TCM Notes : 7/7/09

• Nasdaq chalked up another distribution day bringing it's count to 5; although many say the volume comparison to Thursday is unfair (being a shortened holiday week and all.) No change for the Dow which stands at 5 and none for the SP500 which stands at 4 still. The correction continues on as some sense of perspective is starting to overpower the hopefulness reflected in the recent rally off the lows. While this re pricing continues on I'm sizing up some small/mid cap names in several recovery sectors. GTI is one that comes to mind. They make graphite rods used by mini mills to make steel. Seems to be a good high beta play when capacity ramps back up in the space.
• XLP, XLV, and XLU should continue to see money flows in the 3rd Q. This is the exact opposite of the risk trade that has been deployed recently encompassed by SPY, XLF, XLY, XLI, XLB, and XLE. Those have all rolled over. Dr. J noted over the weekend that from 49 years of data the 3rd quarter usually sees the health care and staples outperform the financials by roughly double. This fact continues to play into our view that rotational money flows will continue to push those laggard sectors.
• OCN is still trading in a tight range. I'm becoming more bullish for them as 36% of the Q1 modifications are now currently delinquent or are foreclosed. I believe they benefit further if the people actually foreclose, but I need to check that fact. I'm still shaking my head over the fact that Freddie is accepting 125% loan to values.
• An 8yr high of 262 companies have issued debt so far this year. Investment grade debt of 301B that is. Even MSFT, IBM, and CL have gotten in on what Bloomberg calls the Money Dash.
• ERY had a great day Monday as oil broke down some more. I'm looking for at least a 60 print while expecting a break into the 50s for good measure. All the excess demand in the system is for paper barrels and that wreaks of speculation. Or as one analyst called it "money flows that are speculatively oriented" because he didn't like to call it flat out speculation. Needless to say with the Hill looking at selling some sweet for sour from the SPR these pecker woods had better watch themselves. These electronic oil casinos pose true systemic risk to the global economy as a whole, and a move favoring wet barrel operators may be what's in store for the future. Look, I'm a speculator, and I don't want to see free markets tampered with; but the fact of the matter is they are being tampered with by investors now. So much so that we have been paying too much for gasoline compared to inventory levels all because a crowded long trade had RBOB futures selling for a premium. The hack lawyers on the Hill are going to do something here. What I don't know, but I wouldn't be getting to heavily invested in energy at this point in time.