falklands) and another act of horror (white light to Austin) added to the cumulative societal stress.

My intention isn't to beat a dire drumbeat. Social mood and risk appetites shape financial markets and the mainstream mindset needs to be monitored. I said in December 2006 that what concerned me most was that the DJIA was trading at all-time highs but nobody felt like we were at all-time highs.

My antennae are currently tingling with a similar sense and I would be remiss if I didn't share that with ye faithful. That doesn't mean it's today's business; I'm often early, as I was in December 2006, but I've learned to trust my gut, pay attention to the clues and stair-step the journey with discipline over conviction.

In terms of putting one foot in front of the other, I mentioned yesterday that I was trying to spy advantageous near-term risk/reward. As the tape toggled at S&P 1100, I sensed 4:1 odds on the downside -- upside risk of 20 handles and room to swoon to the 200-day at S&P 1027ish. That's how I'm approaching this quiet storm; disciplined, defined and dancing between the elephants.

Random thoughts:

  • I haven't spoken this much Greek since I recited the alphabet backwards while pledging before a single match burned out. Still, it must be noted that the government of Greece will launch a $6.8 billion 10-year bond offering in the next few days. The reaction to that sale will be an important piece in our "contagion vs. containment" puzzle (at least until the next sovereign situation emerges).

  • Sometimes I put my best foot forward on television; and then there's this.

  • I'm all for the Olympics but I can't for the life of me understand how Curling made the cut.

  • Have we arrived at the social mood where "success" is perceived as a threat?

  • Oh to live on, Homie Mountain! Someone once said "Never short a chart you can't ski." I thought of that as I pulled back the lens on the homebuilders, which put in five higher lows following the double bottom.

  • And no, of course I wouldn't leave ye faithful hanging!

  • Matt Taibbi at Rolling Stone is riffin' on Goldman again, for those who are interested in such things.

  • Can you go for this?

  • I almost bought VIX calls, consistent with my view that "long vol" is the best bet on the board but I caught myself before pulling the trigger. The smartest option folks I speak with, to a person, warn me that these are toxic trading vehicles.

  • 2010: The Year of the Critter

  • "I think the next stop on this rally is the 50-month EMA (now around S&P 1145. If you look at long-term monthly chart of the S&P, you'll see several bounces off the 50-month EMA (in December of '01 through March of '02 and again in August and September of '08, before the market re-plunged, n both cases). We could consolidate around here at the 50-day for while and then make another move towards that 50-month. I've covered my S&P shorts and will put them on again at around 1140 or so, with a stop on the other side of the 50-month, if we get there." --Minyan Mark, who's trading feel I've come to respect over time.

  • Today's tells include Dell (DELL) (reaction to news), Goldman (GS), Google (GOOG), Apple (AAPL), market internals, and the US Dollar.
Answers I Really Wanna Know

  • WWBD?

  • What if we're in the early stages of "migration" (through the lens of denial, migration and panic) as it relates to the shifting social mood?

  • Scary, right?

  • The stubbornly sticky tape: Expiration related or telling in the face of mounting negatives?

  • Whistler past the graveyard?

  • How come I cringe every time I hear the words "butternut squash"?

  • What ever happened to Meg Ryan?

  • Or Jamie Gertz for that matter?

  • Will this be the anthem of the forthcoming decade?

  • If you do the right thing long enough will folks eventually take notice?

  • Does the air of integrity indeed get thinner with age?

  • Has "the louder you scream, the more important your message is" mindset faded?

  • Isn't the smartest guy (gal) in the room the one who whispers and everyone immediately stops talking so they can hear what he or she has to say?

  • Why don't cannibals eat clowns? (they taste funny)

  • I thought crazy is on the bus?

  • If I could only recommend ONE book to ye faithful, would this be it?

  • I'll see you over on The Buzz.
Hit 'em hard, Minyans, and have a fantastic weekend!

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