FRI. JUN. 13 THOUGHTS

“All In The Family.” The Bicentennial. Those are two good things that came out of the 1970’s in the United States. However, ‘stagflation’ was also rampant throughout most of the decade. Stagflation loosely defined is a period of slow economic growth, rising unemployment, and rampant inflation. While a discourse into whether this is the direction the economy is headed in is perhaps warranted, it is worth noting for us day traders some very strange things in recent weeks. First, food prices are rising even faster than oil prices. Speaking of oil, the second point- the U.S. dollar is strengthening along with oil- the opposite of what has occurred throughout much of the run-up in oil prices. Third, bond yields are soaring upward in recent weeks while stock prices have fallen. Now, call me crazy, but rising interest rates, rising inflation, an unemployment rate which jumped last month, and falling stock prices portend trouble. For us day traders, this is all important for one reason: nobody really knows what number will be of importance of any given day nor will anybody know what said numbers mean. Some days, rising oil prices is implied as good because it shows ‘increased world demand.’ Some days, rising interest rates are good because it implies investor selling bonds and buying stocks. So, this harks back to the theme yesterday- keep in mind the big picture here- namely, the combination discussed here is not a good one. However, on any given day, random numbers will be cited as justification for the movement of stock prices. For now, the only two numbers that matter – in order- are the stock price of Lehman (LEH) and the price of oil; do not ignore the minutia nor drown it out. But realize that for all intents and purposes, LEH and crude oil are all that matter- and realize that because of the aforementioned minutia, any given number could become all-important at any given time in the coming weeks.

Overnight, the Asian markets were mixed with Tokyo up, Hong Kong down, and China down yet again continuing an astounding and largely unnoticed 50% plus fall from its height. Oil prices are down in the early-going with the dollar up slightly. It will likely be a relatively slow day today with sunny conditions and 80 degrees in the tri-state area, particularly with the market slightly higher and closing in the middle of its range yesterday. That said, there will probably be a continued small bounce with a somewhat firm tone for much of the day barring unforeseen news.

YHOO/GOOG- officially announced a partnership last night; news should be factored into YHOO…it is a buy thru unchanged particularly if it barely opens lower.

KEY- issuing 85 million shares at 11.75. The stock should stay below 11.75. if it gets to 11.76 (one penny up), it is a buy as it indicates the offering is factored in.

RJET- looks terrible on a chart; approaching multi-year lows and may be short at/just below round number of 10.

CTL- down hard yesterday; likely a short thru low of yesterday around 32.

RRC/REXX/CSX- on Cramer’s show last night.

BUD- announced that they are trying to do a deal with someone else rather than being bought out. Stock should be down; if it opens near unchanged and ticks higher, it is likely a buy.

STLD/X- STLD pre-announced positive earnings; likely an A-B-A2 off of the open as a buy. Conversely, it is a short thru unch.
PWRD- positive pre-announcement. An A-B-A2 bullish set-up.

GNK/EXM/DRYS/DSX/other dry bulk shippers- have been slammed last few days. Looking here at A-B-A2 also; if they open higher (as they should), dip and hold unchanged, and get back to the opening level, they are all buys.

Good luck today and have a good weekend.

THURS. JUN. 12 THOUGHTS

Traders oftentimes get lost in the forest in their quest to earn a living. Well, day traders tend to keep bumping into trees in said forest in micromanaging many details. Almost if not every day trader out there is guilty of this. However, there are certain times (much less days) in which it is more than prudent to simply take a step back and realize what is going on. On days like yesterday in particular, having a clear view of reality (or at least what is being perceived as reality because the perception becomes is the reality) is an absolute must. A few days ago, it was noted in this space that the performance of Lehman Brothers (LEH) in particular would held to give a trader guidance as to that day’s direction of the equities market. The immediate-term issue for the markets is not the prospect for inflation (although that is more of a concern than most people realize); rather, it is the fact that this financial crisis is not over. In fact, a new leg may well be underway as evidenced by the decline of such stocks as LEH. Which brings us to the point. Three of the top 10 percentage losers yesterday were Allied Capital (ALD), FirstFed (FED), and MGIC Investment Corp. (MTG). Whenever the market is in the midst of a clear down channel as it was yesterday, stocks like these (which are broadly declining) will likely keep going. This is due to the fact that crises beget crises and the perception is that these companies are in trouble. Thus, these are true day trades rather than trades held for a duration of 42 seconds. Again, all of us (this author very much included) is guilty of quickly grabbing money in these things, but sometimes, it is simply better to let the trees fall in the forest rather than darting in and out as the trees are coming down.

