Wednesday, May 31, 2006

Surging Into The Close

The markets looked like they might give up all of their early gains following the release of the FOMC minutes, but a strong rally in the final 20 minutes made for a relatively positive day.

Volume rose on the session, to above-average levels. This makes for an accumulation day. I hesitate to say it was the type of follow-thru day that I was looking for though. The SPX and COMP rose less than 1%, though the mid-cap and small-cap indexes rose +1.5% and +1.4%, respectively.

I think the late day strength smelled of month-end markups. As such, I would like to see some additional strength as further confirmation.

But it was still a solid day. Biotechs and energy were up the most (+2.4% each), followed by chips stocks which gained +1.8%. Housing stocks were the lone group in the red.

Oil finished flat, closing back above the $71 level. And the 10-year yield finished at 5.11%, up on the day. As for investor sentiment, the ISE Sentiment Index made a new 52-week low (89), and the CBOE put/call ratio was above 1.0 again for most of the day. So those are additional positives for this market, from a contrarian perspective.

Taking Some Trades

I am taking some money off the table in stocks I added over the last week or so. I am still keeping a lot of my longs, just closing out a few.

LQDT has rallied big since being profiled again in IBD late last week. The stock brokeout on huge volume last Friday, and has continued to climb yesterday and today. I took profits this morning, and will look to possibly get back in on some sort of pullback.

HWAY announced a merger this morning that was greeted bullishly by the street. The stock broke out to a new high. Although I usually like to hang on to stocks breaking out to new highs, this one was just a trade, so I elected to take profits.

And so you don't think I only highlight my winners, I was also stopped out on my CROX trade. I didn't keep as tight a stop as I would have liked, but elected to limit my loss to -15%.

I am continuing to look for new leadership, but so far I mostly see oil & gas stocks breaking out. The action in stocks like AAPL & GOOG today is pretty bearish. Tough market.

long GOOG

FOMC Minutes About As Clear As Mud

The FOMC minutes were just released, and the initial reaction from the market was a quick 30 point drop in the Dow. Of course, the market is already starting to bounce back. So by the time it closes today, it's anyone's guess where we will end up.

The FOMC said they discussed the full range of options, from no hike to a full 50 basis point one. The also said that inflation expectations are contained, and that forecasts for slower growth this year are not yet clear. Last, they said that rising price expectations could well reverse.

So basically there isn't much to glean from these minutes versus the previous commentary. The fed funds futures are now pricing the odds of a June hike at 65%. I think it will be more like 50% by the time the June FOMC meeting rolls around (end of June).

For its part, the 10-year yield is up today to 5.10%. It peaked 2 weeks ago at 5.19%.

Analyst Actions

Here are some upgrades/downgrads that caught my eye today:
  • TEVA: Am Tech ups from Hold to Buy ($46 tgt)
  • BOT: Keefe Bruyette ups from Underper. to Mkt. Perf.
  • FFIV: Citi ups from Hold to Buy
  • CBST: Lazard lowers from Hold to Sell
  • ASD: Deutsche lowers from Buy to Hold
  • GME: Lazard starts at Buy ($54 tgt)
  • KSS: Stifel starts at Buy ($68 tgt)
  • RBAK: UBS starts at Buy ($30 tgt)
  • CBST: RBC upds tgt from $25 to $33
  • LVS: Jeffries ups tgt from $80 to $88

Market Comments: The market continues to hang in. Oil is trading lower and nearing the $70 level. Semis are strong, with the BRCM/MRVL complex bouncing. One of my trading buddies just pinged me and said he thinks this rally will fizzle. I am hoping otherwise.

long KSS, RBAK

Market Gets A Bounce In Early Trading

Morning News of Note:
  • GS: Goldman Is Expected To Tap Blankfein as Leader With the departure of Chief Executive Henry Paulson Jr., Goldman Sachs is expected to turn to No. 2 Lloyd Blankfein -- replacing a classic, meet-and-greet investment banker with the sort of savvy trading manager who has been on the rise on Wall Street. Goldman's board of directors is expected to tap Mr. Blankfein, the firm's president, to succeed Mr. Paulson as soon as this week, according to people close to the firm. (Full Story) WSJ
  • Ethanol: Florida's sugar cane fields could become a major source of ethanol for fuel Deep green blades of sugar cane rise from the roadside approaching Belle Glade, growing in the shadow of refineries in western Palm Beach County. While local farmers will tell you sugar cane is far from the most lucrative crop, it nevertheless produces steady income because of its volume and resilience to dramatic swings in weather. (Full Story) Sun-Sentinel
  • VOD: Vodafone to Focus on Internet, Slow Expansion Vodafone Group PLC said it plans to expand into broadband Internet access and to slow the pace of international acquisitions, marking a strategic shift for a company that staked its reputation on being global and cellphone-focused. The new direction for Vodafone, the world's largest cellphone-service company by revenue, comes as Chief Executive Arun Sarin faces pressure from shareholders who are frustrated with stock-price declines and concerned about how the company will continue growing. (Full Story) WSJ
  • DIS: Disney films to be available for download from CinemaNow-Arizona Republic: Disney (DIS) and CinemaNow are expected to announce today that CinemaNow will sell computer downloads of Disney films, including "Glory Road" and "Chicken Little," for $19.95. The films will go on sale the same day they become available on DVD. They will also be able to be transferred to up to three portable devices
  • Mad Money Summary: Cramer opened his show discussing the Dow's drop of over 180 points. He said, "On the surface, this market looks completely incomprehensible, and that should scare you." He said the generals are dead, referring to former market catalysts Cisco (CSCO), Dell (DELL), Microsoft (MSFT), Intel (INTC), Broadcom (BRCM), Marvell (MRVL) and Google (GOOG). He also said General Motors (GM) and Wal-Mart (WMT) didn't have what it took to rescue the market. He recommended Clorox (CLX) as a good investment in the current "rudderless" environment. He also recommended Enbridge (ENB), which has the same upside potential as Kinder Morgan (KMI). Cramer also recommended Netgear (NTGR), a best-of-breed stock in the wireless sector. In the "Lightning Round," Cramer was bullish on Halliburton (HAL), URS (URS), ConocoPhillips (COP), Enbridge, Cedar Fair (FUN), Nektar Therapeutics (NKTR), Hain Celestial (HAIN), Comcast (CMCSA), Anheuser Busch (BUD), Pepsico (PEP), Bank of America (BAC), Citigroup (C), Crystallex International (KRY) and VeriFone Holdings (PAY), and was bearish on Maverick Tube (MVK), eBay (EBAY), Marvell Technology, Oil States International (OIS), Six Flags (PKS), XM Satellite Radio (XMSR), Sealy (ZZ), Falconbridge (FAL), SunOpta (STKL), Marshall & Ilsley (MI) and IndyMac Bancorp (NDE).

