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Airlines Are Grounded

By Tim Melvin
1:45 p.m. EDT

The picture in the airline industry is becoming clearer. The discount carries are stealing market share from the legacy carriers and I think it is just going to get worse.

AirTran ( AAI) turned in an operating profit for the quarter and expects to have profits in the third as well. Delta ( DAL) on the other hand showed a huge loss and does not expect to be profitable for the year. Lower-cost providers like Airtran and Southwest ( LUV) will be winners as the economy and consumer continue to contract and it will be at the expense of larger lines.

None of the airline executives reporting today expect the industry to show any meaningful growth until 2011 at the earliest. A paired trade of long AirTran and Southwest while shorting Delta, AMR ( AMR) and United ( UAUA) makes a lot sense.

Long Southwest.

Carlisle Blasts Off

By Gary Morrow
12:50 p.m. EDT

Carlisle ( CSL)is in the top five of percentage gainers on the NYSE following this morning's pre-market second-quarter report. The stock is up over 12% on a big surge in trade. Volume is running at more than triple the daily average, making today the heaviest positive day in a year.

Carlisle began the day with a powerful gap higher open and bolted past its previous 2009 highs set last month at $26.30. It's now trading at its best levels since last October.

CSL Daily (NYSE) -- Carlisle
Cat Daily Chart
Source: TradeStation

Going into today's earnings report the stock was set up for an upside breakout. Late last week Carlisle worked its way back above its 50-day moving average, which it had been straddling since last December. This gave it solid footing going into this week.

Monday's action was uneventful but yesterday was entirely different. Carlisle gapped higher on the open and finished the day with a volume-heavy 3% surge. Carlisle is now nearly 25% above its July lows.

The stock is certainly overdone in the short term. A low-volume re-test of the June highs just above $26 would be a healthy event and a buying opportunity.

No positions

Bearish Steepening of Eurodollar Curve

By Howard Simons
11:20 a.m. EDT

The central banks, our beloved Federal Reserve included, have done a good job in driving down the very shortest interest rates. In fact, implied yields on the September and December eurodollar contracts are lower now than they were in January.

But implied yields on longer-dated contracts are much higher, 100-120 basis points, than they were just a few months ago. This means anyone looking to lock in financing via a forward rate agreement is looking at higher, not lower, rates. Nice stimulus, guys.

A business can finance operations at the very shortest end of the yield curve using commercial paper and bank lines of credit, but this is not the way to finance capital investment. Moreover, this steep yield curve is unstable and is contributing to high levels of fixed-income volatility.

No positions.

Corporate Bonds Weak

By Tom Graff
10:07 a.m. EDT

Corporate bonds are opening weak, especially in sectors that have recently run. Morgan Stanley ( MS) is 25 basis points wider after posting a larger-than-expected loss. The spread between Goldman Sachs ( GS) and Morgan was as tight as 5 basis points (favoring Goldman) and is now about 30.

Other financials are mostly 5 basis points wider. Citigroup ( C) is underperforming at 15 basis points wider. Wells Fargo ( WFC) hanging in there at 5 basis points wider.

Telecom is 5-10 basis points wider while energy is 10-15 wider. All this takes back some of yesterday's move and at worst it could be called a consolidation. With stocks now turning green, it will be interesting to watch how corporate bonds react.

Long Goldman Sachs bonds.

Morning Trade

By Bob Byrne
9:27 a.m. EDT

We have a slightly weaker market this morning as traders are paying more attention to the earnings of Wells Fargo ( WFC) and Morgan Stanley ( MS) than Apple ( AAPL). The bulls have an iron-clad grip on this market and can continue their winning ways as long as they hold above strong support at 940.50.

The bulls fought through some selling yesterday and managed to turn the market around and rally into the close. As long as they hold it together above 940.50 and 945, they can push back into the 950s and prepare for their assault on 2009 highs. Traders will need to battle through moderate resistance at 950.50, strong resistance at 953.50 and more moderate resistance at 955.50 before they continue their ramp.

The bears need to push us through moderate/strong support at 945 and target strong support at 940.50 if they want to stop the current surge. A sustained trade under 940.50 sends us to (and through) moderate support at 937.50 and 934 and toward strong support at 930.50. I would expect the bulls to begin fighting near the 930.50 area.

No positions.

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