THURS. JUN. 12 THOUGHTS

Traders oftentimes get lost in the forest in their quest to earn a living. Well, day traders tend to keep bumping into trees in said forest in micromanaging many details. Almost if not every day trader out there is guilty of this. However, there are certain times (much less days) in which it is more than prudent to simply take a step back and realize what is going on. On days like yesterday in particular, having a clear view of reality (or at least what is being perceived as reality because the perception becomes is the reality) is an absolute must. A few days ago, it was noted in this space that the performance of Lehman Brothers (LEH) in particular would held to give a trader guidance as to that day’s direction of the equities market. The immediate-term issue for the markets is not the prospect for inflation (although that is more of a concern than most people realize); rather, it is the fact that this financial crisis is not over. In fact, a new leg may well be underway as evidenced by the decline of such stocks as LEH. Which brings us to the point. Three of the top 10 percentage losers yesterday were Allied Capital (ALD), FirstFed (FED), and MGIC Investment Corp. (MTG). Whenever the market is in the midst of a clear down channel as it was yesterday, stocks like these (which are broadly declining) will likely keep going. This is due to the fact that crises beget crises and the perception is that these companies are in trouble. Thus, these are true day trades rather than trades held for a duration of 42 seconds. Again, all of us (this author very much included) is guilty of quickly grabbing money in these things, but sometimes, it is simply better to let the trees fall in the forest rather than darting in and out as the trees are coming down.

Overnight, markets in Asia were down, but things turned in Europe once oil began coming in; as of this writing, oil is down over three dollars a barrel. This would lend credence to the markets opening higher. As long as oil remains down and there are no new credit bombs, the markets should remain higher on some short covering.

KEY- issuing stock and slashing its dividend. 14.50 seems to be a major level in pre-hours…it is a short below there. In a broader perspective, if it opens over 15ish, it is a buy thru unchanged and/or in some sort of A-B-A2 pattern.

ESIC/STXX/SORC- all strong yesterday; looking for continued momentum if they open down, i.e. buy thru unchanged.

EWBC- closed very weak. If it opens higher, short thru unch.

CMED- terrific earnings. It is some sort of A-B-A2 trade, i.e. if it opens at say 39, falls to 38.50, and rallies to 39, it is a buy at 39 the 2nd time. Or if it opens at 39, rallies to 39.50, and falls to 39, it is a short at 39 the 2nd time.

AIRT- phenomenal earnings. A-B-A2 here as well, i.e. if it opens at 11ish, falls to 10.75ish, and rallies back to 11, buy 11 the 2nd time.

USS/TCB/LPX/SFI/TPX/XL/BEAV/ACLI/STI- all closed near their lows. Looking for continued downside momentum; if any of them open higher and go negative, they are shorts.

UNP/NSC/BNI- all railroads very weak yesterday; if they open higher, short thru unch.

Brokers- LEH officers left this morning…if they hold unchanged (except LEH), buy them on open. If LEH trades lower and rallies toward unch, buy thru unch.

Good luck today.