Market Comments: The market is getting a bounce in the first half hour of trading. This is positive only if it holds for the session. You know how skeptical I usually am of rallies near the open.

The Chicago PMI came in stronger than expected this morning (61.5 vs. 56.0 consensus). This caused a small pop in bond yields, which are still lower on the session to 5.08%.

The minutes from the last FOMC minutes will be released today, so you can expect some volatility to surface around then as traders will likely be hanging on every nuance contained in the minutes.

There is definitely a clear lack of leadership in this market right now. When this correction eventually runs it course, I think it will be interesting to see which group leads us out of the morass. That will likely be the group to look to for long exposure.

long GS

Tuesday, May 30, 2006

I Should Have Stayed In Cleveland

Did you catch that license plate? I woke up in Cleveland this morning well before the market opened. I hopped on a flight to LA with my 2-year old daughter (talk about a long flight!), thinking the market would likely hold up until I landed. Not!

I got to my office with an hour to go, and a sea of red staring me in the face. I pinged a couple of guys to get their takes on what happened, but it was pretty much just same 'ol, same 'ol.

The market got whallped today on higher volume also, making for another distribution day. I was looking for a follow-thru day early this week, but those plans might have to be put on hold. We shall see.

Breadth was awful, and the Hi/Lo index went back into triple digit negative territory (-104) on the NYSE, although it held up far better on the Nasdaq.

Big-caps (SPX) were down -1.6%, the COMP fell -2.1%, and small-caps (RUT) sank -2.5%. Pretty nasty.

Notably, investor anxiety surged. The VIX was up a full 31%! That's a big move. And the CBOE put/call closed at 1.20, another highly elevated reading. The ISE Sentiment Index fell near its 52-week low to 104. Over the weekend, the Market Vane bulls fell back to levels hit last October.

Tough to find a bottom in this market, but the oversold condition and highly bearish sentiment continue to have me looking to add long exposure.

Sunday, May 28, 2006

Weekly Recap

The previous weekly wrap concluded with "the fundamentals haven't tanked as much as the market." This, week, the market came to realize that, and found its footing.

The week opened with a continuation of the poor sentiment from prior weeks. The S&P opened sharply lower on Monday morning and even though it came off its worst levels, still closed with a loss of 5 points. There was no specific news to account for the decline. Anything remotely bearish could be ascribed as a factor, but it really was just poor sentiment. Underlying that was concern that the Fed would go too far in raising rates and that economic growth would slow significantly.

This thought process included some ridiculous talk that a decline in commodity prices was bearish for stocks because it reflected weak global demand. But the daily fluctuations in commodity prices are driven much more by speculative positions than daily changes in underlying demand from China.

The market was extremely volatile on Tuesday. The S&P was up more than 10 points in the morning but gave way to a late sell-off to end down another 5 points. There was again no real news that moved the market. Sentiment was the overriding factor, and that sentiment was mostly about fear. That even included highly suspect worries about the impact of avian flu.
Wednesday was another very volatile day with one exception - the S&P closed with a 2 point gain. A more positive tone was supported by a surprising increase in April new home sales. This helped ease fears about the economic outlook.

Thursday the market rocketed higher. The S&P gained 14 points. Press reports ascribed it in part to an upward revision to first quarter real GDP to 5.3% from an originally reported 4.8% and an unchanged price deflator. Again, however, it was not so much the actual data as that fears were being squeezed out of the market on numbers that were largely in line with expectations.

That was the case on Friday as well. The April core personal consumption deflator (PCE) was up 0.2%. That was in line with expectations. It pushed the year-over-year increase in this closely watched inflation measure to 2.1%, up from 2.0% in March. That is above the Fed's forecasted range of 1 3/4% to 2% for all of 2006. There was nothing particularly bullish about the data. It also later became widely known that the increase was actually 0.249%. A slight fluctuation in one component and it would have been a 0.3% gain.

No matter. The market was comforted by the as-expected 0.2%, and the S&P gained another 6 points on Friday.

For the week, the fundamentals were little changed. The economic data was mixed. April durable goods orders on Wednesday were weaker than expected while new home sales were stronger than expected. Thursday brought the GDP data noted above and an as-expected dip in existing home sales. The core PCE deflator data was released on Friday.

There were very few earnings reports, and none of broad impact. The yield on the 10-year note dipped to 5.05% from 5.12%. Oil rose to $71 a barrel from $69 a barrel. And, despite all the talk about implications for Fed policy of every bit of news, fed funds rate futures barely moved. They still incorporate expectations of one more quarter-point rate hike this year. All in all, the news was mixed at best.

