Oil Stocks Put On The Red Light, Broader Market Rallies
Morning Commentary Wednesday July 9, 2008

On this day 25 years ago, The Police's single "Every Breath You Take" hit #1 on the Charts and stayed there for eight full weeks. This misunderstood song has since become a wedding hall staple because of its simple chord progression and despite its stalker shaded lyrics.

Stock futures were on shaky ground before yesterday's opening but Ben Bernanke, once vilified as the King of Pain for his initially deliberate response to the credit crisis, reassured investor's that the Fed stood by to stabilize financial markets as needed. That reassurance seemed to be just what the market needed to hear and the major indexes opened firmer. The Fed Chairman, no longer the young apprentice, has earned the respect of the market for his innovative approach to crisis management and it seems that every little thing he does is magic these days.

With crude oil prices plunging for a second day, oil stocks put on the red light as trade monitors flashed heavy declines for the group. The broader market hesitated for much of the day as traders were reluctant to believe in the staying power of petroleum's price decline but a late rally restored some synchronicity to the long-oil, short-stock unwind trade. Bullish bettors on crude were seen sending out an S.O.S towards the close of trading.

With little economic data due today, investors will be counting on hope to keep them together. Will the rally continue or will further credit woes enable the shorts to keep the market wrapped around their fingers?

And all I have to say about that is Da Doo Doo Doo Da Da Da Da…*

Bernie's Notes Archives...

Stocks Run The Rapids, Traders Get Soaked
Morning Commentary Tuesday July 8, 2008

The market found itself in a stretch of whitewater yesterday, bouncing off rocks and running through rapids in a wild session that saw the Dow swing over 275 points during the day. Stocks came out of the chute strongly before concerns over Fannie Mae and Freddie Mac cascaded over the financials. They in turn put pressure on the broader market and the close saw traders soaked, with the major indices moderately lower.

Bullish investors may be paddling against the current in this morning's session as recessionary fears and seemingly never ending credit concerns surge against them. Earnings reports will begin to flow after today's bell and the coming weeks' market performance will largely be determined by how well companies have been able to lower expectations. The torrent of reports will begin with Alcoa, but it will take a few weeks to safely run the cataract that is earnings season.

Investors can hear a roar coming from around the next bend in the river. Time will tell if it's a waterfall or just some fast moving water. Make sure you have your life jacket tightly secured, it could be a wild ride!*

Will Earnings Cook Trader's Goose?
Morning Commentary Monday July 7, 2008

Investors returning this morning from the long holiday weekend will be shifting their focus from barbeque grills, ice-filled coolers and the weather forecast to economic data, oil prices and earnings reports. Investors have seen their portfolios raked over the coals during the second quarter and the coming weeks will be no picnic if earnings prove to be disappointing.

Since economic data will be sparse early in the coming week, traders will kill time by parsing Fed Chairman Ben Bernanke's speech to the FDIC Forum on Tuesday before turning their attention to earnings. Alcoa, whose products stocked many of the aforementioned coolers, kicks off earnings season after the bell on Tuesday, followed by GE on Friday. If those reports disappoint, the major indexes could be charbroiled to a crisp. The bulls are firing up their hibachis in the hope that second quarter earnings will spur a rally similar to the one we saw after Q1 reports showed a 10-12% improvement. That hope may be dampened if soaring energy costs bring rain and ultimately spoil the cookout.

The great SUV trade-in is underway. With propane prices rising will we see a return to charcoal grills as a backyard staple?*

Market Comes Up Lame
Morning Commentary Thursday July 3, 2008

The market limped into the close yesterday, hamstrung by high energy prices, and the Dow ended the day 166 points lower. Few sectors were immune in a day that even saw oil and gas stocks hobbled by significant profit taking. Financials managed to shuffle gamely higher, but the overall tone was one of exhaustion as the broad market staggered into the bell. If the session was a racehorse, it would have been euthanized.

Jobless claims will be the focus for traders in today’s abbreviated action and any surprises on that front may be exacerbated by thin trading volume. Many traders have heard the starting bell and have already bolted for their preferred holiday weekend destinations. Savvy traders may have the ECB announcement marked on their tip sheets, but if the day's news is benign, the session may turn out to be a scratch.

Perhaps after a few days of rest, investors will be better prepared to take another lap around the track come Monday morning.*

Floodwaters Threaten, But the Market Holds
Morning Commentary Wednesday July 2, 2008

Things looked bleak when traders arrived at their desks yesterday morning. European markets had been battered, Middle East tensions were rising and futures were experiencing a deluge of sell orders. After opening weakly, the market rallied and foundered despite a mildly encouraging manufacturing report. At midday, the waters were rising along with crude prices and the Dow was over 160 points underwater. It seemed like at any moment the dam might break and unleash a flood of selling. Was this going to be it? Would the much-ballyhooed capitulation wash away the last remaining bulls? Traders held their collective breath. Then something strange happened: General Motors reported poor, but not catastrophic sales and the seawall held, with the market rallying to a modestly higher close.

Opinion makers have been saying over and over that the news has to get worse before things can get better. Admittedly, in recent days even the sunniest optimist would be hard pressed to come up with a positive scenario for the next few months. Wave after wave of bad news has crashed against the market on a daily basis and yet the levee has held. Perhaps we may have to rethink our assumptions. As the market repeatedly teaches us, when everyone expects the same thing to happen, it rarely does.

Traders will be filling sandbags as they await Thursday’s jobless claims report. Factory orders and the ADP employment report this morning will possibly buttress the dike, but cracks could form if either disappoint. A rising tide does not necessarily lift all boats, at least not in this metaphor.

As Bill Cosby had God ask Noah in his famous flood routine "How long can you tread water?"*