THURS. JUL. 3 THOUGHTS

Today’s word is illiquidity. On half-days for the market before a big holiday when nobody’s primary focus is on business and a ton of people aren’t at their desks, the market gets very very thin. Two things typically happen on a day like this. First, nothing. Nothing at all. The Dow trades in a range of 40 points and stocks mark time. The other thing is that stock prices have a bizarre move which happens easily simply because a few big players can push stocks up or down easily because there is not much of a push back as so many people are out of the office. For perspective, the Dow rallied almost 200 points on the half day of trading following Thanksgiving in 2007. Now, there is rarely a way to tell which scenario will occur. However, given the fact that this is a 3 ½ day weekend, given the fact it is a big terrorist worry weekend, given the fact that oil is where it is, given the fact that people are worried about the financial system, do not be surprised whatsoever if there is a substantial move today. Either way, be very very careful because the spreads will be big for the average stock today so the atmosphere is what the day trader makes of it- cut down on your size today and don’t be shocked at anything that happens.

Overnight, markets in Asia were generally down, Europe generally lower as well with oil up again. But, the jobs report came out neutral this morning- this is good because it indicates that the worst fear of many people that unemployment is exploding will not come to pass. So, look for a higher open. If the market opens higher and sells off, look for an A-B-A2 to the upside. The market is oversold and this is a great shot for short covering.

Yesterday was a stunning day in the scheme of things. The breadth of moves yesterday in steels and some of the oil stocks was something the likes of which many of us have never seen- this despite the fact that commodities prices rallied. A lot of the commodities rally was due to things like the raising of margin requirements which forced traders to put up more money which forced many shorts to cover. So, the watch list today is centered around many of thedse stocks and it is a rather long one for a short day:

LIZ- closed near major low yesterday; if it opens higher, looking to short 13 if it gets there.

AXL- looking to short 7.50, particularly if it opens higher.

LEG- if it opens above 15 and goes below, looking to short south of 15

CAR- closed near low; looking to short at unch if it opens higher

CQB- if it opens higher, looking to short at unch and especially 13

PCR- if it opens north of 28 and sells back off, looking to short thru 27.95

ACI,BTU,JRCC,ICO- coal stocks destroyed. Looking for A-B-A2 on long side unless the things uptrend from opening lower in which case, massive buys thru unch.

CLF,MEE,STLD,WLT- incredible materials losses and same spot analysis as above.

X, AKS, NUE- steels rocked. Same as above.

ANR, CHK, SLB, PDO- a few oils which were destroyed. Same as above.

IPI, POT, MON- a few fertilizers that got killed. Same as above.

FSLR, SPWR, LDK, CSIQ- days of getting hit…if they open down in particular and go positive, particularly on a half day, could have major major short covering,

PDX, SE- Cramer

NVDA- warned…looking for some sort of A-B-A2…will probably trend with market

GOOD LUCK TODAY and have a wonderful holiday.

WED. JUL. 2 THOUGHTS

The most common query around here the last 24 hours has been for a more in-depth explanation as to what sparked that brief yet sharp rally yesterday morning particularly in regard as to why it is of the opinion of more than a few people that Lehman (LEH) sparked the upward wave. LEH has been absolutely thrashed in recent weeks as discussed in great detail in this blog. There have been rumors of bankruptcy or a takeunder or writedowns or a liquidity crisis or any of a myriad of other things. Yet, Morgan Stanley (MS) upgraded Lehman (LEH) yesterday morning. LEH has been watched incessantly by most market observers as a barometer of the state of the financial system. What that told us was that if a venerable brokerage house such as MS risked its reputation over a call of this, the danger was minute that something horrible would happen to LEH in the immediate-term. The market opened sharply lower in the morning yet LEH opened slightly higher and kept rallying. So, this how that rally took shape: people short stocks like Goldman Sachs (GS) or Merrill Lynch (MER) much less big-time money managers noted the rally in LEH. People who had made a lot of money really fast as well as bargain hunters then took the brokers up. After that, the process repeated in financials like banks (Citicorp –C or Bank America – BAC for example); shorts covered and bargain hunters came in. Then, shorts and bargain hunters noted that the recent weakest sector (financials) was the strongest sector in the early going and the process repeated in much of the rest of the market, particularly big cap tech. Suddenly, the market mushroomed in a vacuum as sellers evaporated. This type of action occurs rather infrequently because it is so rare that one stock can lead a market, but this indeed is exactly what occurred yesterday morning.