Yet, the market tone went from decidedly bearish at the start of the week to neutral or even a bit upbeat by the end of the week. This was due to the fact that the worst fears were taken out of the market. The economy isn't about to hit a wall, and earnings growth will be at least decent through year-end. Inflation may be firming a bit, but not tremendously. The Fed may have to raise rates again, but probably just one more time.

The fear that the Fed may go too far, drive the economy into the ground, and completely ruin the stock market outlook, has eased considerably.


Friday, May 26, 2006

Heading Out For The Weekend

The market is pretty flat to up slightly so far this morning. The brokers are strong after a string of analyst upgrades. Biotechs are also continuing their bounce.

LVS won a bid for a Singapore resort, and the stock is spiking.

CROX raised guidance last night, and the stock was up huge after hours, but the enthusiasm has faded today.

Breadth is positive, and new highs have overtaken new lows on the Nasdaq. The 10-year yield is lower by 2 basis points to 5.05%.

I am leaving to jump on a plane to Cleveland. Keep the market strong for me, and I'll catch up after the close.

Thursday, May 25, 2006

The Bounce-- Better Late Than Never

Now we're talking. The late day surge in stocks is more along the lines of what I had been looking for. If the market doesn't pull back, I think it could catch even more bears short, and offer a nice squeeze higher.

Stocks rallied almost across the board, save for the semis. Small-caps led the way, up +2.0%. Large-caps were up +1.1% and mid-caps +1.2%. By sector, energy stocks spiked higher by +3.5%, brokers were +2.4%, and biotechs were +1.9%. But the lowly semis were down -0.4%.

Volume was not as high as yesterday, which was expected. I would still like to see a high volume follow-thru day early next week. Breadth was solid, with more than 80% upside volume. But new lows still exceeded new highs.

Measures of investor anxiety fell today, but things like the put/call ratio still have a long, long way to go to unwind all of the built up pessimism. The AAII figures came out today, and showed an increase in bearishness (even more bears than bulls).

Still not too late to add longs here. I will be back with some notable stocks in a bit.

Semis Acting As Dead Weight

We are getting a nice bounce today, but the semis are not participating. BRCM and MRVL act very heavy, and I have reduced my exposure to the group.

If we could get the semis to rally, I think the market would head even higher. Also, energy stocks are rallying again, with oil back at $71. But if oil keeps heading higher, that could weigh on the overall market as well. So it's a bit of a balancing act.

Brokers and biotechs are strong today also. GOOG just announced a big deal with DELL, where it will have its search software preinstalled on millions of PCs. This is big news, but the stock is still down. In a better environment, this type of news would send the stock up double-digits.

The put/call ratio is running at a still elevated 0.90. But the VIX/VXN have turned down. Makes me think there is still ample room to rally.

long GOOG

1Q GDP Revised Higher

Morning News of Note:
  • MSFT: MSN Is in Talks To Buy Provider Of Wireless Ads In a sign that the nascent market for advertising on cellphones is gaining momentum, Microsoft Corp.'s MSN unit is in talks to acquire a small private company that provides ads for the wireless Web sites of several major content providers, say people familiar with the situation. Acquiring Third Screen Media, whose clients include USA Today and The Weather Channel, would give MSN immediate access to technology that serves up ads on cellphones, as well as a network of relationships with leading advertisers. (Full Story) WSJ
  • C MA JPM: Credit-Card Issuers' Problem: People Are Paying Their Bills The credit-card industry has a problem: Although Americans are deeper in debt than ever, they are paying off bigger portions of their monthly credit-card bills. For card issuers, which profit by collecting interest on unpaid balances, that's bad news. In the past, when interest rates crept up, as they are doing now, fewer cardholders could afford to pay down balances. (Full Story) WSJ
  • Stock-Options Probe: Heard on the Street... Analysts Dig for Clues Amid Options Inquiries As investigations into stock-option practices heat up, investors are being inundated with a flood of reports from analysts looking for companies that may come under the microscope. The methodologies behind the studies vary, making it difficult to independently verify the conclusions. Still, shares of some companies are suffering even though there isn't any indication that they acted inappropriately. Others are tumbling, though the abuses might not affect their businesses. So some investors, rather than shying away, are trying to figure out if the scrutiny is creating some bargains. (Full Story) WSJ
  • WiMAX: Digitimes reports Chunghwa Telecom, Alcatel Taiwan and First International Telecom expressed their concerns about promoting WiMAX in Taiwan, at a strategic forum on May 24 in Taipei. Issues raised at th forum included regulation, competition between WiMAX and 3G services, operators' return on investment and the cost of WiMAX infrastructure. The forum focused on new business opportunities expected to be generated by the government-promoted Mobile Taiwan (M-Taiwan) Program, for which WiMAX is one of the target technologies. Duei Tsai, deputy chief of the Ministry of Transportation and Communications, indicated at the forum that the technological development of WiMAX is feasible in the view of equipment suppliers, service operators and promotional retail channels, but the lack of a customer-oriented business model for the whole supply chain currently constitutes the key risk
  • Mad Money Summary: Cramer opened his show last night evaluating oil plays. "Expensive oil is here to stay and is not going away any time soon," he said. He recommended National Oilwell (NOV), Nabors Industries (NBR), Rowan (RDC), and GlobalSantaFe (GSF). He also liked drill bit maker Smith International (SII), drill pipe maker Grant Prideco (GRP) and wellhead equipment/blow-out preventer Hydril (HYDL). He then recommended oil industry players Amcol (ACO), Weatherford (WFT), Superior Energy Services (SPN), FMC Technology (FTI) and Tetra Technologies (TTI). "You now have a quality company for each step of the oil business," he said. In the "Lightning Round," Cramer was bullish on Microsoft (MSFT), Pantry (PTRY), Valero Energy (VLO), Nordstrom (JWN), Abercrombie & Fitch (ANF), Qwest (Q), Southwestern Energy (SWN) and Eastman Chemical (EMN), and was bearish on XM Satellite Radio (XMSR), Delek (DK), Carpenter Technologies (CRS), NYSE Group (NYX), Level 3 Communications (LVLT), and Eastman Kodak (EK).

