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Disney's Forgotten Genius


House of Mouse down despite positive press.


Greetings from New York where I'm feeling the best and most productive kind of weekend hangover. The sun is shining, my mojo is working and all is right in the world. You know, except for the fact of the stock market being down more than 200 DJIA points. Here's what I'm watching to try to keep myself from becoming simply too giddy for me to even stand myself:

  • S&P pummels the financials by downgrading the outlook for Lehman (LEH), Merrill Lynch (MER), Morgan Stanley (MS) and everyone else. As we say so very, very often: it's not the news, it's the reaction. If a discredited (if you will) rating agency's recognition of the obvious can crush a sector this badly it's hard to want to fight the tape on the long side.

  • What's the Yang ("Karma" not "Jerry") to the downward Ying of the XLF? How about crude's USO, up again today after opening with a headfake lower. Crude has every reason in the world to pause in a meaningful way. The USO going from $108.36 on May 22nd to a low of $101.27 today is, in the context of crude's 2008 move, neither a pause nor meaningful. At best, it's a taunt to those looking to buy the USO at $100 (like me).

  • Speaking of "blah" reactions to a spate of news, Disney (DIS) is down today despite a front page Sunday NY Times column on the genius of Disney/Pixar and an upgrade from UBS based on the expected ratings bonanza of a Boston vs. LA NBA Finals match-up. I remain long Disney but it's an investment. As a trade Disney is a classic "Yeah... But" set-up (as in: "Yeah, Disney is an operational juggernaut executing on all cylinders and trading at 15x earnings BUT the consumer is (should be) dying, it's bound to release a flop at some point blah blah blah.")

  • What's the hardest trade today? From where I'm sitting it's Buying Banks in general and the Spyders (SPY) in particular with a hard stop under each (close below $23 on the XLF and $135 on the SPY, according to my "the best charts are drawn with crayons" methodology. Remember: you can try anything you want as long as you have an exit plan and stick to it.

  • In the interest of clarity let me add that when I ponder making "the hardest trade" I mean "the hardest trade I would ponder making for myself or someone else I don't loathe". I consider both Eastman Kodak (EK) and General Motors (GM) to be much harder trades than banks or the XLF. There's something about buying stocks trading at or near the lowest levels of my entire lifetime that makes me feel like it's a simply terrible idea. I'm going to run with both that feeling and the stocks of GM and EK.

And with that, I'm off to run to New York for the first Fast Money of the week. Careful into the close Minyans and keep your right hand cocked near your jaw, as Todd-O's late grandfather might say.

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Position in DIS

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