Monday Morning Markets

Finally it's earnings season!

Now we get a chance to see what all the fuss is really about.  Is Meredith Whitney exaggerating the losses to be reported by banks by tens of Billions or just Billions?  Are energy and commodity prices destroying all of corporate America or "just" the companies that are directly affected like Transports and the retailers who need their customers to have cash at the end of the week?

We have a fairly light economic calendar this week with Pending Home Sales, Wholesale Inventories and Consumer Credit tomorrow followed by Jobless Claims on Thursday and finishing up with Import/Export Pricing, the Trade Balance, Michigan Consumer Sentiment and the Treasury Budget on Friday.  None of those are likely to be huge market movers so our focus will be on earnings and, of course, the price of oil, which looks like it will open at about $143 this morning.

Sadly, we have to wait until Tomorrow evening to hear from AA, our first heavy-weight to report in.  Tomorrow morining we get a report from freight car manufacturer GBX (expectations are very low for them and I think they are oversold at $18, making the spread of the Jan $20s and the Aug $20s for $1.15 a good play), personal care and houseware distributor HELE (also oversold at $16, you can buy 5 Aug $15s for $1.82 and sell the 5 July $15s for $1.52 for a net of $0.61 per contract, a fairly low-risk spread.  There is also a nice butterfly possibility which we'll have to see about during the day) and PBG, the Pepsi Bottling Group, who should give a good enough report that I like the Aug $30s at $1.12, selling the July $30s for .77 for a net of .35 per August contract.  As with HELE, it's a good one to leave 20% naked.

During the day on Tuesday we here from CBSH, who are way underpriced at $38.80 but have no options so not that much fun to play.  After hours we will hear from AA and ZZ, someone's idea of an alphabetical scheduling joke I assume.  We'll go over the rest of the week in depth as it moves along but it's certainly going to be exciting.

Oil is now down $4.63 to $140.69 ahead of the open at 9:15 and it's really perking up the markets.  This will be fantastic for our USO puts, which we went heavy on last week as well as our remaining coal and energy shorts so kudos to all who stuck it out.  Some of it is dollar strength and some of it is Congress coming back to town and turning the legislative spotlight back on the shenanigans we've been observing the past two weeks as GS, MS et al pulled out all the stops to drive prices to a place they can exit from (maybe even going short while they put retail buyers into it, similar to what happened with housing and mortgages).

Asia had a good session with the Hang Seng finishing just under the 22,000 mark on a 489-point day and the Nikkei gained 1%, posting its first positive session in 10 tries.   Europe turned around from a bad open as oil started pulling back and they are now up about 1% across the board. 

GM is having a fire sale, laying off thousands of managers and putting their once-respected brands up for sale in moves which cast a lot of doubt on their long-range sustainability.   Finally we have a week with something besides oil to watch and this will all go back to answer my question of last week – Which is more likely to double – A barrel of oil at $145 or a share of C at $16.82?  Which is more likely to lose 50% of it's value?  These are the allocation decisions that will be faced by investors as they look over the earnings landscape in the next few weeks, for the sake of our markets, we'd better hope the answer isn't a barrel of oil!