Stocks are surging in early Friday 08/08/08 trading on crashing oil prices and a strong dollar. Oil is down $3.85, trading at $116.45 and the Dow Jones Industrial Average is up 203 points, to 11635.23. This is a bear market trap and astute traders need to get ready to position themselves for a retracement next week. 

Wall Street banks on top of their existing problems, last evening announced that they will be buying back auction-rate securities from their clients that bought them. That just worsened their financial conditions by billions, on top of their other problems.

Fannie Mae this morning just announced a $2.3 billion loss or $2.54 per share, almost four times worse than the $0.69 loss Wall Street was expecting, and while we understand the dramatic drop in oil is a strong catalyst for stocks to move higher, this triple digit gain does not make sense considering the news from the financials in the past twenty four hours.

As this is being written, Russian tanks are rolling into neighboring Georgia. Georgia is one of the breakaway provinces of the old USSR, having broken away just before the USSR itself fell apart in 1991. Russia still holding a grudge, is now supporting a seperatist movement in Georgia that has been fighting Georgia since the country’s break from the USSR, in a bid to set up their own independent nation in South Ossetia. Although South Ossetia has for the most part been independent of Georgia, they have not been diplomatically recognized and Georgia has now upped the ante. As a result, Russian tanks are now inside Georgia territory and lives have already been lost.  

Once Wall Street wakes up to the fact that a major energy producer is at the brink of war, we should see a bounce in oil prices, causing stocks to fall.