Market Comments: The market is trading higher so far this morning, as 1Q GDP was revised higher to +5.3%. While this is higher than the initial reports of +4.8%, it is actually below expectations for revisions to get up to +5.8%. But what is a few basis points between friends?

The inflation components of the report were mild, with core PCE rate unchanged at +2.0%. This is within Bernanke's comfort zone, and should not spook the markets.

For its part, the bond market is relatively flat, with bond yields at 5.04%.

Chip stocks are extremely weak, as the selling there has been relentless. I am hearing that this whole options scandal might be a bigger deal that at first blush, and that some of the chip companies could get dragged down by it.

long C, MSFT

Wednesday, May 24, 2006

Sentiment Check

Here is how the sentiment indicators closed today:

The VIX/VXN volatility complex closed lower today, likely indicating that these have peaked.

The CBOE put/call ratio closed at 1.42, another huge number. It has now closed above 1.0 for 9 days in a row. That has pushed the 10-day average to another record high at 1.22.

The ISE Sentiment Index closed near a 52-week low at 106, representing heavy put buying. The 10-day for this indicator is down to 139, which is below levels hit in October 2005.

I continue to hear from too many managers that are justifying these figures by pointing to increased program trading, or a host of other reasons why they aren't meaningful. Only time will tell, but I suspect we will look back at these readings and say what a great buying opportunity it was.

Nice Reversal Day

After plunging midday, the markets were able to find some footing and rally into the close. The gains were small, but at least we finished in the black.

The SPX gained +0.2%, COMP +0.5%, while the MID returned -0.2% and the RUT (small-caps) was flat.

Biotechs got a much needed bounce, with AMGN having a nice day. Technology stocks fared pretty well also, with MSFT up nicely and bucking the weakness most of the day.

If you go back to Friday, I said that I expected to see a confirmation rally this week. What I did not expect was for the market to undercut Friday's low in the interim. So while I would like to call today the follow-thru day, we technically need to consider it as Day 1 of a new rally attempt. Thus, we need to look for another follow-thru rally early next week for confirmation.

I'll be back with close sentiment figures in a bit.


Last Leg Down?

The market is swooning again, unable to find its footing.

Measures of investor anxiety are spiking again. The volatility indexes (VIX/VXN) are sharply higher, and the CBOE put/call ratio is again well over 1.0 (1.29).

This is the 9th consecutive day that the put/call ratio is running above 1.0. I have talked with many investment managers who are downplaying its significance. I am taking the other side of that trade, and think that it is a meaningful sign of a peak in short-term bearishness.

Combined with the deeply oversold market conditions, I think this bodes well for a strong bounce very soon.

Will The Early Lift Stick?

Morning News of Note:
  • CYMI: With semiconductor sales growing at a healthy clip, so too is demand for the gear used to make them. The latest upturn in the chip cycle started around mid-2005 and has gained steam this year. In the first quarter worldwide sales grew 7.3% from the prior year to $59.1 billion, says the Semiconductor Industry Association. The group's November forecast sees this year's annual sales up 7.9% to $245.5 billion. (Full Story) IBD
  • DELL: Dell Plans to Open Pilot Stores, But Orders Stay on Phone, Web After years of resistance, computer maker Dell Inc. plans to open two pilot retail locations. The company is known for relying on orders placed by phone or on the Web. In recent years, the Round Rock, Texas, company has opened about 160 kiosks in U.S. shopping malls, to let customers see and try out some Dell products, though they must still place purchase orders electronically while at the kiosk or at home. (Full Story) WSJ
  • C: Financial Times reports the co is in talks with China Life (LFC) and other Chinese companies about joining its bid for a controlling stake in Guangdong Development Bank, after the central govt refused to relax foreign investment rules for the sale. Having a powerful partner such as LFC, the country's largest life assurer, would help the co stay in the race for debt-laden GDB, the first Chinese bank to offer a majority stake to a foreign-led consortium. However, it is unclear whether the co will succeed in striking an agreement with LFC, with which it has been in discussions for some weeks. The co, which originally bid for 85% of GDB together with US buy-out fund Carlyle and a state-owned food company, had planned to take a 40% stake in GDB itself as part of the deal. But the bid breached China's existing rules governing overseas stakes in local banks, which set a ceiling of 25% for all foreign investors and 20% for a single entity
  • COP: ConocoPhillips-COP in refinery deal with Saudi Arabia: The Saudi Arabian Oil Company and ConocoPhillips signed a comprehensive Memorandum of Understanding to conduct a detailed evaluation for the proposed development of a 400,000 barrel-per-day, full-conversion refinery in Yanbu, Saudi Arabia
  • Mad Money Summary: Cramer opened his show discussing his top five buyback stocks. The fifth was Nokia (NOK), the fourth was a tie between CBS (CBS) and News Corp (NWS), the third was a tie between Bank of America (BAC) and Citigroup (C), the second was Chevron (CVX), and the first was Sears (SHLD). Then Cramer declared bird flu dead and said it's time to buy chicken. He recommended Sanderson Farms (SAFM). Marketwatch columnist Herb Greenberg then came on the show and challenged Cramer's "love affair" with Sears. Greenberg was concerned that Sears 10-Q filing was not released with its earnings, which Cramer brushed off. Both Greenberg and Cramer agreed that it was best to avoid United Online (UNTD). Cramer then discussed CACI International (CAI), which he said was a takeover target for BAE Systems and has solid financials. In the "Lightning Round," Cramer was bullish on (BIDU), Yahoo! (YHOO), Con Edison (ED), VeriFone Holdings (PAY), Immucor (BLUD), Freeport-McMoRan Copper & Gold (FCX), Kinder Morgan (KMI), BE Aerospace (BEAV), Brocade (BRCD), Finisar (FNSR), JDSU (JDSU) and Crystallex International (KRY), and was bearish on Alliant Energy (LNT), Dynamic Materials (BOOM), Suntech Power Holdings (STP), Sirius Satellite Radio (SIRI), MDU Resources (MDU), Elan (ELN) and Allegheny Technologies (ATI).

