MON. JUL. 7 THOUGHTS

Briefly discussed on Wednesday was a rather bizarre occurrence that it is pervading the stock market in general and is really relevant for us day traders. There is a major and unusual dichotomy between the direction of raw commodity prices and the equities of the companies which do business with said commodities. One of the reasons for the continued rise in the price of things like oil is that the major commodities exchanges (particularly the NYMEX) have raised their margin requirements as of the close of business on Wednesday July 2. So, without going into specific numbers or percentages- you now have to put up a lot more money in order to maintain your position. What ends up happening is that a move can become accelerated in a commodity; for instance, if you’re short oil and have to have more money to keep the position, you simply exit the position. So, that does at least partially explain the last week’s run-up in the price of things like natural gas. However, stocks in sectors like steels, coals, and oil drillers have been hit very badly in the last two business days. Why? Who knows. Could be funds taking profits in sectors that work. It could be that the stocks are showing us that the commodity rally has extended too far too fast. It could be that a hedge fund is in trouble and raising cash. But, it is a very unusual phenomenon and one of the more notable features of the market to watch this week. Something will give; either way, trading in those sectors will likely be frenetic.

Overnight, markets were relatively quiet. On Friday, the European bourses were down across the board on a downgrade of European banks by Goldman Sachs. There is a bit of an uptick this morning, however. Oil is indeed significantly lower at this early writing as the after-effects of the forced margin-based buying eases. Trading should be relatively quiet state-side today as people extend their vacations with a dearth of news as not one major company is reporting earnings today. Notable exceptions would seem to be the financials and the industrial stocks.

FNB/ASBC- two bank stock which closed on their lows on Thursday; if they open higher, likely shorts thru unchanged. Conversely, if they open higher, hold to fall a little, and rally and the market holds, A-B-A2. But, the easier play is probably to the short side.

ZION- rumors of needed capital infusion late last week took the stock lower. Had one upgrade and one downgrade today. Should open higher. Likely a short thru unch if it gets there.

VRSN- lowered revenue guidance Thursday afternoon. Should open down. If it goes positive, looking to buy thru unchanged.

CALM- mentioned in “Barron’s.” Should be sharply higher. Likely an A-B-A2 of some sort, likely to follow market’s direction.

WM- an investor group announced they acquired a rather large stake in the company. It should trade higher. Likely a short thru unch if the stock goes negative, but will likely be a tricky one with buying support underneath market.

LVS,MGM, other casino stocks- all got it hard last week. If market rallies, likely A-B-A2’s to upside.

APPX- being bought out for 23 per share plus a potential $6/kicker in 2011. Nobody really knows how to interpret it. Likely a short overall, but realistically an A-B-A2 with focus on shorting it if/when it takes out 23.

RATE- warned badly. Likely an A-B-A2 of some sort.

RIMM,AAPL- big cap tech up in early going. Don’t really see a trade per se, but these will be an indicator of the strength of the market (tech sector in particular) throughout the day because they are so strong as of this writing.

Fertilizers/oils/steels- all higher in early going. Look for nuances. For instance, CHK is down as of this writing so if the sectors strengthen further, looking to buy CHK thru unch.

Good luck today.