Thursday Morning

Oil is back at $120 pre-market.

We all know the pre-market trading is a joke but it won't be funny if oil continues to rise so let's watch that line.  I will be out for the day so this is a very early and brief overview of the markets.  Dow component AIG had the awful earnings we expected and that's casting a pall on the financial sector, as is news the mortgage failure rates are rising – the leak we discussed in yesterday's post gets worse while the administration continues to bail out the flood with a spoon (the silver one they were born with I suppose).

BCS, on the other hand, had better-than-expected earnings and Brett Favre is suiting up for the Jets so anything can happen today I suppose.  The dollar is bouncing off resistance at the 200 dma of 74.25 ahead of the ECB and BOE rate decisions.  If those Central Banks decide to fight inflation and leave Ben hanging out to dry, we can look as a quick return to 73 on the dollar.  If the Central Banks join Ben in wimping out against inflation, then we can look for both gold and oil to head up, the plays we made yesterday were, perhaps, just a day early.

Another big number being tossed at the financials today is the $200Bn worth of worthless auction-rate securities they have sold to investors, packaged as "safe" investments.  NY AG Andrew Cuomo is close to settling with C and forcing the bank to make good on "$5 to $8Bn," paying back their clients and moving this questionable paper back to their balance sheets.  As you probably know, I'm not worried about C but this chart is an interesting list of people we could worry about like MS, MER and LEH, who could have done without more bad news!

SKF Sept $125s at $9.50 are a great way to hedge a bad day in the financials, especially if you are protecting long positions.  They are ultra-shorts and move fast and the current $125s can be sold for $2.65 if they move the other way, leaving you with a month of cheap protection that can be rolled down to the $120s while we bargain hunt for offsetting calls.

The Nikkei dropped a point this morning as TM's profit fell 28% as the strength of the yen, costly materials and slumping U.S. truck and SUV sales offset soaring demand for its fuel-efficient models.   The Bank of Korea raised their rates a quarter point as THEY are serious about fighting inflation and President Bush decided that the day before the Olympics would be a good day to say the following: "The United States believes the people of China deserve the fundamental liberty that is the natural right of all human beings. So America stands in firm opposition to China's detention of political dissidents and human-rights advocates, and religious activists.  We speak out for a free press, freedom of assembly, and labor rights not to antagonize China's leaders, but because trusting its people with greater freedom is the only way for China to develop its full potential."  The President will be meeting with those non-antagonized leaders tomorrow.  Awkward…

Europe is trading up this morning on the BCS news and Nestle was able to increase income by passing through price increases but it's a commodity comeback driving the European markets despite the slowdown in German Factory Orders, which puts Germany clearly into a 0.75 to 1.5% contraction for Q2.  "While we are not surprised to see the German economy slowing, we did not expect growth to collapse as fast and as seriously as indicators, especially today's numbers, have signaled recently," Martin Lück, an economist at UBS AG in Frankfurt, said in a research note.  Meanwhile, the IMF cut England's economic outlook by 30%.  Did I mention those SKF ultra-shorts?

Kudos to Jim Cramer for getting back to basics and running an educational segment this week.  There's lots of good advice for traders at this link and  the whole show was worth watching last night but I can't find a link. 

We're going to have some pullback in the morning but that's good and healthy off an almost 1,000-point run off our July 15th bottom at 10,827.  The Dow's 50 dma is at 11,720 and we missed it by 40 points yesterday afternoon so a little consolidation above 11,550 would be just fine – below that and we get concerned again.  It's been a month since we've run the Big Chart so I'll close this morning by putting one up along with a notable change of the 50 dmas we are hoping to hit short-term, rather than the 200 dmas we usually track, that are still a ways off:

Is that the Nasdaq and the Russell actually leading us through the 50 dma?  Who on earth could have predicted that?  Oh it was me (pat, pat).  Let's keep an eye on the Nas and see if they can hold it (right at the edge of our "Feeling Better" zone) and we'd really like to see the SOX play catch up but, otherwise, there was not too much movement really so you can see why we haven't gotten around to the chart lately.  

Quote of the week from Daily Show's Lewis Black on a report that Zimbabwe inflation led to a can of beans costing $1 Trillion:  " A Trillion dollars for baked beans – I didn't know they had Whole Foods in Zimbabwe!"