Friday, September 12, 2008

FRI. SEP. 12- Look at LEH Now...

Perspective. Sometimes, we just have to keep it all in perspective. The demise of Lehman (LEH) is obviously a tremendous story, but not as much as it used to be. As of the close of trading yesterday, Charles Schwab (SCHW) had a market capitalization of just over $28 billion. The market capitalization of LEH is now under $3 billion. This means that if someone comes in to buy LEH at twice its current price (i.e. buyout at 8), it’d still be under 25% the price that SCHW is worth. Thus, LEH has been one of the top stories of the year – especially in this day trader column- but the time is almost here to stop discussing LEH. No matter what happens, the situation is entering the final chapter and it is time to focus on the future. Many of the big capitalization financials rallied extremely hard yesterday as the dichotomy being good and bad entities begins to forcefully assert itself. While there will be hiccups over the coming days and weeks, we as day traders need to envision a day in the coming weeks when LEH will be discussed as part of history rather than having an impact on the markets- and that time may have started yesterday. In the interim, if you want to focus upon the financials for day trading, do not get caught up in rumors and scalping of LEH as it is a difficult and hard game; trade only the concrete and realize that the market continues to change its face on a daily basis.

Overnight, markets in Asia were mixed with Europe up a bit. State-side, look for very choppy and volatile trading today which will likely be directionless albeit with a downside bias as the day progresses if financials give back some of yesterday’s fierce short covering rally.

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


RJET- closed very strong at a multi-week high. Looking to buy it if it opens lower.

WFC/JPM- strong yesterday…seeking follow-through if mkt strong

JOYG- announced massive buyback yesterday morning; stock should continue to rally…if it goes thru unch, it is a short

POT- announced massive buy-back; likely A-B-A2


LEH- continued rumors will envelop trading today…no definitive trades here except that if it is trading higher in the pre-open, it is a short the first time it goes thru unch. If it opens down post-open and begins to rally, it is likely a buy thru unch the first time it goes through.

AIG- bounced huge yesterday; there will be rumors all over the place here as well

MER- closed off the low, but rumors will begin taking this one too…will likely follow LEH’s lead

SRZ- incredibly weak the last few days after poor earnings; may see follow-through and if it stagnates near yesterday’s low, looking to short thru that low.

No earnings of importance today.

Good luck today.

Thursday, September 11, 2008

THURS. SEP. 11- A Sad Anniversary

Today is the 7th anniversary of one of the most tragic days in the history of the United States. Seven years ago today, a group of madmen brought down the World Trade Center and tried destroying the Pentagon and potentially more if not for some heroes in Western Pennsylvania. While (sadly) time lessens the event, it still affects many Wall Streeters- many of whom do not go to work on this day because they just can’t. Thus, trying to keep this business-related, it is a day that is traditionally a little slower than otherwise would be with stock movement a little different in tone than it usually is. Generally, the volatility isn’t as great and the individualized moves tend to be a little stranger than normal. In 2002, the market opened sharply higher on a patriotic rally before closing down and its low. But for the last five years, the 9/11 trading session (or the one immediately afterwards) were all up days for the market based on the Dow Jones Industrial Average. So, in between observing the moments of silence and remembering the awful events of seven years ago, realize that trading today in all likelihood will be a little different and less violent in nature than it usually is. All of this said, we are an extremely different financial environment now than we were in any of the last six anniversaries so we are not saying the market will close higher…but it will likely be a little more quiet today than normal except in the financial sector where thinner conditions may make it even more volatile.

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

COL- pre-announced earnings in-line after closing at its low yesterday

PBR- up amidst some Brazilian political moves; has a head start over other oils...if oil rallies, will be very strong

DRI, CLNE - on Cramer's show last night


LEH- closed very weak yesterday; the stock will likely continue to downtrend today and may accelerate- if it does, be on the lookout for new lows and keep an eye on how it is affecting the rest of the market. THE BEST TRADES BY FAR WILL BE PRE-OPEN PROBABLY BEFORE 8AM.

ACTL- warned on earnings

KNXA- warned on earnings

CAVM- very weak; completely broke down yesterday

SVVS- closed on its low

GFIG- weak after posting terrible earnings

MER, MS, GS - broker sector was terribly weak yesterday; they are all subject to rumors at anytime today

AIG- may be the next LEH; watching all day

LULU- bad earnings

Good luck today.

