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Tuesday Morning

Asia is off considerably and Europe is looking grim so no help from overseas today. Today is 6/6/06 for all you number people, maybe not the best omen!

We can expect a bounce of sorts but it will be tough to pull out of the dive track the markets are currently on. I’ve been saying we will probably end up with a 10% correction and this is the ugly face of it while you’re in the middle.

The Dow is about 100 points above its 200 dma of 10,867 where we can expect the next downside pause but without a firm bounce, it may just be the 2/3 mark on the way to 10,500.

The Nasdaq is getting violent rejections from the 200 dma at 2,230 and is in no danger of challenging it today as it opens around 2,175. The Nasdaq has another 50 points to fall before hitting the 10% mark. The SOX are already down 20% from their January highs so the Nasdaq is lucky it has had comparatively little damage so far but we will have to see if the SOX holds the current floor of 456.

The S&P is just 5 points above the 200 dma at 1,260 and, as with the other indices, we are better off testing it than not. 10% down for the S&P would take it to 1,195, that’s 2 more drops like yesterday to get there!

Finally the mainstream press is catching up to me and talking about the oversupply of oil, it is amazing that they are still managing to keep prices this high now that the cat’s out of the bag but the mantra of Hurricanes, Iran, Nigeria and Chinese demand are being repeated endlessly by the oil pumpers.

India is paring back some of the subsidies it has in place on oil by allowing the state run oil companies to raise rates about 9%. This will pare losses by about 14% out of the $16Bn loss that was already expected this year. China also subsidizes oil and more changes like this will likely lead to a real decrease in global demand.

Gold is suffering as one of gold’s fear/inflation factors is high oil and, as we said last week, a $1 drop in oil generally translates into a $9 drop in gold. Both the oil and gold markets are on the edge of their seats waiting to hear what crazy people in Iran have to say and that is what will move your markets today so you would, in turn, have to be crazy to play.

Here is an interesting article from an Arab paper giving the mid-East take on the situation:
http://www.arabnews.com/?page=7&section=0&article=83324&d=6&m=6&y=2006

The trick will be whether or not Iran is tired of being the center of the world’s attention and how much of this inflammatory rhetoric is based on pure greed, fanning the flames to keep oil revenues at record highs. Every dollar a barrel costs Iran $2M a day in lost revenues and oil is 80% of the country’s total revenues. If world peace drops the price of oil $20 and costs the Iranian people $14.6Bn a year is it worth it to them?

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I’m out today, still watching the weekend list but still waiting to see what kind of bottom we get. If things look like they are improving there are some very risky earnings plays I am watching but it is not my job to fund a market turnaround so my interest is mainly academic.

GS (6/13), LEH (6/12) and BSC (??) report next week and I like LEH down at its 200 dma as long as it goes no lower. The $65s already have a big premium built in at $2.25 but unless they really disappoint, the stock should at least retake the 50 dma at $71.

JOSB has earnings on Thursday and should do quite a bit better than recent action suggests. The Jul $40s are $1.50.

How do all those casinos get back up and running so fast? SHFL had to fill orders like crazy this year but I’m not sure if the earnings will justify the high expectations. The key will be to see if they are able to convert those orders into bottom line dollars.

ADBE (6/16) did something strange yesterday – they went up all day! The $30s jumped to .80 (up 15%) and almost in the money.
http://finance.yahoo.com/q/bc?s=ADBE&t=1d

GM is having their annual meeting and, with any luck, Rick can spin some more BS to pump the price back up near $29 so we can short it again! It’s like watching one of those old medicine shows, all these poor people want to believe so badly that there is some kind of cure…

HPQ got some good tax news today, adding about $400M (8%) to the bottom line but they added it to last quarter so it will make tough comps next year. This will be a good one to watch as logic would dictate at least a run back over the 50 dma at $32.75.


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