Market Comments: Lots of crosscurrents this morning. The 10-year yield plunged on the weak durable goods report (-4.8%), but then bounced back on a stronger than expected new home sales report. Interestingly, the yield also bounced off of its 50-day average.

Stocks opened a bit weak, but quickly reversed and are trading higher. Semis are getting a nice bounce, as well as biotechs and homebuilders.

MDT reported solid earnings last night, and the stock looks like it may have put in a bottom.

GOOG is also trading higher, after RBC said that the weakness they were worried about does not look like it is going to materialize, and they would be buyers at current levels.

long GOOG, MDT

Tuesday, May 23, 2006

The Bounce That Fizzled

Well that certainly took the steam out of the bulls' sails, at least for now. The market started to selloff in the last hour, and by the close had given up fully all of its gains and then some.

Maybe the negative reversals I highlighted in my last post were good "tells" of what the overall market was heading towards. Semis led the downside, shedding -1.6%. Housing and energy stocks held up the best, including commodity stocks, which were mostly higher.

Volume ran below yesterday's levels, so it wasn't a distribution day. Breadth was slightly negative, and this will only serve to push the markets deeper into oversold territory. When this market finally bounces, I think it could be suprisingly strong.

I am still looking for a strong follow-thru rally this week. The put/call ratio was again above 1.0, pushing the 10-day moving average to multi-decade highs. I don't know anyone who is paying much attention to this. Some of my colleagues are saying, "It's just hedging, as opposed to outright bearish bets."

Regardless, those option plays represent real money. And when and if they start acting like dead weight in portfolios, their unwinding will create upside pressure on the market.

Can't happen soon enough--

Seeing Some Weakness in Tech

The market has pretty much held on to its early gains. But there is some weakness, mostly in tech and semis. Energy stocks are still up the most, and the commodity stocks are getting a strong oversold bounce.

Some of the tech stocks I am watching are fading:

RBAK broke to a new high this morning, but has since reversed into negative territory.

STX broke above its 50-day earlier, but has also reversed into the red.

TXN has also had a negative reversal today, trading near the bottom of its intraday range.

Maybe some of these stocks can rally into the close. But it's not a great sign of strength. I hope these stocks can pick up some sponsorship if this rally builds.

long RBAK, STX

Now That's A Bounce

Morning News of Note:
  • American Tower receives subpoena from US Attorney for the Eastern District of New York regarding stock option matter (AMT) 29.61 : Co announces that it received a subpoena from the office of the US Attorney for the Eastern District of New York requesting documents related to the cos historical stock option practices.
  • Toll Brothers beats by $0.03; lowers FY06 guidance (TOL) 26.90 : Reports Q2 (Apr) earnings of $1.06 per share, $0.03 better than the Reuters Estimates consensus of $1.03; revenues rose 16.7% year/year to $1.44 bln vs the $1.45 bln consensus. Co issues lowers guidance for FY06, to EPS of $4.69-5.16 from $4.77-5.26 vs. $4.93 consensus.
  • Hansen Natural signs Mexican distribution agreement (HANS) 178.34 : Co announced that it has signed a distribution agreement with Cadbury Bebidas, S.A. de C.V. for distribution of Monster Energy drinks in Mexico. Additional terms were not disclosed. "Cadbury Bebidas is a professionally managed and well established company with extensive distribution arrangements throughout Mexico. Cadbury Bebidas currently distributes well known beverage brands throughout Mexico, including Penafiel, Clamato, Squirt, Dr. Pepper, Crush, Snapple and other Cadbury Schweppes brands."
  • Varian Medical receives FDA 510k clearance on New Trilogy Tx and Trilogy Treatment Machines (VAR) 46.33 : Co announces it has received FDA 510(k) clearance that permits the use of the company's high-energy, ultra-precise Trilogy linear accelerators on an expanded range of medical conditions. The clearance also marks the introduction of Varian's new Trilogy Tx Image-Guided Radiosurgery model designed specifically for surgeons.
  • Johnson & Johnson: ALZA Corp receives FDA approval for IONSYS; first needle-free, patient-activated analgesic system for acute postoperative pain (JNJ)

Market Comments: The market is getting a very strong bounce at the open. The best case would be for the market to build on its early gains throughout the day, and not give a good entry point for those sitting on cash, or shorts looking to cover.

The put/call ratio again opened above the 1.0 level, another good sign. And if bond yields begin to ease again today, that would be an additional positive.

