I’m watching the 70.50 level like a hawk in Oil, as are several prominent hedgies I dialogue with on a daily basis. Right now, until Crude breaks above $71, I really like the spread of Short Crude vs. Long Natural Gas. I would lift the short side on a sustained break above $71 in Crude and get long and strong the entire energy complex, including equities.

In part because of the new stimulus package, spending for military defense in 2009 is around $650 billion – twice what it was after 9/11. This is an early present for companies concerned with aerospace and defense.

Somewhere in the neighborhood of $11 trillion in Eurozone debt is starting to come due just when companies are strapped for cash and credit markets are frozen shut. Old world European companies are suffocating in debt after their borrowing binge in the last decade. At this level, European corporate debt levels are equal to 95% of GDP. The U.S. is at 50% of GDP.

In the past few days, some of the most interesting news coming out has been centered on Echostar Corp’s (Nasdaq: SATS) power plays. It appears like it’s looking to take control of Sirius XM Radio (Nasdaq: SIRI).

His reasoning for taking profits? “I was concerned about a big sell-off tomorrow” (emphasis mine)

A moment of reckoning for many hedge funds may come at the end of this month, when their exposure to credit default swaps must be “marked to market” to reflect the increased obligations at the end of the third quarter.

Furthermore, record breaking prices after a parabolic run in these stocks since the start of 2008 is leading to what PhD-laden economists like to call “demand destruction”. Although that term is more applicable to oil, there are similarities in metals attributable to substitution. Stock prices have gotten way out in front of earnings growth for now, and although setting up short trades would be counter to the primary long-term uptrends, in the near term stock has been liquidated by institutional holders that won’t return to the bid for some time. As the June 30 mutual fund redemption deadline approaches, these are the stocks the funds will tend to be unloading in preparation to meet redemptions. Remember, June 30 is the first available redemption following the blood bath in March.

Nevertheless, she’s making me wonder what the runaway breakout price for crude is before oil-sands begin to look like an acceptable solution to America’s energy needs? If we see crude get through $125, people will certainly begin to notice. Plus, the longer crude prices stay up in triple digits, the long term rolling averages used to price baskets of crude will begin to rise as well.

BB&T (BBT) is priced where a long position would have limited downside. I don’t see the regional banks and financial intermediary’s like BBT looking like the next Bear Stearns, other than maybe National City (NCC). The only reason the red flag goes up with National City is because the behavior in NCC puts is similar to how BSC puts were trading late last week. Month’s way out started trading deep out of the money puts before the meltdown. So the trick is probably to look for another one likely to have to be bailed out. I don’t think it stops with Bear Stearns and if Lehman Brothers goes, wow. They emphatically illustrated their multitude degrees of readiness with excess liquidity, but wasn’t Schwarzman telling the markets rumors of Bear’s liquidity problems were untrue? Is that a case of losing confidence in a financial house that acts more like a hyper-leveraged hedge fund? Yes. Anyway, deep out of the money April Puts are trading multiple times their open interest. So there is a lot of either hedging or massive short building on Lehman. Can you imagine knowing that Bear was having liquidity problems because you are one of two dozen banks providing liquidity? There is a tremendous amount of money your proprietary trading desks can clean up.

It’s been easy to make profits if one is willing to display rationale and common sense in the face of all the doom and gloom talk out there. Buy Gold and Short the Dollar? Some morons on respectable web sites are posting this kind of talk STILL (albeit in the “comments” section of other peoples articles and not the websites themselves).

There is a great deal of evidence, which I cover briefly later in this post, that the market is not reflecting rational price discovery. Thus, we’ve been seeing aggressive institutional buying for the past three trading days, as indicated by the late session rallies on high volume. Money center banks like Wells Fargo (WFC), Bank of America (BAC), JP Morgan (JPM), Morgan Stanley (MS), etc… are all looking VERY attractive.

FC Stone Group (FCSX) has been a favorite trading stock since the day it floated. Although it took patience to find this stocks rhythm with plenty bruises to prove it, once you get the dial on this stocks intentions, she can be very rewarding. The stock is building support in the low $40 range as this was the prior overhead all time high. It’s always nice to see price compression like this, bringing all the major short, medium and long-term moving averages of all kinds into convergence.

First on my list is Bank of America (BAC). The problems plaguing the major money center banks such as Citi are not hurting BAC as much, but this financial stock is nevertheless getting hammered in sympathy. Its primary uptrend line dating back to 1980 (can you say “long-term”) was broken last week. There is going to be a huge amount of buying on this stock if it gaps down significantly on the open. I am painting $31 as the ideal buy opportunity on Bank of America (BAC).

Chart 1 - Yanzhou Coal ADR (NYSE: YZC)

Yanzhou Coal (ADR: YZC) is one of the best Chinese stocks to be in a trader's arsenal. Although more richly valued than China Southern (ADR: ZNH), which has a still very reasonable PE of 42, there is similar institutional accumulation, which I mentioned in my previous post.

Although we have seen quite a few high double digit moves since August, we are nowhere remotely close to stock behavior during 1998, which I vividly recall in detail. During the rip roaring mania of 1998 and 1999, the moves were in the high triple digits in the same time frame.