Monday Morning Quarterback
Remember, when trading, to always ask "why" before making blind bets.
Like a moth to a flame burned by the fire.
My love is blind can't you see my desire?
Good morning and welcome back to the flickering pack. After a wild ride and Friday slide, we open our fresh five-session set to find mixed global markets and early stateside optimism. With a weekend of reflection and July expiration behind us, the Monday fun comes down to one simple question.
Will fresh Merger Mania be enough to stuff sub-prime contagion concerns?
These new deals are like a former flame seen after a long absence. You're reminded of the spark once shared and pine, in your mind or elsewhere, for the innocence of love and the passion it provides.
The M&A boom was the backbone of the recent rally and the morning news pitter-pattered the futures higher.
Cerberus Capital is buying United Rentals (URI), the world's larges equipment rental company, for $4 billion.
Transocean (RIG) and GlobalSantaFe (GSF), the world's two largest offshore oil and gas drillers, have agreed to nuptials that will create a $53 billion dollar behemoth.
Barclays Plc (BCS), which has been trying to buy ABN Amro Holding NV (ABN) in the biggest banking takeover ever, raised its bid more than 4% to $93.4 billion after lining up investments from China and Singapore.
Heck, even the rumortrage channels are in play as speculation spread late Friday that Nokia Siemens Networks (NOK) (SI) may bid $7 billion for Tellabs (TLAB), putting a 20% spring to the network equipment maker's step.
It's aaaaall good, as Snoop Dogg would say, but will it be good enough to shift psychology in the financials away from the dreaded credit woes?
By now, you know the story in the banks and brokers. Sub-prime, widely assumed to be a pimple in the broader financial complexion, is spreading like a rash through Wall Street portfolios. As the underlying securities of these complex derivative transactions are "marked-to-market," sudden losses and forced selling begets more of the same.
"There is $100 billion of bridges of high yield bonds in the pipeline looking forward, and there is $200 billion of leverage loans, the next four or five months and that's a lot, and I think that is causing re-pricing of covenants and picks and toggles." JP Morgan honcho Jamie Diamond said late last week, joining Citigroup executives who offered that deals would have to be sweetened to move them off it's balance sheet.
We've been closely monitoring this sector as it's the Dogg that wags the broader market tail. And the price action of late has been all you needed to know about the broader directional pull. The BKX failed mightily at triple resistance last Wednesday, falling 4% and ushering the S&P back through the uber-important S&P 1540 level.
That zone, which has morphed from resistance to support to resistance anew, is front and center as we power up our weekly pup.
As with any post-expiration Monday, it should take a few hours for the hangover to subside. Keep that in mind while reading the morning tea leaves.
China was up almost 4% last night, bringing the double (triple?) top at 4330 back into the forefront of overseas technical circles.
If you were out last week and missed our China take , take some time to chew through the dew. It's uniquely Minyanesque.
Watch the dollar squalor as the DXY probes decade lows.
Be wary of what you wish. While higher rates was widely considered the death knell of the equity swell, the "flight to quality," away from equities, was the catalyst for lower rates last week. Remember, when trading, to always ask "why" before making blind bets.
Minyanville is proud to welcome Professor Guy Adami to our family.
"A watched pot never boils? More than two-thirds of chief executives and chief financial officers of companies in London's FTSE350 index expect to be involved in a merger or acquisition over the next twelve months, according to research Monday from corporate finance house Close Brothers (CBG.LN)."
The earnings avalanche continues this week so be sure you've got your playbook in hand.
Deals or no deals, Howie Mandel, green futures following a fugly close begs a probe lower at the very least.
Good luck this week, Minyans-let's hit 'em hard.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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