Wednesday, September 10, 2008

WED. SEP. 10- Bailout Redux

In 1979, Chrysler was ostensibly forced to be bailed out by the government as there was widespread worry that the failure of that corporation would expedite the collapse of the auto industry which could spiral the American economy out of control. In 1984, Continental Illinois was deemed ‘too big to fail’ and bailed out as the Feds were worried that the failure of that bank would expedite the collapse of the banking industry which would spiral the American economy out of control. The S&L crisis of the early 1990’s was next. Over the long-run, this type of action shows that the American financial system has a few major chinks in it here and there, but the federal government can be counted on to be a backstop (with the taxpayers of course footing the bill). Stock market-wise, the stock market did not have a cyclical low until three years after the Chrysler bailout, the market did not bottom for almost a year after Continental Illinois, and it was over a year before the market bottomed post S&L crisis. Most recently, we are two days removed from the FNM/FRE bailout – a bailout that will likely prove to be the most costly in financial history. The jury is still out as to what impact on the markets this will have. Will mortgage rates go down because the government is there? Or will mortgage rates go up because there is less competition out there amongst mortgage brokers? Will real estate prices stabilize and rise because the Feds are at work restoring confidence? Or will the real estate market continue to crumble? These are not questions we as day traders need to worry about to make a living. However, what we can take from all of this is that the fallout is not over as other entities (Lehman- LEH), et al are clearly in some degree of trouble. We must focus on the immediate-term and the reaction of equities in the present rather than let our individual beliefs over the long run distort our judgment. What is good one minute may be bad the next- and it is that principle from which we trade.

Ovenight, markets are down across the board, but not heavily. Futures up pre-open on speculation of LEH news. It is a complete crapshoot today; track LEH and that is likely where the market goes- simple as that.

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


LEH- due out with a conference call at 7:30AM this morning; expected to announce many new initiatives. Should cause the stock to rally...if it fail, short thru unch particularly pre-open.

FDX- pre-announced to upside.

TXN- pre-announced good earnings.

CRM/FAST- replacing FRE/FNM in S&P 500 on close today.

WHR- on Cramer's show last night


DIN- closed on its low.

AIG- particularly weak yesterday. This may be the next LEH.

HUM- announced they were losing several hundred thousand members as Medicare costs will be higher than anticipated.

AAPL- down yesterday despite Jobs's denials of ill health...should rebound today if market does...if market is strong and AAPL cannot hold early gains if it opens higher, short it. Conversely, if market is weak and this is holding up strong, it will trade stronger than market all day.

Banks (WM,WB,STI,ZION among others)- all weak yesterday; will likely lead the market one way or another today.

MBI/ABK - among reinsurers weak yesterday; will track financials.

MER,GS,MS- brokers which will likely follow LEH

RDN- weak yesterday

PBY- closed near low after horrible earnings; may have continued momentum.

JOYG, BUCY, BTU., ACI, MEE- among energies and coals which closed at or near lows; watch oil report at 10:35AM today.

SU, MEA, FWLT- materials and heavy oil which closed weak yesterday

OXY, EOG, COP, HES, NOV, CNX, ENER, CVI, HK, ENOC, - oils which closed very weak yesterday

MOS, CLF, ANR- fertilizer and oil entities; all closed weak yesterday

CHP- closed on a low

GHM- pummeled in recent days

AKS, NUE, X- steels which were thrashed yesterday

STP, LDK, FSLR, JASO, CSIQ- solars which closed weak yesterday

PAY- bad earnings


SRZ ? ? -1.90/1.74B -1.56/1.84B

STEI .10/130M .09/128M .42/524M .50/551M

Good luck today.

Tuesday, September 9, 2008

TUES. SEP. 9- The Survival of The Fittest

Arguably one of the most famous refrains in history comes from the Declaration of Independence in which Jefferson stated that “all men are created equal.” This is mot certainly not the case in the stock market. There are two phases of this dichotomy yesterday. First, although the tone of the market overall was good with the headlines being that the Dow rallied, the tech sector underperformed by a vast margin. Investors realized that there was no major benefit (or detriment) to the tech sector from the FNM/FRE bailout as stocks like AAPL, GOOG, and RIMM all fell several percent on the session. Even more relevantly, there is a split in the financials. Stocks like Goldman Sachs (GS) were strong much of the day while Lehman (LEH) fell significantly. In all likelihood, this split will continue for the foreseeable future. For day traders, this makes things a bit more complicated for it’s not a matter of ‘the financials are moving as sector;” rather, it is even more individualized. So, just another little nuance to watch out for as you trade these next few weeks.

Little cautionary note: with stocks having closed in the middle of their range yesterday, it will be a little more tricky this morning; we like momentum- stocks near highs or lows and there are not a lot. So, tread carefully.

