Blue Monday

by Larry Levin


There was more than one reason for today's pullback on the major indices. Microsoft is walking away from the Yahoo merger. Bank of America may be walking away from the Countrywide purchase. Oil exploded to new highs and GM's share price was pummeled today following another strike.

Workers represented by the United Auto Workers went on strike Monday at a Fairfax, Kan. General Motors Corp. plant that makes the automaker's popular Chevy Malibu. It is the second strike by a UAW local against G.M. this spring after a decade without any plant work stoppages. Workers at a G.M. plant that builds fast-selling crossover vehicles near Lansing , Mich. , have been on strike for nearly three weeks. Together, the plants employ about 4,500 people. GM closed down 3.6% today - leading the Dow lower.

Also weighing on the Dow, shares of Bank of America fell 2.1% after Friedman Billings Ramsey & Co. analyst Paul Miller said the bank was likely to negotiate a sharply lower price for Countrywide but should just consider walking away, as Countrywide's loan portfolio "will prove a drag on earnings." This news, along with the breakup of MSFT and YHOO put a damper on the new M&A euphoria.

Over the weekend came word that Microsoft would no longer pursue Yahoo, as well as any hostile takeover action, after concluding that Yahoo would likely respond with actions that would make the buyout "undesirable." "After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," Microsoft CEO Steve Ballmer said in the statement.

After three-months of courting, the relationship is over. Yahoo's board of directors rejected the deal, saying the offer undervalued the company's business even after Microsoft offered to raise its bid from $31 per share to $33, or a gross amount of approximately $5 billion. Yahoo co-founder and CEO Jerry Yang believes the price should be $37 per share.

Hmmm, my chart tells me that before Microsoft offered to buy YHOO, the market though it was only worth about $19.00-share. And Yahoo just might slide back to that original level of around $19, which could expose the company to shareholder lawsuits for failing to secure a deal with Microsoft. In fact, this afternoon a move was already made to replace the board of directors!

This sounds to me like a has-been is still reliving its old life as if it were still here today. Somebody better tell the overweight ex-beauty queen (YHOO) that she better sprint back to that alter. The glory days are over and she better deal with the hear-and-now.

Another jump in oil prices raised concerns that inflation could force consumers to cut their spending on discretionary items. Crude oil futures for June delivery surged to a new trading high of $120.21 a barrel on the NYMEX before pulling back. The jump followed news of an attack on a Nigerian oil facility. Hello $4.00-gallon gasoline!

Unfortunately, all of this news couldn't move the market much. Although the indices closed lower, the majority of the day was as dead as a doornail and not a good trend lower.

Real Time Trading Signals*for

Trade Date: 5/5/08

E-Mini S&P Trades*
(before fees and commissions):

1) PP sell @ 9:10am at 1415.75 = +3.50 (1 lot)

2) VA sell @ 10:20am at 1407.50 = -2.00 (1 lot)

3) VA buy @ 11:15am at 1408.00 = +.25 (1 lot)

4) TP sell @ 11:30am at 1408.25 = b/e (1 lot)

5) Engf buy @ 12:35pm at 1407.00 = -1.50 (1 lot)

6) OTF sell @ 1:30pm at 1407.00 = b/e (1 lot)

7) VA buy @ 2:10pm at 1408.00 = +1.00 (1 lot)

8) Algorithm trades (0)...combined total...+1.25

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 8:47am at 723.3 = -.8 (1 lot)

2) Sell @ 9:43am at 723.8 = b/e (1 lot)

3) Sell @ 10:13am at 722.7 = +.5 (1 lot)

4) Sell @ 1:05pm at 721.9 = +.5 & +.5

5) Sell @ 1:23pm at 722.2 = +.2 (1 lot)

6) Buy @ 1:57pm at 722.0 = +1.1 (1 lot) ...+$200


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