It wasn’t the wild and crazy ride we've become accustomed to, but the rollercoaster that is the financial markets was exciting, nonetheless. I think fence-sitters have begun to lean forward, obviously enticed by the action and pretty big gains in certain sectors. Beyond the fence-sitters, further out in the hinterlands, even investors so encamped in foxholes are beginning to take notice.

Still, volume wasn’t that great and the market struggled to stay in the plus column. We need a spark, -- yes, another spark -- crashing crude isn’t enough? What’s going to get stocks through this next level of resistance? I think all it would take is improvement in the July jobs numbers, which is different than saying job creation, just a sign that perhaps employment could be ready to return to monthly job creation. In the meantime consolidation after this kind of rebound is normal most of the time but these days when the market stalls investors flee.

It’s been an impressive rebound, on what have largely been impressive earnings. Now, if there can be consolidation without bouts of angst and panic that would be equally impressive. Perhaps the one thing that could keep stocks buoyant, if not in full rally mode, is the continued correction in crude oil. Don’t look now but Texas Tea is down from its high almost as much as the Dow is from its high established last October. Crude is now off 15.6% while the Dow is off 17.9% and the former has hit the skids in lightening fast fashion. Wouldn’t it be something if crude was actually in a bear market at the end of the week while stocks were heading back to test key resistance points (formerly key support points)? Actually a 20% correction in crude would take it to $117 a barrel. If $120 couldn’t hold, however, I think crude could tumble to $114 or even lower.

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Sem-thing to Think About

By the way, one story that didn’t get a lot mention yesterday was the bankruptcy filing of SemGroup LP. This subsidiary of SemGroup Energy Partners (SGLP) made poor bets on the crude oil market and couldn’t find any funding for trades that may have saved the day. The company cites $1 billion in assets and $1 billion in debts. It had giants as partners so one has to wonder what kind of strategy was being used. Already there's a scuttlebutt of possible unauthorized trades that led to $3.2 billion in losses. This is another cautionary tale of living by the sword.

The company came out of nowhere (not dissing Tulsa where it's headquartered) to become the 12th largest private company in America. I don’t have all the details but this smells like it has all the intrigue of a baby Enron and echoes recent cases where just one or two rogue traders could bring down an entire business.

Commodities

All commodities are taking a serious drubbing in sympathy with crude oil and in some instances we think it’s simply a knee-jerk reaction. Folks, if you play high beta stocks (read: very volatile) then you must be able to deal with giant moves to the downside. It's so important to decide if you just want to jump on stocks and hang on for the ride or get to understand the fundamentals.

The same people that bought Potash (POT) at the high without any clue what the company does or what the business model is are the same folks that sold it at a huge loss yesterday. Chasing momentum is fine but at some point even traders need to understand the business, history of execution and value of the stock based on company-specific facts and potential as well as industry-specific facts and potential. Sometimes investors just have to ride out the gyrations.

But I wouldn’t panic with some of the stocks that have been hit hard this week unless the fundamentals changed. The fact is for most of the names, the fundamentals remain intact.

Who’s Hot?

These sectors were higher on convincing volume and I believe they will remain hot.
 

• Restaurant stocks continue to benefit from the stay-cation phenomenon; lead by Chuck-E-Cheese (CEC) which rocketed 24% higher after posting earnings of $0.32 on strong same stores sales. The Street was looking for $0.17.
  
  
• Homebuilders continue to defy logic. Led yesterday by Hovnanian Enterprise (HOV) which is coming off a perfect double bottom and picking up steam as it heads toward a major resistance point at $8, through there the stock has a clear shot to $12… yes, another 50% to the upside.
  
  
• Managed Healthcare has been on fire after better-than-expected earnings results from UnitedHealth (UNH), and WellPoint (WLP) which posted earnings of $1.47 beating the consensus by $0.11. The latter saw a nice bump in its share price but the standout in the space was Aetna (AET) which climbed 12.8% on three times the average daily volume.

I mentioned the retailers yesterday and I still think it's a compelling space in spite of the earnings warning from Costco (COST) yesterday. I like the way Jones New York (JNY) and Dillard’s (DDS) acted yesterday. I’m sure they could trade higher and both have been in the takeover rumor mill in the past. Asset managers were compelling as well.

On the downside it was agriculture and oil-related companies. Gold took a big hit too. I must say for all the barking from gold bugs and the doomsday crowd over the past year, I’m not impressed. Heck, Iran is on the cusp of getting the bomb, inflation is whipping around the globe at breakneck speed and the US dollar has struggled mightily. I said don’t fret hot stocks that have gotten hammered if the fundamentals are okay. Well the fundamentals aren’t that great in gold and even when the argument was easy there has been very little luster.

After the bell it was hit or miss with respect to companies that posted corporate earnings reports. The biggest name came through with the most impressive quarter.

Amazon (AMZN) earned $0.37 on revenue of $4.06 billion. The Street was looking for earnings of $0.26 on revenue of $3.96 billion. The company is firing on all cylinders even generating $186 million in shipping revenue. The gross margin did slip to 23.8% from 24.3% but management was able to raise revenue guidance for the current quarter to $4.2 to $4.43 billion and full year guidance to $19.35 to $20.1 billion. The street was looking for $4.23 billion and $19.6 billion respectively. The stock has been under pressure of late, perhaps in part to the fact the last 24 insider transactions were sells totaling 4.2 million shares.

Baidu.com (BIDU) the largest search engine in China continue to rock, beating the consensus estimate by $0.13 as online marketing partners climbed 12.4%. The company’s earnings came in line in the March quarter after a string of beats so there was some trepidation in the air resulting in a drifting share price even as estimates for the quarter and full year continued to edge higher. The stock has room to $340.0 and beyond there it would really be off to the races.

Qualcomm (QCOM) delayed its earnings report and the shares zoomed higher. Apparently the company’s scheduled trial against Nokia (NOK) over licensing fees has been delayed and that has many suspecting there will be a settlement in Qualcomm’s favor (maybe the news could be something even more tantalizing). The company’s shares have been all over the place but managed to close above a very pivotal $40 a share and in the after market the stock was trading at a new 52-week higher. By the way, the street is looking for earnings of $0.54 on revenue of $2.76 billion.