Energy stocks are getting a nice bounce, followed by brokerage stocks and also tech. Small-caps are also strongest out of the gate so far.

long JNJ

Monday, May 22, 2006

Modest Strength Into The Close

The market was weak most of the day, but did embark on a spirited rally in the last hour. The SPX climbed its way back into positive territory, from a greater than 1% decline, but finished the day down -0.4%. The mid-caps (-0.8%) and small-caps (-1.0%) lagged their large-cap bretheren.

Utilities were the strongest today, as bond yields fell briefly below the 5.0% level. Chip stocks were hit the hardest (-4.2%), but I expect them to experience a strong bounce this week.

Despite today's declines, volume levels were modestly lower. So Friday's initial rally attempt is still intact, and I expect to see some follow-thru days this week. Breadth was fairly negative today, which is just pushing the oscillators/stochastics further into oversold territory.

Also, measures of investor anxiety rose again today, with a sharp spike in the volatility indexes. The fact that more market strategists aren't rushing to call this a great buying opportunity actually makes me a bit more emboldeded.

Investor Anxiety Peaking

The CBOE put/call ratio is again above the 1.0 level. According to my data, the 10-day put/call moving average is at its highest levels (1.11) in over 10 years!

My colleague Scott Rothbort notes this morning that implied volatilities are hitting their highest levels (vs. 200-day averages) since the market bottom in October 2002.

Also, the AAII bull/bear survey is back at negative levels (more bears than bulls). And the Rydex Nova/Ursa ratio is at a multi-year low (0.11) as well. My sense is that the bears are overplaying their hand here, and if this market turns higher, there could be a flurry of short covering.

And this coincides with a market that is heavily oversold, technically.

Friday's action showed a strong reversal on higher volume. So that's a good sign. If this market is going to bounce, we should see a strong follow-thru day somethime this week.

Monday Morning Musings

Morning News of Note:
  • VLO: Valero Says Gasoline Output Isn't Likely to Be Hurt by Blast Valero Energy Corp. was investigating damage to an oil refinery outside New Orleans after an explosion Saturday night, though a spokeswoman said it was unlikely gasoline production would be affected. No workers were injured in the blast at a diesel-processing unit at the Valero facility, which has a refining capacity of 250,000 barrels a day. (Full Story) WSJ
  • HD: CEO Pay: Showdown Looms At Home Depot Sparks could fly at Home Depot Inc.'s annual meeting Thursday as Chairman and Chief Executive Bob Nardelli squares off against labor unions and shareholders incensed by his multimillion-dollar paydays. Mr. Nardelli has come under intense criticism because Home Depot shares have slid 11% since he took the helm in 2000, while shares of archrival Lowe's Cos. have nearly tripled. (Full Story) WSJ
  • TIVO: TIVO TAKING TUNE FROM MAG EDITORS TiVo is partnering with several magazines, including Sports Illustrated and Star, to offer viewers virtual TV channels with content hand-picked by magazine editors. The move is another step for TiVo in its effort to offer new features in the face of competition from other digital video recorders, or DVRs, that simply allow users to record and store programming. (Full Story) NY Post
  • GPS: RETAIL GIANT MULLS LAUNCHING WEB SHOE STORE The Gap Inc., which operates under the Gap, Banana Republic, Old Navy and Forth & Towne brands, is considering launching a fifth division, The Post has learned. Unlike the other four, which sell their own branded merchandise in retail stores and on the Web, the new division would exclusively be an online store selling shoes made by other companies, similar to and, sources said. (Full Story) NY Post
  • Mad Money Summary: Cramer opened his show on Friday night discussing the drop in the markets at length. He said to this of this past week as a huge sale. He then suggested five diversified stocks that "really got killed." He said to look at Freeport-McMoRan Copper & Gold (FCX), Halliburton (HAL), JPMorgan (JPM), Tellabs (TLAB), and Boeing (BA). Cramer then recommended a natural gas play, Georgia Gulf (GGC). In the "Lightning Round," Cramer was bullish on Peabody Energy (BTU), Gymboree (GYMB), Essex Corp (KEYW), Smith & Wesson (SWB), Hain Celestial (HAIN), Whole Foods (WFMI), Disney (DIS), Lowe's (LOW), Centerpoint Energy (CNP), H&E Equipment Services (HEES), Cerner (CERN) and Starbucks (SBUX), and was bearish on United Natural Foods (UNFI), Home Depot (HD), Playboy (PLA), Sony (SNE), Burger King (BKC) and Chipotle (CMG).

Market Comments: The market is opening under severe pressure this morning, following weakness in overseas markets. The Indian stock market fell 10% overnight before being halted for trading. It pared those declines to finish down -4.2%.

Bond yields continue to decline (5.0%), but it has yet to really take hold in the equity markets. The air continues to come out of the energy and commodity stocks, and that seems to be weighing on the markets as this former area of leadership gets liquidated.

I saw some spikes in bearish sentiment last week, which when combined with this oversold market, lead me to believe that a strong bounce is imminent. I think stocks will finish higher this week, and plan to do some buying.

Sunday, May 21, 2006

Lowering Your Summer Energy Bill

Here is an article from about slashing your summer energy costs:

KEEPING YOUR COOL during the summer heat can be expensive.

Typically, the average household spends $1,400 a year on electricity and gas, according to the Environmental Protection Agency. But you can expect that amount to jump this year — by as much as 120%, warns Kateri Callahan, president of the Alliance to Save Energy.

