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Monday Morning Quarterback

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With earnings season upon us and a tricky technical juncture on tap, it's time to place bets of a different breed.

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"In the casino, the cardinal rule is to keep them playing and to keep them coming back. The longer they play, the more they lose, and in the end, we get it all."
--
Ace Rothstein, Casino



Good morning and welcome back to the sweltering pack. I return from Viva Las Pomboy, where I left most of my summer bug in the 120 degree desert heat and saddle back with good memories, fresh friends and a newbie professor that knows a thing or two about gaming games.

And so we step, from one casino to another.

With earnings season upon us and a tricky technical juncture on tap, it's time to place bets of a different breed. The stakes are high and similarities startling as we patiently prod the probability spectrum. The big players are back from vacation so grab a good seat and let's get shakin'.

  • We chewed through 2007's top ten themes last week with one eye on the back half of the shoe. I believe those thoughts set the big picture table so if you were out enjoying the important stuff, take a read at your leisure.

  • The private equity party continued last week with Hilton (HLT), Bell Canad a (BCE) and Huntsman (HUN) making waves. Perhaps more important from a psychological standpoint was Dollar General, whose LBO got done by KKR in the face of increased scrutiny.

  • Lost in the shuffle, or at least on most mainstream presses, was the continued uptick in rates. Professor Bennet Sedacca has been all over this dynamic and it warrants attention in the context of a finance-based economy tied to adjustable rate mortgages.

  • We (the collective we, not "I", per se) saw a ton of SMH (semiconductor) July 40 calls bought on Friday in front of INTC, AMD and Broadcom (BRCM) earnings (all report in front of July expiration).

  • The financials remain in the sector spotlight with BKX 114-BKX 115.5 (200-day) the first two-sided market of chose. Mr. Valentine has set the price.

  • For all the talk of folks being "under-investeed in tech despite 6 1/2 year highs," I'll humbly submit that folks are over-invested in tech--with a higher cost basis to boot--as a function of periods passed.

  • The fundamental metric is about to get loud, with Alcoa kicking off the earnings avalanche this evening. The tone and tenor of forward guidance will be key although, from my perch, it'll simply serve to shape the psychological metric.

  • Structural forces remain in play so don't get too caught up in the headlines please. Particularly with second quarter performance letters on their way to investor mailboxes.

  • Meanwhile, did anyone see the USA beat Brazil in U-20 soccer Saturday? That Freddy Adu is sure fun to watch.

  • Hoofy will argue that this latest sideways slither is a simple basing before another leg higher. While the multi-linear market is more complicated than that (watch the dollar), a hands-over-eyes look at the chart supports his perspective. When sideways action occurs after a rally (above support), it's usually basing. When it happens post-meltage (under resistance), it's usually churning.

  • Meanwhile, on an entirely brighter note, Mercury Retrograde passes tomorrow. I don't know about you but I, for one, am glad to see it go.

  • And lest you thought everyone was taking a break last week, Professor Adam Michael, who's a sharp cookie in the energy and metal arena, offered the following vibes on Friday's Buzz.

    • "Crude gave a Demark sell signal this week and my COT reports are flashing caution. I am starting to think we are within a couple of bucks of a summer high. I am looking for any sort negative divergence with the energy shares where we get higher crude price but a negative close on energy shares."

    • Did anyone else see the positive divergence yesterday with the gold price down and the gold shares up on the day?

    • See the OIH put open interest for October? Smart money?

    • Will it ever stop raining in Houston, Texas?

    • Is it possible to be in the 9th inning in the energy shares, but only the 1st inning in the gold shares?

    • Where is support in natural gas? What if it does not hold?

    • Did I mention that the OIH could make a Demark sell signal on Monday?

    • Chinese crude oil import numbers for June will be out around the 15th – 20th. Is that what has been driving Brent Crude, or is it something else?

    • Is that reverse dandruff in gold (see the chart)?

R.P.

No positions in stocks mentioned.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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