Overnight, markets were firm worldwide with the futures in the U.S. shaking off a slew of weak retail news and downgrades to trade nicely higher. Looks like there is going to be some further short covering on the open ahead of the holiday.

UNH- warned badly. Stock trading negatively as this blog is being written. If it gets positive, it is arguably the trade of the day with an immediate-term price target of 26 and a move possible to 27.

YHOO- rumors all over the place with MSFT again. Likely an A-B-A2 off of open, but probably a better candidate to stay away from overall.

ALDN- warned badly. Likely an A-B-A2 to downside, but particularly so if it opens around 11.

DTG- very weak yesterday; if it breaches yesterday’s low, it is likely a short.

MYGN,CELG,RIMM- strong yesterday (along with other big cap biotech and tech). If they open stronger and go negative with market still up, any of them are shrots, but with a quick trigger. Avoid the idea if the market is rallying hard.

GM- downgraded. Had huge run-up yesterday. If market strong, looking for A-B-A2 to upside.

MER, GS, LEH- MER downgraded. If they open higher, looking to short MER in particular thru unch.

MDRS, RMD, BRS- on Cramer last night.

SBUX- closing 600 stores. This will likely be viewed as a positive because it shows SBUX trying to restructure. If it opens around 16 to 16.25, looking for A-B-A2 to upside.

FDO- awesome earnings. Probably A-B-A2 to upside if it opens around 22ish.

Good luck today.

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

MON. JUN. 30 THOUGHTS

Most people do not know the name Charles Wilson. But, he is attributed with one of the most famous misquotes in American business. Wilson was the one-time President of General Motors and the words “What is good for GM is good for America” are oftentimes mistakenly attributed to him. While he did not say that, the line is indicative of the sheer arrogance that many GM executives had while working at the company anytime following World War II. Some would say “pride” over arrogance; it is semantics for this discourse. Throughout the 1950’s, GM built its image as the premier company in the world. The company built itself to be at one point the largest corporation on the planet; it took about 50 years to build that image. Well, dividends aside, the stock has now officially 50 years of work as it is now trading at levels not seen since the Eisenhower administration of the late 1950’s. It is worth taking a few moments for us day traders to note this history lesson because of the true financial carnage that lies around among us. Every day, we buy and sell numbers on computer screens. No stock certificates. No balance sheets. Just numbers. But, we really need to have an understanding of what these numbers mean. It is not our job to worry about these concepts intra-day except for one major point: it is our job to act on these concepts so that we understand what we are dealing with. Furthermore, just because GM traded at levels not seen since 1982 two weeks ago didn’t mean that it couldn’t trade at lows not seen since 1957 last week…and one should not necessarily stray from trading GM (or stocks like it) just because it is inconceivable to many people that these stocks can act the way that they do in the bigger picture.

Overnight, markets in Asia were lower across the board; ditto for Europe with the notable exception of the FTSE in Britain. The dollar is weak and oil very strong in the early going. Futures, however, are not down all that much. If the market holds in here, that short covering scenario discussed in the blog post from Tuesday the 24th should come into play. Either way, the 3 ½ day workweek is going to lend itself to rather thin trade with little newsflow so as always, keep your eye on financials and oil yet if the market fails to react to bad news in either sector, this oversold market should find some sort of reversal move in here.

MYGN- one of its major drugs has a failed phase III trial. The stock has gotten thrashed this morning, but has trickled higher. Cannot pick numbers, but looks like an A-B-A2 to the upside.

HEV,UEC,RNN, FLS- Russell stocks which closed near their highs. All should trade lower this morning, but if they go thru unch on the upside, they are all likely buys

VLNC,CEDC,SDTH,MHO- all very strong on Friday; if they trade down initially, they are all buys thru unch

VMW, ABAX- weak on Friday; looking for continued momentum to downside in some fashion, particularly if they open higher, they are shorts thru unch

GSS,PRWT,PRC,TCM- weak on Russell. They all should open higher, but are shorts thru unch if they do open up

BEZ, HOS- on Cramer’s show Friday

TSL- closed on its low on earnings from Friday; if it opens up, and holds unch, it becomes an A-B-A2 to the upside

HRB- good earnings; likely an A-B-A2 to upside

Very low newsflow; very tricky today…trading will likely be thinner than normal and a bit more volatile on the average stock…not the breadth of the move for the day, but the breadth of moves while in day trades will likely be a bit wider than normal so be careful today (and all week much less always)

Good luck today.