Overnight, stocks in Asia resumed their slide with most markets finishing down 1% plus. But, the decline did not spill over to Europe as the bourses there are up nicely as of this writing. Oil is down yet again as the latest Gulf hurricane seems to be taking a track a little further south and west than most forecasters prognosticated. Looking ahead to today, there will likely be some more strength at the open. The first half hour today is crucial; for day trading, look for stocks that are barely higher and look to short if momentum from yesterday fails to follow through. Conversely, the whole day may be an A-B-A2 to upside. It is very difficult to tell what will happen, but one of those two options will very likely play out.

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


DELL- Michael Dell bought back $100 million of stock, showing confidence in the company

LRCS- announced major buyback

CSE- Slashed their dividend…stock may actually rally if it opens well down as the firm is being responsible here in conserving capital

FUL- warned badly.

ABK- may not have an active market after all for their Connie Lee operations in the state of Wisconsin; the Connie opening is why the stock rallied last week

KIM, HIW- share offerings

JOYG,BTU,ACI,MEE,JRCC,SU,SWN,CNX,UPL,HK- among others; these are all energy stocks which closed near their lows yesterday…all due for bounce particularly if oil bounces


PBY .07/515M .05/504M .17/2.02B .38/2.06B


OXM .34/230M .66/269M 1.97/1.01B 2.26/1.05B

PAY ?/232M ?/238M ?/903M .92/946M

SHFL .10/48M .10/50M .23/185M .38/205M

Good luck today.

Sunday, September 7, 2008

MON. SEP. 8 - The Big Bailout of '08

Amidst the U.S. Open Finals and the Phils-Mets series and the true start of football season, something happened today (this is being written at 10:40PM Sunday night in the hopes all of you read it) which will rock the financial world tomorrow. Treasury Secretary Paulson announced today that the U.S. government has officially annexed two of the nation's largest financial companies - Fannie Mae and Freddie Mac - something openly discussed in this space several days ago. In effect, the federal government (that means you and me since it is us taxpayers footing the bill) will be taking direct responsibility for two entities which provide funding for almost 75% of new home mortgages. It is arguably the largest direct government intervention in the financial markets since the New Deal- and may bigger than that. The government will provide up to $200 BILLION of monies to shore up these sagging companies. The Treasury's vision places FNM and FRE under a conservatorship-doing this shiffts managerial control to their regulating body, the Federal Housing Finance Agency, or FHFA. In return, the govenrment gets up to $1 billion of preferred stock in both FNM and FRE.
Ostensibly, this is the federal government's way of letting the rest of us know that the housing decline is getting much much worse- worse than any of us can imagine. Prices for houses have already fallen at a rate rivaling the declines during the Great Depression. However, it is a shot in the arm for the equit markets in the immediate term. Why? Because it is tell us traders that whether the measures work or not- the federal government is aware of the problems and is doing what it feels it can do to stem the collapse. Gains may well be ephmeral; basiclaly, the opinion of the stock market at this point is one of measured cofndience- the market must believe that the government can and indeed will help or the situation could get messy. This is not political speak- free market theorem would dictate that the FNM/FRE complex should suffer whatever it is gonig to suffer. However, in stock land, we as day traders must react to what we see. Today will be one of them ost interesting trading days in recent history. The futures are soaring in overnight trade and the pre-open in particular tomorrow will be a fascinating time to trade. FNM/FRE may have their common stock vanish...or they may rebound because of confidence in the entities thrown at them by the government The market may rally more...or futures may give back all their gains. It is not our job to guess that; it is our job to trade these fluctuations in the immediate-term. Tomorrow is a day that you cannot show up late and expect to be profitable. Be ready, do your homework, and be there early in the morning.

8:15AM ET-
Padding on to last night, the foreign markets sure enough hare having their sharpest gains in months. There is a sense of confidence- ephemeral or not- that the crisis may well be over. Futures indicate a sharp rise. Best guess would be that some of these gains will erode on some profit-taking. However, if the market holds for the bulk of the morning, the rally will likely get stronger in the afternoon; this is one of the most crucial junctures for the stock market in a very long time.

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


MBI, ABK, other reinsurers- all sharply higher; these will follow market.

LEH- 3rd management shake-up in four months.

STI,ZION, other banks- all way up on the Fed/FNM news; again, will follow market in all likelihood


SOV- own more FNM/FRE preferred stock than any other public bank. Study the action of the preferred stock because if the preferred is supported well, SOV will be a tremendous buy if it opens lower.

DSL- Feds ordered them to shore up their capital on Friday afternoon

MHK- downgraded. Not usually notable, but if it opens higher today and the market weakens, it should be one of the first stocks to decline

Not a ton of news flow; everything will trade off of FNM/FRE. Good luck today.