Stocks market futures are indicating that the markets will open lower, although the futures are now off the lows they hit earlier. The market is facing downward pressure from oil, which is up about $0.83 and trading at 115.42, as well as a lower dollar.

At 10:00 AM, we will be getting Existing Home Sales report for July, from The National Association of Realtors. There is anecdotal evidence that shows home sales might be picking up ever so slightly, as prices continue to fall, making homes more available. But with access to credit getting more and more restricted, no one is expecting a very positive number.

The financials are once again under pressure as credit concerns looks to be an issue today. In addition to a falling dollar and rising crude oil prices, financials will definitely drag stocks downward. Investors are again focused on whether the government will need to bail out Fannie Mae (FNM) and Freddie Mac (FRE). Additionally, Lehman Brothers (LEH), which was up earlier in pre-market trading, on news over the weekend that the Korean Development Bank is interested in Lehman Brothers (LEH) is now down on news that banking regulators in Korea would frown on the purchase by KDB, of such a troubled company.

tags: stocks lehman

Lehman Brothers (LEH), which is currently in a bid for its survival, could possibly reward traders handsomely in the coming weeks. The company is apparently shopping itself, as well as trying to sell its asset management division, Neuberger Berman.

Should the company be successful in either of these two avenues that it is exploring, the shares should rally, giving prescient traders in the stock a nice gain.

At Friday’s close of $14.41, Lehman (LEH) currently has a market capitalization of $10.01 billion. The Neuberger Berman division by itself, is believed to be worth $8-$10 billion. Considering its overall market cap, if Lehman (LEH) is able to sell the division, even at a discount to the $8-$10 billion figure, the cash infusion from the sale would be considered a positive and the sale’s announcement should drive Lehman’s (LEH) shares higher.

Traders might want to consider taking a position in Lehman (LEH), or even buying call options to enhance any gains in the stock, if a sale of either the company or its Neuberger Berman division materializes in the next couple weeks.

lehman

Oil prices are rallying this morning, following yesterday’s gains, on concerns that Russia might extend its Georgia military campaign and that tropical storm Fay might still pose a risk to oil production in the Gulf of Mexico.

Crude oil for September delivery is up $3.82, to $119.38. On the other hand, stocks are down at the open, with the Dow Jones Industrial Average now at 11,349.10 losing 78.33 points on continued concerns over Lehman Brothers (LEH) Fannie Mae (FNM) and Freddie Mac (FRE).

The other major indices are down as well, with the Nasdaq down 14.29 and trading at 2374.79
and the S&P 500 down 6.79 and trading at 1267.75.

Stocks are falling today 08/19/08, after Producer Price Index numbers released this morning by the Labor Department, renewed inflation fears. The Producer Price Index, which measures the price of goods using the manufacturers’ wholesale prices, rose 1.2% in July, the biggest increase in 27 years. This was twice what was expected by forecasters.

Core PPI, which leaves out energy and food prices, rose .8%, versus the .2% rate that was expected. This was the biggest gain in twenty months.

The news was harsh on the stock market. Currently, the Dow is down 124.49 points or 1.08%, to 11348.63, The Nasdaq is 24.30 points or 1.01% to 2392.68 and the S&P 500 is down 12.92 points or 1.01% to 1265.68

Financials also continue to drag down the markets. AIG is down 7%, Lehman Brothers (LEH) is down 7.98%, Goldman Sachs (GS) is down .72% and Merrill Lynch (MER) is down 3.8%

With stocks rallying rather sharply yesterday 08/05/08, posting their biggest one day gain in four months, the convincing manner in which stocks moved yesterday could turn out to be a bear trap that’s ensnared investors who got in yesterday afternoon, after they saw stocks hold on and tack on to early gains.

Since May 1st of this year and including yesterday’s rally, there have been eleven days in which the Dow Jones Industrial Average climbed at least 100 points. But for July 16th, when stocks climbed 277 points, and then followed through the next day with a 208 point rally, stocks have given up those triple digit one day gains within the following seven trading days.

Note: stocks gained 186 points on July 30th and we have not given those gains back yet because of yesterday’s rally, plus there is not enough data (trading days) to see if the same would apply.

Financials were big gainers yesterday, with Wachovia (WB) up $1.95 to $19.06, Citigroup (C) up $1.09 to $19.92, AIG (AIG) up $3.20 to $29.89, Wells Fargo up $1.36 to $31.54, Lehman Brothers (LEH) up $2.30 to to 20.24 and Merrill Lynch (MER) up $1.83 to $28.22.

These moves present clear near term shorting opportunities and traders should closely watch these stocks. As soon as the rally mode fizzles, short these stocks. If Lehman Brothers (LEH) stock starts giving back from here, a move to just $18 would be a 10% gain for traders shorting the stock!

On July 14, Lehman Brothers (LEH) was trading at $12.40. Financial stocks rallied from there and on July 18th, LEH was at $19.11. The stock fell to $18.32 by the 21st and then rallied again to $21.10 on the 23rd. It was then downhill from there, with the stock back down to $15.27 by July 28th.

Fast moving traders using the current stock market volatility to their advantage, could see a substantial gain in their portfolio. With AIG down from the $60 range at the start of the year, it probably will end the year down, but one could trade the stock and realize at least a 20% plus gain by December.

Stocks are are higher less than twenty minutes after it looked like they would be moving down with conviction at the open. There are some positive news to serve as impetus for the move up. Wells Fargo announced the unimaginable, that it is raising its dividend. This is a boon for the financial sector as the news basically affirms that the bank’s cash position must be stable. Even Fannie Mae (FNM) and Freddie Mac (FRE) are up today.

