TUES. JUL. 1 THOUGHTS

Yesterday was a quiet day for the market, but there were a lot of developments below the surface. Some good. Some bad. But isn’t that always the case? However, the most notable feature in yesterday’s trading was that Lehman Brothers (LEH) took out its low from March 17. This was a benchmark number (20.25) because it was the day that the stock much less the market bottomed following the hemorrhaging of Bear Stearns as discussed in several blogs previous. The panic/freight level was among the highest it had ever been for the market that day and indeed, LEH more than doubled in the ensuing 24 hours. However, as was shown to be the case with Bear, the perception oftentimes can become the reality. Although bear indeed had a tremendous amount of problems, the rapidity with which the firm went down was startling and largely psychological in the time frame with which it occurred. However, the signal shown yesterday by LEH breaching that major low was that this crisis is not over and indeed, we may be entering a second more sinister phase. For the discerning day trader, the market was largely mixed yesterday with oil unchanged yet financials weighing on everything. And indeed the market was looking to the financial group for leadership-which was not there. At this point, the market is vastly oversold so while stocks continue to trade lower, keep in mind that the immediate-term can bring anything due to the holidays and the dearth of liquidity out there. Use LEH as a guide and be weary of random sharp moves today through Thursday on rumor-driven trading.

It was a rough night overseas. The Chinese market sunk to a new 2008 low, down over 3%. Tokyo followed. In Europe, the bourses are down 1% to 2% across the board amid negative news affecting UBS. Oil is back up as well. Today is a LEH morning…if LEH holds, some short covering will likely follow the broader market because it’ll start in financials. As people notice financials upticking, the inclination is to cover shorts. And as financials go, so goes the rest of the market. LEH would seem to be the initial key no matter what.

LEH- upgraded this morning by Morgan Stanley. Now, it would seem that Morgan Stanley would not upgrade LEH if there was imminent danger. So, LEH should hold and if it does, it could turn the whole market. That said, and it has been trading higher all morning, it is a short whether pre or post open thru unch- preferably the first time if it popped up and down multiple times.

GS, MER, MS- watching to see if they move with LEH. All down right now. If LEH begins rallying hard, these will eventually likely follow in a mere sympathy move.

CIT- selling off its mortgage unit. This is phenomenal for the company because many people were valuing the unit near zero. Stock should be higher and is a likely A-B-A2 in some fashion…to upside if market strong and downside if market weak.

FO- warned horribly last night. A-B-A2 of some sort.

RWT, XL, DV, , LEA, GME, AHR- all closed near lows yesterday; if they open higher and sell off, any of them are shorts thru unch.

SCHN- great earnings. But stock up a lot last couple of days. If stock opens higher and goes to unch, short thru unch.

STZ/MSM- other earnings plays; likely no major change, but worth tracking.

SMSC- abominable earnings. A-B-A2 to downside

Not a lot of newsflow; trading will be even thinner than yesterday so be careful. Good luck today.

Watch list at 9AM:


$DJI
COMP
LEH
GS
MER
MS
CIT
FO
RWT
XL
CAG
DV
REDF
AHR
SCHN
STZ
MSM
LEA
GME
OMG
TRAK
SMSC
CECO
SHLD
FMS
RBN
VRTB
ROK
CEDC
FNM
FRE
MTG
CSIQ
LDK
MYGN
HK
STI
OSK
AAPL
VMW
TCM
FCSX
TELOZ
TSL
ZION
ESLR
ENER
RIMM
C
WB
IPI
POT
AM
MON
ROYL
MXC
PDO
MA
CSE
YHOO
WNR
BTU
ALD
V
EXM
DRYS
TLB
GOOG
JRCC
MF
CAL
UAUA
ABK
MBI
FED
UNH
FDP
DSL
FSLR
STP
GEOI
NCMI
GRMN
PBR
WM
VLO
EAC
FCX
WY
BIDU
LNG
BZH
GM