Overnight, markets in Asia were down, but things turned in Europe once oil began coming in; as of this writing, oil is down over three dollars a barrel. This would lend credence to the markets opening higher. As long as oil remains down and there are no new credit bombs, the markets should remain higher on some short covering.

KEY- issuing stock and slashing its dividend. 14.50 seems to be a major level in pre-hours…it is a short below there. In a broader perspective, if it opens over 15ish, it is a buy thru unchanged and/or in some sort of A-B-A2 pattern.

ESIC/STXX/SORC- all strong yesterday; looking for continued momentum if they open down, i.e. buy thru unchanged.

EWBC- closed very weak. If it opens higher, short thru unch.

CMED- terrific earnings. It is some sort of A-B-A2 trade, i.e. if it opens at say 39, falls to 38.50, and rallies to 39, it is a buy at 39 the 2nd time. Or if it opens at 39, rallies to 39.50, and falls to 39, it is a short at 39 the 2nd time.

AIRT- phenomenal earnings. A-B-A2 here as well, i.e. if it opens at 11ish, falls to 10.75ish, and rallies back to 11, buy 11 the 2nd time.

USS/TCB/LPX/SFI/TPX/XL/BEAV/ACLI/STI- all closed near their lows. Looking for continued downside momentum; if any of them open higher and go negative, they are shorts.

UNP/NSC/BNI- all railroads very weak yesterday; if they open higher, short thru unch.

Brokers- LEH officers left this morning…if they hold unchanged (except LEH), buy them on open. If LEH trades lower and rallies toward unch, buy thru unch.

Good luck today.

WED. JUN. 11 THOUGHTS

There are always admonishments around to be careful while trading. Well, here is another: for momentum day traders, one of the worst stretches of time to trade is the period just after the open of the market on days in which the market closed the previous day in the middle of its range. Usually, big money tends to slosh in and out early and particularly late in the day with the market tending to close near the top or bottom of a range. However, the Dow yesterday closed 83 points off of a low and 8 off of a high while the NASDAQ closed 18 off of a high and 16 off of a low. This is important for any trader to notice. Why? It makes breakouts and breakdowns that much harder to be a factor in individual stocks. How can one buy a new intra-day high when really, it is a lot lower than yesterday’s high and there are a crop of sellers waiting above the market to exit. So, particularly on mornings such as this one: “Be careful.”

Overnight, markets quiet except for oil trading higher in pre-open sharly higher.

AAPL- trading on rumors of the health of Steve Jobs oddly enough...if it opens higher, may be a short thru unch

GLUU- strong yetserday; if it opens flat, buy 5.75.

CRDC- way up yesterday; if it opens way up and tirckles down, short thru unch. Conversely, could be A-B-A2 in that if it opens at say 10, goes to 9.80 and back to 10, it is a buy.

GLRE- looking for buy on continued momentum

APP- was weak all day yesterday; looking for short at 6.30 or lower

AGU- pre-announced positive earnings; whole sector should be strong today (like MON, IPI, POT, et al)

OXM- pre-announced negative earnings; if it opens lower and holds, may be buy thru new high

REXX/DCI- Cramer stocks

BWP- major share offering 25.30. Worth a shot as a buy above 25.30 with an outpoint anywhere below 25.30 post-entry

LEH- rumors that they are near a deal for more capital

Really tricky day ahead; be careful.

Good luck today.

TUES. JUN. 10 THOUGHTS

Fast Money. In this space last week was a whole schpiel about the NASDAQ vastly outperformed the Dow (much less the other broader markets). Guess what happened yesterday? The Dow was up 71 (up 0.6%) while the NASDAQ was down 15 (down 0.6%). Oil was down over 4 dollars a barrel and financials were down too. This is worth discussing again to reiterate how fast the markets are right now. Oil is moving in increments once reserved for monthly moves. Financial stocks are hitting levels not seen for years. A generation ago, the holding periods of equities by big-time money managers were exponentially higher than now. Entities such as hedge funds, day trading, and the increasing utilization of electronic means have allowed for money to slosh around with amazing speed. And that is happening more every day. This is terrific for day traders because if a day trader can simply note which way an entire group is going on any given day, he can do very well. Furthermore, it allows for exaggerated moves on the typical momentum plays we as a group attempt to execute because more people are involved with heightened emotion. Use this to your advantage. Realize that just because Apple (AAPL) is down 2 points does not mean it cannot be down over 10 points as it was at one time yesterday. And it puts into focus the two overriding themes preached here always- a) when entering a trade, know immediately where you are wrong and b) when in a position, realize that something can move a lot farther than you think a lot faster than you think. There is a lot of money to be made- and lost- very fast right now.