Also, Intel (INTC) announced decent quarterly earnings after market close yesterday, while Sun (JAVA) did even better and pre-announced  that it expects to beat earnings estimate handily. Additionally, crude oil prices continue the  incredible drop from yesterday. At least some very good economic news for Americans. We should see a meaningful drop in gas prices at oil’s current prices.

On the bad news front, the Labor Department reported that consumer prices shot up in June at the second fastest pace in twenty six years, serving to reinforce the fact that inflation is a serious threat to the U.S. economy.

Tags: stocks, investments, finance, lehman, wells fargo, fannie mae, freddie mac

Posted in stocks | Tagged stocks, stock trading

The Options Capitalist is a subscription based service from Navivest that goes out Monday’s and Thursday. Today’s market action has created a special situation so we sent out Thursday’s issue today to our subscribers. We are however, making this available for our blog readers as well. It is an option trade on Lehman Brothers. Click here to download the report.

If you would like to be kept udated on our follow-ups and exit advisory on the trade, try our free no obligation two week trial to The Options Capitalist so that we have your email address. You can subscribe by going to http://www.navivest.com and following the link for services where you can fill out the trial subscription form.

This alert is being issued on Tuesday 07/15. In case you get it after, as long as Lehman is trading above $13.50, we recommend entering the trade.

The price of oil is dropping over nine points and crude is trading below $136. This is having a positive effect on stocks which had extended recent losses. The Dow was down over 158 points at one level, but stocks are now recovering and the Dow is now down just 59 points.

Bank and brokerage stocks are up but the usual suspects, Fannie Mae, (FNM) Freddie Mac (FRE) are down considerably, on continued concerns about their businesses. Hedge Fund manager Bill Ackman who got on the right side of shorting Lehman has now come out saying he is betting against FNM and FRE. That’s not helping.

Even with the stock market up nicely today, financial stocks continue to take a beating. Rumors are once again swirling around Lehman (LEH) that it might be next to go the way of Bear Stearns and the stock is down 14% on the day. Average daily volume is about 41 million shares. Today, the company is trading 93 million shares - so far.

The cost to insure the company’s debt using credit default swaps has climbed again, by about 35 basis points. Actual numbers are $350,000 per year to insure $10 million dollars worth of debt. What does this mean for the average investor? The higher the cost of the credit default swaps, the higher the likelihood the company could go out of business or so the thinking goes.

Fannie Mae (FNM) and Freddie Mac (FRE) also continue their downward spiral.

 stocks 

On Tuesday 07/08, the Dow was up 159.18 points. On Wednesday 07/09, it proceeded to give back all those gains and then some, closing down 236.77 points. It probably goes without saying that a lot of traders and investors got caught. They bought into the rally on Tuesday only to lose their shirts on Wednesday. Financials were the leaders on Tuesday, with Fannie Mae (FNM) and Freddie Mac (FRE) up about 6 and 7% respectively. On Wednesday, they lost 13 and 23%. So those who bought in on Tuesday are in a lot of pain right now.

On Monday night, in our advisory service, The Options Capitalist, we recommended the SOHU (SOHU) July 70 calls. It went out overnight, with a note not to buy unless the stock was moving up. On Tuesday, the stock was showing weakness so our subscribers did not get in. We watched the stock and sent out several Trading Alert emails early in the day. From an open of $70.05, the stock kept pulling back and at around $68 (low of the day was $67.12.) we sent out a Buy Alert email to our subscribers who ended up getting into the July 70 call options at $2.90.

On Wednesday, with the Dow down over 200 points, SOHU (SOHU) closed the day up at $71.71 +$3.63. High of the day was actually $72.50. We issued a Sell Alert at 12:15 and closed out of the July 70 calls at $4.10 for a gain of 41% - in one day!

In May, our gains before commissions was 27% and in June, 24%. Impressive as these returns are, they could have even been better believe it or not. On June 27th, our recommendation in The Options Capitalist was to buy the Apple (AAPL) July 170 calls. The Options Capitalist usually goes out on Monday nights (we just added Wednesdays as well so now it is four actionable ideas a month) but the Dow had just dropped 355 points the day before and we were looking for a bounce the following week so we sent out an early issue.

Our subscribers got into the Apple (AAPL) 170 calls at $6.25 on Friday. On Tuesday July 1st of the following week, we did not see the big bounce we were looking for. However, our proprietary technical signals were on the money and Apple (AAPL) moved to the upside. The behaviour of the markets that day made us nervous, so we issued a sell alert and our subscribers got out at $6.90 for 10.40% gain.

We should have had more faith in our systems. knowing Apple (AAPL) has been moving up since we got out, we’ve kept it on our screens and have been watching it just so we can kick ourselves. It was under $170  when we recommended the options. Today, it touched a high of $180.91 and we saw the options at $12.55.  We were very happy to make our subscribers 10% in two trading days, but had we held, on they would have doubled their money in a week!

So if you are tired of losing money in the stock market and or would like to improve your returns. Give us a try. There are some serious stock market challenges ahead. The economy is a mess and getting worse and that being the case, there is no way to avoid a bear market.

The mentality of most individual investors is to jump in when the going looks good and that works some times, but as we’ve seen with this current market, what goes up will come down pronto and if you are wrongly positioned, well there goes another chunk of your hard earned money. The stock market won’t move down in a straight line, we will have some rallies, but the pros will sell on any up move and they will be selling to you and you’ll just watch all those gains evaporate right after you after you get in.

So subscribe to The Options Capitalist now. Every new subscriber to The Options Capitalist gets a free no obligation two week trial. You can determine for yourself whether its worth it, without spending a dime. Visit our site at http://www.navivest.com and from there, click the button to services. That page has a very short trial subscription form that you can fill out and once you do that, you will start receiving The Options Capitalist.

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