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Monday Mop-Up

That was a pretty good day.

Unlike last Monday, we had some pretty good overall strength in the markets, spurred on by GMAC beating low expectations with "only" a 63% drop in profits, driven by its Residential Capital unit "only" losing $254M this quarter, much improved from the $910M loss last quarter.

The financial sector finally made a bit of a comeback, with the XLF recovering off a low open to finish just under Thursday's gap down, indicating a possible fill of that gap may be in the cards tomorrow.  MS's credit rating was also raised by S&P, which should also give the financials renewed strength for at least a day or two.

We also had a "nice" comeback in the oil patch with crude finishing just under $77 and XOM got an upgrade to Buy from AG Edwards, a move we expected as we flipped bullish on that stock last week.  The premise for taking up positions in the Aug $90s and Sept $95s was that XOM would hit the 50 dma at $86 and had taken a huge bounce off that mark in late June as well as their usual option expiration shenanigans.  We'll see if we get the follow-through today as breaking below $86 will be tragic (we still have our Sept $90 puts as a hedge).  We'll keep a close eye on $88 and $90 as a failure at either of these points can lead the stock to a serious correction – it will likely be up to the lemming-like analysts, who are likely to follow AG Edwards in declaring XOM undervalued.

On the whole, we got a weak move from the Nasdaq and a strong move from the S&P:

 

When things don't do what you expect it's best not to jump in so we took few positions yesterday but they were all bullish ones, so that is a good sign (assuming, of course we have a clue) for the markets.  One stock Happy Trading and I have been watching closely is LVS, which had a nice breakout yesterday, brutalizing our poor Aug $85 putter (which we sold against our Jan $80 puts last week).

My underlying concern remains the same as it was in the morning as this rally was sparked by low expectations from GMAC as well as Citadel Investments decision to buy the failing assets of Sowood Capital Management, which lost 50% in two of the firm's hedge funds.  We've seen this movie before as BSC and GS came in to calm the markets when New Century Financial was imploding – that proved to be a very short-term fix so let's continue to be a little wary of "great" news about the financials bailing each other out.

Tomorrow we have a plethora of earnings including: AL (funny if they blow it), ADP (good jobs indicator), AVP (Int’l sales), BEAV, CBS (will affect DIS), COH (how are the rich doing?), GM,  (can expectations be lower?), LCAV, LIZ, MRO (we grabbed $52.50 puts at $1.55 in case they went badly), NMX ($135s at $2.80), OSTK (should be funny CC), SIRI (I’m long), JOE (can it be worse than expected?), UA, VLO!, VNO (possible buy if they get down to $100) / (night) BWLD, CEPH, CMG, DWA (has been spectacularly disappointing in the past, Sept $30 at $1.15 were our choice), FSLR (they’d better do well), LFG (how bad is real estate really?), LEAP, MET, RUTH (probably the first to go if upper level dining is suffering), SWN, TUP, OVEN (we have $12.50 calls at .65), WFMI (still a grocery store – LOL).

Gold solved the magic $666 resistance problem by jumping over it, gapping up $5 on the day as the dollar was rejected at 81 and the ten year finished at 4.80%, up .4% from Friday's open but we're going to pretend that doesn't matter IF we get over our 13,600 target but, until then, we are buying with caution and having a little bit of earnings fun.

 


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  1. FCX – looking for pop with increase in COPPER prices. BHP nice move up on nik for same reason.


  2. Futures up nicely early. Dow + 100 S&P +11 Naz + 12

    Indymac … earnings down YOY, but no blowup either. They look ok. Phil, what do you make of it. Probably no way to recover on the 30 calls.

    europe up big, HSI up big also

    Sowood, too bad for them, but Citadel stepped up and bought everything. That is not insignificant.


  3. Pre-Market Analyst Calls (July 31, 2007)

    ABM raised to Overweight at Lehman.
    ARP cut to Neutral at Sun Trust Robinson Humphrey.
    BLDR cut to Mkt Perform at Pip[er Jaffray.
    CCJ raised to Outperform at CIBC.
    CE raised to Buy at Citigroup.
    DHT cut to Neutral at JPMorgan.
    ETP cut to Reduce at UBS.
    EXC raised to Buy at UBS.
    FELE cut to Underperform at Baird.
    FPL raised to Outperform at Wachovia.
    GCI raised to Outperform at BEar Stearns.
    GYMB raised to Outperform at FBR.
    IVAC cut to Mkt Perform at Piper Jaffray.
    IVGN cut to Peer Perform at BEar Stearns.
    KNOL raised to Buy at Jefferies.
    MRT raised to Outperform at RBC.
    MTG cut to Peer Perform at Bear Stearns.
    NVTL cut to Underweight at JPMorgan.
    OPTM cut to Hold at Jefferies.
    PSO raised to Equal Weight at Lehman.
    RSH cut to Sell at Citigroup.
    SFL raised to Overweight at JPMorgan.
    UL cut to Underperform at Credit Suisse.
    VSEA raised to Neutral at Credit Suisse.
    VZ raised to Buy at UBS.
    WRES started as outperform at RBC.

    Liking to jump on GYMB


  4. MRO buying Western Oil for 6.2 B

    DuPont accelerates $5 B share buyback plan.


  5. MRO adds $2 B stock buyback.


  6. Could we see a major rally today ? combo of decent news, major short covering and month end mark up ?


  7. Phil:

    Remember the OSTK that I’ve been asking about? “Funny?!??!” I’m smilin’ @ my few little Sept. calls! (I still don’t know what the chart reading service sees – but I like it!) :)