Tuesday, May 29, 2007

Wednesday Curtain Raiser

While in the Lancaster area of Pennsylvania over the weekend, I discovered how to get to Paradise! How? Through Intercourse! It was an eye opening experience. Yes, in order to get to Paradise, PA, you first have to drive through a town called Intercourse, PA. Astounding, eh?

In the ongoing intercourse of business on Wall Street volume was lighter than usual and the range was fairly tight, but with an upward bias. Deals remain a primary buying motivator. Who next will be taken out for a rich premium? And once again, the deals that have been announced involved companies with little mention in the rumor mill. This included the $7 bln CDW takeout and the $15 bln buyout of Archstone; little in the way of huge options activity beforehand. It really makes me view any name as a possible takeover target coming out of the rumor as suspect with the best strategy being a time spread to capitalize of volatility fluctuations, or to go long on certain names that have been perpetually mentioned on Wednesday and dump by Friday.

There is a certain level of desperation where these rumored deals are concerned - where it almost seems as if money for speculation in the options market is no object - where money is thrown at anything with even a hint of a possible buyout. Micron Technology (MU) is a case in point. While the activity slowed considerably from last week, nearly 37,000 June calls traded again today. Blackstone has been the rumored suitor for a price of $16 a share. The rumored Blackstone interest is being given more credence than usual on Wall Street trading desks because if Blackstone were to buy, China would indirectly - because of its $3 bln non voting stake in Blackstone - gain a bigger piece of the action in DRAM which is now dominated by companies based in Korea, but with China in hot pursuit. Still, MU slipped 1-cent today to $11.96 as investors moved into a "show me" state of mind after a deal failed to materialize this past weekend.

Tomorrow's not a completely dead day on the earnings front. A bunch of retailers will play show and tell including: RL, CHS, DLTR, WSM, PSS, DBRN and JAS. JOYB and NOVL will also be posting for a little high tech fun.

Every bit of economic data is very important as 10 year treasury yields back up toward 4.9%. Tomorrow the key release is the ADP Employment Report which will give us some inkling into what this Friday's employment report for May will show. Economists are expecting May non farm payrolls to rise by 135,000.

Oh, and what's going on with the ABX indices again? More trouble ahead on the mortgage front as demand again increases for credit default swaps?

The dollar was a touch weaker today, but what has me keeping an eye on forex is the apparent bottoming, or at least near bottoming of carry trade funding currencies like the Yen, the Swiss Franc and even the Czech Koruna. This is another reason why every bit of economic data is important. Prospects for a tighter Fed will certainly impact the carry trade situation (near 10% returns in this realm in a month and a half) and ultimately stock market liquidity.

Many are already heralding the end of the rise in gasoline this season as the march to Memorial Day is now history: OIL FUTURES: Nymex Crude Drops $2 On Nigeria ; Gasoline Slumps. There are many reasons to be bearish with Cushing brimming with crude, pressure on someone or a group who have been stopped out of arb or crack positions, etc. But the simple fact of the matter is that gasoline stocks remain well below normal for this time of year. I won't be standing in front of weak technicals in my trading of crude, I'll just be mostly standing pat to see how all of this shakes out in the days ahead since I'm not completely convinced the rally in energy is over for the summer.

And a big face off on Wednesday: Steve Jobs and Bill Gates to make rare joint appearance tomorrow

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