Watchlist Saturday

Late Evening Note: Bank of America has agreed to buy Merrill Lynch for 44b or the equivalent of $29 per share. Since MER last traded about $17 per share I would expect the stock to pop in the morning - and for Financials to catch a tailwind since BAC is willing to buy MER at a premium. We could still get some negative news bogeys out of LEH and WM, but for now, we may see a bump up on Financials in the morning.

Market Posture:

Dow: IT (intermediate term) Neutral and ST (short term) Bullish to Neutral. The Dow is pausing after the bounce on Thursday. A move above 11,475 could lead to a test of 11,575. A drop below 11,375 could lead to a move back down to 11,250. The Fed will meet on Tuesday. The risk for traders is not any type of rate change but rather a change in language. The Fed will probably do nothing to interest rates but they could hint at the risks of recession increasing due to the Financial sector mess. Speaking of the mess, it seems that every suitor pulled out of the bidding and LEH may be headed towards bankruptcy. CNBC is reporting that the company is likely to file for bankruptcy on Sunday night. The market is probably going to be volatile again next week as traders sort out the Fed, the Financial sector, Hurricane Ike (which looks like it didn't cause as much damage as expected, thankfully), oil, and Goldman Sach's earnings. There is likely going to be some trepidation and deep concern in the market next week, and probably a good deal of hand wringing. You'll do yourself a favor by following the usual gameplan: keep it light and keep it tight.....don't take large positions and don't hold a full directional trade overnight unless you see really clear signals. I just don't see anything that will make me want to approach next week any differently than I did last week - and that means one day at a time.

SPX: IT Neutral and ST Bullish to Neutral. A move above Friday's highs may lead to a test of the 1,265 - 1,268 area. A move below Friday's lows would probably take the SPX back down to the low 1,220 area. The SPX could go tight in the next couple of days, especially if it can't follow through on the two-day bounce.

Naz: IT Bearish and ST Bullish to Neutral. A move above Friday's high might take the Naz to 2,285 - 2,300. A drop below Friday's low would probably take the Naz to 2,209 - 2,200. The Naz is the most bearish of the three major indeces right now. The Naz would have to move above 2,300 - 2,310 for me to change my IT posture.

Here are some interesting Bullish Movers recently: (make sure to check for .10 - .20 cent spreads and also the earnings release date)

Gold: AEM

Financials: ZION, MTB, STI, KRE, RKH, STT, JPM, (NTRS is overbought short-term)

Cyclicals: DD, KMB, WHR

Defense: LMT, NOC

Food&Beverage/Consumer Staples: CL, GIS, PG, KO, (PEP is overbought short-term)

(Retail: this sector is a overbought short-term, but here they are: SHLD, TGT, WMT)

(Transports: this sector is a overbought short-term, but here they are: UPS, FDX)

Note: ESRX, AGN, (SUN is overbought short-term), (COV is overbought short-term)

Here are some interesting Bearish stocks:

Chemicals: TRA

Coal: ACI, BTU, MEE

Tech: ENER

Steel: AKS

Energy: SU, NBL, SLB, COP

Machinery/Manufacturing: JOYG, FLR, FLS, CMI

Note: OI

Tomorrow we will get the Industrial Production/Capacity Utilization report, but I expect the market to be more focused on Financials in the wake of LEH and WM, and Oil in the wake of Hurricane Ike. In addition, traders will be focused on what the Fed might say on Tuesday, although that should be more of a non-event. Oil futures appear to be headed below $100 on Monday based on Sunday indications - because Ike didn't do as much damage as was expected. Here is the reminder that you want to trade what you see and not the news headlines because oil dropping in price was the last thing the media expected. We are likely to have several crosscurrents tomorrow, so it will be important to trade the short swings and take things day to day this week.