But there's no need to resign yourself to spending the dog days of summer hiding out at the nearest mall or movie theater. There's plenty you can do now to significantly cut your summer energy bills. These nine tricks can save you 30% or more:

Upgrade to energy-efficient appliances. If you're in the market for a new air conditioner, refrigerator or even windows, consider the energy-efficient versions. Air conditioners with the Energy Star label, for example, must use 10% less energy than conventional window models.
Granted, energy-efficient appliances are still somewhat pricier than the regular versions, but thanks to federal tax credits and increasingly competitive prices, that initial purchase price is becoming more attractive. Consumers who purchase energy-efficient windows, for example, are eligible for a one-time tax credit for 10% of the cost, up to $200.

For more, see Energy Efficient Home Upgrades.

Be a night owl. If your electrical supplier offers a time-of-use plan, reserve energy-hogging chores — say, running the dishwasher or doing laundry — for off-peak hours, advises Anne Dalton, a spokeswoman for the New York State Public Service Commission, which oversees utilities. These widely available plans charge you different rates per kilowatt hour. Price differences for on-peak and off-peak usage may only be a cent or two during the winter, but summer savings can be substantial.

Wisconsin Public Service, an electric and gas supplier that serves parts of Michigan and Wisconsin, estimates that consumers can save 15% on their monthly bill. You'd pay about three cents per kWh during off-peak times (7 p.m. to 9 a.m. on weekdays, and all day on weekends and holidays), compared with 12 cents per kWh during peak times. Contact your power supplier for information about its time-of-use rates and hours.

Get with the program. Your programmable thermostat, that is. How cold you keep your home is a personal preference, says Jennifer Thorne Amann, senior associate at the American Council for an Energy-Efficient Economy, a nonprofit that advocates energy efficiency — but try to set it 10 degrees warmer when you're not at home. "For every degree you let the house warm up, you can save 2% to 3% on your energy bill," she says.

Use fans. You may find you don't need to use the air conditioner at all, says Urvashi Rangan, a senior scientist and policy analyst at Consumer Reports' Greener Choices. "Ceiling fans can make a room feel six to seven degrees cooler," she says.

Clean up. A dust-free appliance works more efficiently, says Callahan. Clean your air conditioner filters and coils every month. "When filters get clogged, they impede the flow of air," she says. And that makes your appliance work harder to maintain its output. While you're at it, take a vacuum to the dust collecting on your refrigerator's coils, too, suggests Rangan.

Blow off steam. Chances are, you really aren't excited about scalding summer showers. Lower your hot water thermostat to medium heat, or 120 degrees. Your boiler will use less energy, and less heat will escape from the device into your nicely cooled home. That's a savings of about 10% off your bill, says Rangan.

Green your yard. Doing some landscaping gets you two kinds of green: the kind that you put in your wallet and the kind that makes your yard lovely to look at. Drought-resistant perennials, shrubs and trees use significantly less water — which can cut your bill by 50%, according to Consumer Reports. And leafy trees can shield the house from direct sunlight, keeping temperatures down, while still permitting sunlight to hit your house during the winter months. Planting just three shady trees can knock $100 to $250 off your annual heating and cooling costs, according to the Department of Energy. For more, see our column Cheap Landscaping Tricks.

Seal it in. It's easy to find a leak in the winter, says Amann — the freezing draft in your otherwise warm house must be coming from somewhere. Leaks are harder to find in the summer, but you don't want your pricey, cooled air dissipating into the mid-July swelter. Sealing leaks can save you anywhere from 5% to 30% on your monthly bill, according to the Department of Energy. To spot them, conduct a home energy audit. You can do this yourself or hire a professional. For references, contact your state energy office.

Free your outlets. Just because an appliance is turned off doesn't mean it's not using any energy, says Rangan. A major culprit: chargers for cellphones, MP3 players and other devices. Unplug those when you're not using them to charge a device. Keeping your computer on all day would rack up an additional $88 per year on your electronic bill, according to Putting it on sleep mode or shutting it off when not in use could cut that expense by 80%. Other energy-sucking appliances include televisions, VCRs, DVD players, stereos, and microwave ovens. When you go away on vacation, unplug the appliances that don't need to stay connected while you're away.

Weekly Recap

The market went from looking at everything in a positive light to looking at everything in a negative light in a couple of weeks. The week ended May 12, the S&P dropped 34.52 points (2.6%). The catalyst was the Fed policy statement, which did not indicate that the Fed was done raising rates.

This week, the S&P dropped 24.21 points (1.9%). The catalyst was a single extra 0.1% on an inflation measure. On Wednesday, it was reported that April core CPI (total consumer inflation excluding energy and food) was up 0.3%. A gain of 0.2% had been expected. The slight miss led the S&P to plunge 22 points that day. No one is arguing that inflation is picking up sharply, but even a slight uptrend is considered dangerous to the financial markets at this time.

This was the second straight monthly increase in the core CPI of 0.3% and it pushed the year-over-year increase in this measure to 2.3% in April from 2.1% in March. That is above the Fed's forecast of 1 3/4% to 2% for core inflation for all of 2006. It is therefore assumed to be higher than the Fed will tolerate. If the core CPI continues to firm, there will be fears that the Fed will have to raise rates further to curtail demand, even if that means slowing down the economy significantly.

That puts second half of the year earnings forecasts at risk. Current estimates are for over 10% earnings growth. But the market action suggests that investors are questioning whether that can occur.

Everything negative gets play now. The weak dollar is perceived as a negative for stocks. Anything remotely inflationary gets top billing. Earnings estimates are in question. Weak economic releases create anxiety about the state of the economy. There is even talk that a correction of 10% could be in the offing.

Just a few weeks ago, the conventional wisdom was that interest rates were peaking soon enough to allow economic and earnings growth to continue strong. The fashion in the market has changed completely.

