TUES. JUL. 29 THOUGHTS

Arguably the most popular philosophical question in the known universe is “Why?” And of course the simple answer to that one is “why not?” So many day traders overthink many many things. More often than not, it is best to simply act and not overthink (from a day trading standpoint anyway). Over the weekend, the FCC finally approved the merger of the two largest satellite radio entities (Sirius Satellite – SIRI – and XM Satellite Radio- XMSR). This approval has taken over a year to get and many people felt it’d cause both stocks to go up because of the synergies involved in unifying the operations of the two players. Of course, these same people are ignoring the fact that the business is still a losing one thus both stocks fell yesterday. The point here is this: The deal called for each share of XMSR to be worth 4.6 shares of SIRI. Based on Friday’s SIRI, close of 2.25, XMSR should have closed at 10.35; it closed instead at 9.27 for a difference of 1.08. In the early going yesterday morning in the pre-open, SIRI got to 2.35 while XMSR traded to 10.20 for a 61 cent spread. As the day progressed, particularly with rumors that the deal is going to close imminently, the spread should have come in. Yet, this spread remained wide the rest of the day. Why? Is the deal going to go through? Are the terms of the deal going to change? In short, “why not?” For day trading purposes, it is not for us to think about such things; rather, it is our job to act. It is our job to know that XMSR should move approximately 4.6 times as fast as SIRI. And most importantly, it is our job to rely on the former tenet in this discussion; if the stocks should have traded higher on the ‘good news,’ XMSR in particular was a short through unchanged yesterday morning as it could stay positive. So, basically, make sure you are educated, but don’t overthink that education and simply stick to a much more basic level of discourse- namely, if something is not acting as it should, that moves away from the expected result tends to be exacerbated with more time.

Markets in Asia followed through on Wall Street’s weakness by closing significantly lower. Europe has followed suit although losses weren’t as bad. State-side, markets are actually up in the early going in shaking off MER’s news. Today is one of those days that you’ve got to go with the markets and not your brain per se. If the markets rally on short covering and a lot of these financials open down yet get stronger, universally, thye are buys across the board. Conversely, the exact opposite can happen. It is going to be quite herky-jerky as evidenced by the wild movement in MER pre-open so be vigilant, but there are a lot of opportunities out there today.

Reiterating-New code for the next few days if the whole story is not there due to an expansive number of ideas-If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified

Good-

AMGN- good earnings following up on yesterday's strength

SCA- big convoluted deal in which XL is paying SCA and SCA is paying MER for some of the losses. Lots of money shaping hands, but SCA benefits.

CF- good earnings, but weak revenues

HIG- good earnings

MOS- good earnings although stock down last night.

RNN- very strong yesterday

ANR- great earnings

CLR –good earnings

TFX- good earnings

WLT- good earnings

VLO- good earnings

X- great earnings

AG- good earnings

NOV- good earnings

Bad-

MER- announced gigantic share offering. But stock has been crushed last few days so if it opens sharply lower, really look for that bounce in particular through unchanged as this news may well be factored in already.

XL- insurer for much of MER stuff thus writing off a lot of money.

CMP- terrible earnings

ATHR- bad earnings

ZRAN- bad earnings

IOC- still waiting on oil find news; stock down a lot yesterday

SCRX- weak on drug news all day yesterday

BAC, BK, WB, ZION, WFC, STI, USB- all weak yesterday; watching MER as leader in financials and will likely go where MER goes

GKK, RWT, AIG, PPC- all weak yesterday on close; may be follow through


Good luck today.

www.protradingnetwork.com