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Reasons Markets Are Better Today

Markets are better today for several reasons: 1) we have been hideously oversold recently, 2) retail sales better than expected (no it was not just gasoline sales), 3) the dollar index has rallied to its highest level since February, and 4) commodities, particularly oil (but not natural gas), are trading down.

After Lehman fired two top executives, the question is, does this give them any breathing room? The trust is broken--everyone thinks they will have to raise more capital, everyone thinks there will be more writedowns.

Cynics on the Street ask, why own Lehman? Their thinking is, even if it goes to $30 (currently $23), that would only happen if the business on Wall Street got better for everyone. If that's the case, why not buy less high beta names than Lehman?

That's why the call from Morgan Stanley to buy financials and sell energy is potentially important. The bulls, remember, are still betting that business for financials will get better: the yield curve is steeper, the deleveraging process is going on, companies are getting more capital, so when they get balance sheet in shape maybe they can make money again. So take some of that money out of energy and buy financials. It's still buy low and sell high, right?

They cynics—and there are many—say this is understandable, but think its a mistake as investor generally underweight the growing portion on the S&P and overweight the shrinking portion. They point out that the earnings of energy is still growing, while those of financials are still shrinking.

Questions? Comments? tradertalk@cnbc.com