THURS. JUL. 10 THOUGHTS

The financials are officially leading the way right now for day trading with declines in Fannie Mae (FNM) and Freddie Mac (FRE) in the forefront. But, with a slew of same store sales out yesterday morning plus a spate of earnings to come, it’s important to do a little background research on inflation. One of the major benchmarks for inflation in the United States is the Commodity Research Bureau Index (CRB). Among other things, it measures the value of metals, textiles (such as cotton), livestock, fats (like butter), raw industrials (such as steel scrap), and random foodstuffs (such as cocoa or wheat). Among the statistics buried amid the soaring price of oil, the plunging value of the Dow Jones Industrial Average, and the general worries over the world’s economies is the fact that this index is up 41% in the last year. 41 Percent. Whether this is a bubble or sustainable is certainly not relevant to a day trader on any given day. What is important is that this is another piece of the big picture. Go to a grocery store. Since mid-2004, a box of San Giorgio pasta has risen from 33 cents to $1.39. And specifically, basing it since the beginning of 2008, the price went from $1.05 or so to $1.40. Yet, inflation is discussed as being under control according to official government statistics and most common economic measures. This is worth a few precious lines in this space because it is simply something else to keep in the back of the mind of the day trader. Commodity prices have risen much more than the average intelligent person can fathom. This is not an advocation to buy or sell any particular stock. However, this type of statistical change (41% in 12 months?!) is certainly something that should be monitored by the trading community because if it accelerates or decelerates, the breadth of the move of the market will be even more powerful than it has been thus far in 2008.

Overnight, markets in Asia were actually flat while European markets followed Wall Street’s lead downward amid concerns in the financials. This morning though, things look notably brighter. The CEO of BankAmerica (BAC) noted that BAC will not cut its dividend nor does it need to raise capital. Furthermore, Dow Chemical (DOW) announced a deal to buy Rohm and Haas (ROH). This is very bullish because the implication here is that merely one merger may plant the seed in the minds of many investors that some sectors much less the overall market is cheap. So, the market will likely open nicely higher. If it tries to sell off, but holds, an A-B-A2 type of day may be in order for the market to the upside. But, financials will likely lead the way.

CSE- very very weak yesterday. If it opens higher and goes negative, it is likely a short thru unch.

CHK- today’s GDP. They announced a huge share offering at 57.25 on the heels of the stock having fallen 17 points in a few days. Three trades here. If it opens below 57.25, it is a buy thru 57.25. If it opens above 57.25 and sells off, it is a short below 57.25. And the best of all is that if it ticks gradually higher in the pre-open and jus tafter the open, it is likely a buy at unchanged on short covering.

FRE/FNM- Ex President Poole out on wires indicating that these firms are technically insolvent. Stocks barely down at this writing. Think decline gets legs and looking for spot to short them, particularly pre-open.

DOW- buying out ROH; stock should trade down. Looking to buy it thru unch.

WMT/TGT- both announced better than expected same-store-sales. Stocks should trade higher; if they go negative, both are shorts.

BAC- announced that dividend will not be cut nor does it need capital. Stock traded up a dollar last night. If it opens down and market strengthens, it is a buy thru unch.

ALD- closed near a low. If it opens higher, looking to short thru 12.25

CHTT,TXI,MAR- all out with earnings. A-B-A2s all over the place here based on market direction in particular

Lots going on; focus on the broad watch list with an acute look at the financials.

Good luck today.