No, the contact on the starter solenoid with the bare cable is most definitely NOT the negative contact. The starter's negative contact comes through the starter's mounting flange.
The heavy black cable from the battery connects to the negative battery terminal
at one end and to the engine block at the other end, not directly to the starter. The engine block then acts like a huge wire to connect the negative contact of the starter to the negative side of the battery. (The smaller black wire goes to the little green screw on the inside of the fender.)
The red cable from the battery connects to the positive battery terminal then splits in two, with the shorter end going to one of the heavy terminals of the starter relay on the inside of the fender and the longer end going to the upper heavy terminal on the starter.
There is a third wire between the other heavy terminal on the starter relay on the fender and the small terminal on the starter solenoid mounted to the starter. When you turn the key the starter relay closes a circuit between this smaller wire and the battery, sending current to the starter solenoid to pull the starter drive into engagement with the flywheel and close the circuit that actually switches the high starter current on. The result: the starter motor spins and the engine starts.
The way you have it set up now you're dropping a dead short across the battery. It's no real wonder you're getting sparks and smoke when you turn the key.
The first thing you need to do is connect the end of the new black battery cable where the old one was connected. The second thing you need to do is hope real hard that you didn't fry the starter solenoid by using it to connect the positive side of the battery to the negative side. If you did fry the solenoid, the third thing you need to do is replace it.
Wednesday, December 5th, 2012 AT 1:23 AM