THURS. OCT. 2 - Unintended Consequences

This is not a purely economics or political blog nor do we endorse any particular strains of thought in either field. With that in mind, the fields of politics and economics have particularly Dominanted the trading landscape of late in coming to an intersection with the ‘rescue plan.’ This intersection of free market interference often results in unintended and nasty consequences. One of these instances has occurred due to the short selling ban of financial stocks. Now, stocks are going to go where stocks are going to go- they may get there faster if one could short at will, but a fair price can and usually is determined. If Microsoft has $12 in cash, and no debt, one knows it is worth at least $12/a share so it cannot really get below $12 unless forecasts called for the company to hemorrhage money earnings-wise. With this in mind, the inability of the proper market mechanism of shorting has caused some bizarre and volatile moves. One notices of course in conjunction with the first point that every equities market benchmark are actually below their trading levels of two weeks ago. But, in trading terms, the rules have led money managers and fund managers to do things they do not ordinarily do. If you drive a car, you have to have car insurance. Well, when you are a hedge fund manager, you often look for a way to get ‘insurance’ for your portfolio. Since one cannot, for instance, be long Bank of America (BAC) and short Merrill Lynch (MER) right now, one must try to short other things. And this is why on a day like yesterday, one can see C, PNC, JPM, USB, BAC, and MER sharply higher with the broader market down…everything else is being weighted upon. Furthermore, there is that increasing dichotomy of good versus bad financials as well with further complicates things. The net of this for day traders is to watch for even weirder moves than normal in individual stocks as time progresses particularly if things calm down as stock selection becomes key- yet much more difficult due to the constant chaos of this SEC-designed move. By the way, the SEC extended the ban through the 3rd business day after Congressional legislation is approved re a financial rescue or October 17- whichever is earlier.

Overnight, markets in Asia were generally lower with Europe a tinge higher. State-side, trading will be plan-centric anew with a weak start likely due to worries over said plan and the GE pricing of its stock offering. Today looks to be like yesterday with thin volatile trading generally to the downside- the VIX was notably higher yesterday so it is worth monitoring.


Reiterating-If the whole story is not there -
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-

STI, BK, C, PNC, JPM- all major banks strong yesterday; solid banks getting separated from the bad; if it wasn’t for this sector, the market would have been down a lot yesterday

GRAN- closed very strong yesterday; may follow through today

Bad-

Fertilizers- all will likely react after MOS warned. Best trades in the group may well be before 7AM ET if there are mispricings compared to 8PM After-hours trading. Look for exceptional weakness in MOS, POT, IPI, MON, and CF. MOS conference call 11AM ET in which they’ll provide some color on the future so be weary around that time in this group (11Amish to 12PMish).

HTZ- along with other rental car companies, closed near long-term low yesterday.

SMSC- bad earnings guidance

CNW –warned on earnings

RRI- very weak last few days; debt may be downgraded…if market weak in particular, looking to short new low.

SLM- closed on its low.

MET, HIG, CB, TRV- among other insurance stocks all weak yesterday
FAST- weak on huge volume

NOC- among other defense contractors, this one was down a lot yesterday…wonder if it follows through today.

DE- way down yesterday; if it turns today against the fertilizer tide after opening down if it does, will be a great buy thru unch.

KWK weak yesterday

WG- closed near its low yesterday

MAR- poor earnings guidance


Earnings-

THURS OCT 2 BEF

MAR .32/2.95B .63/4.13B 1.79/13.21B 1.90/13.65B

STZ .44/966M .62/1.15B 1.72/3.98B 1.92/4.15B

THURS OCT 2 AFT

GPN .59/396M .55/409M 2.27/1.66B 2.62/1.91B

RECN .25/210M .29/221M 1.13/883M 1.27/926M


Good luck today.

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