Overnight, many of the Asian markets were hammered after being closed on Monday; the Chinese stock market suffered one of its biggest declines in its history. The European markets are down as well. Oil is up- as is the dollar while bonds are down. The only thing missing today is major news flow.

AAPL- reiterated a buy by two major brokerage houses with increased price targets. The stock is trading lower in the downdraft. If it gets to unch, it is a buy.

HK/MOT- Cramer stocks. Don't think MOT will be affected, but HK should be sharply higher...if oil continues strong, HK wil llikely kep going (and vice versa).

CAEI- the stock formerly indicated as RCH. Stock has run up due to NASDAQ transfer. If it opens up whatsoever, it is a short thru unch (and maybe even below unch depending on the action of the stock).

PIR- very weak yesterday. They are acquiring Cost Plus (CPWM). May be weak anew today.

SQNM- after major run-up, it is being sued for patent infringement. Stock should open down. if it goes thru unch, it is a buy.

WNR- has been bludgeoned last few days. if oil is ery very strong today, it is a buy thru unch on short covering.

MA/V- being sued by Discover (DFS). Stocks will likely open down. They are buys thru unch.

ABK- coming out of S&P 500 on the close. If it has a dramatically awful close, it is a buy right on the close due to S&P 500 managers shiftong money around.

Good luck today.

MON.JUN. 9 THOUGHTS

The most popular question of the day on Friday asked that was heard around here was “If oil is up 10 dollars a barrel, why are oil stocks down?” The answer is amazingly simple: money managers are human and computer models are designed by humans. The average person who holds a diversified portfolio of stocks will watch the action; let’s say 4 out of 5 stocks in the portfolio are down and his other one is a winner (let’s say an oil stock to further drive home the point). Guess what the average person sells? Simple. The winner. Why? There is the greed factor in thinking that the losers will go up and second is the fear factor that the winner will go against him. Thus, the strongest stocks are always the last to fall in a broader declining market…but they do fall as well. On Black Monday in October 1987, only 21 NYSE stocks were up for the day…that means that everything was down. Using an analogy: let’s say that you build a gigantic sand castle on the beach near the water’s edge. The works. You have a fort in front with some little tiny castles, a fortress with a moat, and then in the back is the actual gigantic sand building. When the tides comes in, the first things to go will be the tiny protective sand castles and the moat will be swallowed up. But guess what? That castle is going down too- no matter how gallant and beautiful it is. It will take longer, but it will happen. It is the same principle here. In a bad equity environment, stocks get hit in every sector no matter what.

As for today, all you have to do is hark back to the blog column from late last week; hot money is changing day to day from stocks to commodities to sectors to who know’s where. Thus, the craziness will continue today based largely on LEH and the price of oil. Oil is down more than two dollars a barrel in the early going. LEH is issuing stock. And Oil is winning as futures are bid higher in the early going with weakness being shaken off in Europe as the bourses there are above the unchanged level.

LEH- issuing $6 billion of capital at what is believed to be 28 a share combined with a loss. The easiest trades will be to short the stock before 8AM; after that, it gets significantly trickier and the best advice is to stay away unless a major A-B-A2 setsu p, i.e. it opens at 30.50, sells off to 30, and comes back to 30.50 with the market rallying.

GS/MER/MS- if they open down and go positive, they are buys as they should be unaffected by the LEH news in the immediate-term.

XIDE- good earnings. If the stock gets negative, it is a short.

HON/BEAV- HON is selling a unit to BEAV. Both should be up; it is actually accretive to BEAV while HON raises capital. If either goes negative, it is a short.

VRTX- positive drug news over the weekend. If it opens at say 35, goes to 34.50 and rallies to 35, it is a buy. Same thing vice versa; if it opens at say 34.50, rallies to 35, and falls back to 34.50, it is a short.

AMLN- negative drug news- issued at 12PM on Saturday. Usually when a negative report comes out at a weird time, it is even worse than initially thought...it is likely a short below 28.

BID- issuing decent revenue guidance. Should open higher; it is a short at unch.

WMT/CPRT/IART- all on Cramer.

AAPL- watching for iPhone stuff. Stock higher in pre-open. Will be a short below unch especially before 8:30AM.

CIT - raising capital. Stock higher. it is likely an A-B-A2 depending on exactly where it opens.

RCH- going from AMEX to NASDAQ. It will likely be higher again. Ridiculous because this is not ews. if the barely opens higher, it is a short. Conversely, if it trades strong all day, put it on the watch list fortomorrow for the same trade.

Good luck today.