The market may in fact continue to struggle in the weeks ahead. The "sell in May and go away" seasonal factor can be self-fulfilling. The market has historically struggled over the summer months and that can create caution.

Money market rates are also a factor. Investors can now get 5% or more from CDs. The S&P is up just 1% so far this year and was up 3% last year. Those safe money market yields will appeal to skittish investors.

It is not all bleak, however. The price/earnings ratio for the S&P 500 in aggregate for operating earnings is only 15.8. The price/earnings ratio on as-reported earnings is 17.4. Those are very reasonable considering that economic momentum is still good. Real GDP and earnings growth are slowing, but not ending.

The other news this past week had little influence once the CPI data shifted underlying sentiment, even though much of it was upbeat. Oil prices declined to end the week at $69.29 a barrel. The yield on the 10-year note dropped to 5.04% from 5.18% at the end of the prior week.

The April core PPI was up a less than expected 0.1%. Other economic releases leaned bullish as well. Housing starts were down, but industrial production was up a strong 0.8% for April, and May surveys showed manufacturing remained strong this month.

Earnings reports were mixed. Wal-Mart and Home Depot had decent reports, but there are concerns about the outlook for consumer spending given high gas prices. Deere and Hewlett-Packard had good reports. Dell came in as they said they would after a recent warning announcement.

The market will be keyed to any and all inflation indicators in the weeks ahead. Economic data will be important. Over the short term, however, the psychological factors are critical. The market is looking to find a bottom so that the heavy pessimism wears off, just as the optimism of a few weeks ago did. The sell-off the past two weeks is warranted as an adjustment to the realization that the Fed will raise rates further and that there are some inflationary pressures.

The reality, however, is that the fed funds futures are still only priced for one more rate hike, and that the core CPI was only up 0.1% more than expected. Inflation isn't surging. It was another very bad week, but the fundamentals haven't tanked as much as market sentiment.


Friday, May 19, 2006

Looking For A Strong Close To A Weak Week

Morning News of Note:
  • High End E-Commerce: Fashionably Late? Designer Brands Are Starting To Embrace E-Commerce Far from the chic avenues of Paris, one of Christian Dior's most successful French boutiques has a much more mundane address: Six months after Dior launched its French online boutique, the Web site is quickly becoming one of the company's fastest-growing points of sale in its key domestic market. (Full Story) WSJ
  • DIS VIA: There's Gold in the Vault THE RESULTS OF THIS WEEK'S "upfront" TV-ad buying spree suggest television broadcasters have their work cut out for them: They will likely generate no growth in ad revenue this year as advertisers flock to the Web. But all is not lost. New forms of digital content distribution such as iPod downloads, streaming video on the Internet, and cable video-on-demand could yet bring a windfall to television and film conglomerates such as Walt Disney and Viacom. (Full Story) BARRONS
  • DELL AMD INTC: Dell's Decision to Use Advanced Micro Chips Is Blow to Intel Dell Inc.'s decision to end its 22- year exclusive use of Intel Corp. computer chips marks the biggest victory for Advanced Micro Devices Inc. in its battle to take market share from the world's largest chipmaker. Shares of Advanced Micro surged after Dell, the world's largest personal-computer maker, yesterday said it will use Sunnyvale, California-based Advanced Micro's Opteron processor in some server machines. Intel slumped. (Full Story) Bloomberg
  • Commodities: Speculative premium on commodities about 50% above fundamentals -- Globe and Mail: The Globe and Mail (Canada) cites a report by Merrill strategist Richard Bernstein that suggests commodity prices at the end of April were about 50% above where they would be if based solely on fundamentals. Story says that at the end of March, the speculative premium was at 30%, already the largest premium in the history of his data. With such a high premium built into commodity markets, story suggests that liquidity is driving pricing. Bernstein is quoted as saying, "It should be no surprise, therefore, that commodities have recently fallen as the fed funds futures markets have started to discount a higher probability of a Fed tightening."
  • Mad Money Summary: Cramer opened his show by praising Qwest Communications (Q), saying it is a "textbook comeback story" and no one realizes it yet. Cramer then noted that both Dell (DELL) and Advanced Micro Devices (AMD) moved higher on the news that Dell was switching from Intel (INTC) chips to AMD chips. Cramer then discussed Sears (SHLD), which he says is one of the best stocks out there. "It's a $200 stock masquerading as a $150 stock," he said. Cramer then spoke to L-3 Communications (LLL) CEO Frank Lanza about the company's recent acquisition of TRL Electronics. Cramer said L-3 is one of his top defense picks. In the "Lightning Round," Cramer was bullish on TD Ameritrade (AMTD), Crystallex (KRY), Anglo American (AAUK), Joy Global (JOYG), Terex (TEX), Deere (DE), Caterpillar (CAT), Baidu (BIDU), The Pantry (PTRY), Texas Roadhouse (TXRH) and Schlumberger (SLB), and was bearish on E*Trade (ET), Select Comfort (SCSS), Sirius (SIRI), Wind River Systems (WIND), Goldcorp (GG), CBOT Holdings (BOT), AMR Corp (AMR), Netease (NTES), Expedia (EXPE) and Ruddick (RDK).

Market Comments: The market is again opening on a strong note. Yesterday, we saw this early strength fade by the close. This is why I usually prefer weak openings. Let's see if the market can hang on to its early strength today.

Bond yields continue to fall, with the 10-year dropping to 5.04% currently. Recently, it was as high as 5.20%. Copper plunged this morning, and was limit down in the futures markets. The air coming out of commodity prices should help ease inflation concerns.

The put/call ratio opened above 1.0 again this morning. There has been a ton of puts purchased in the last week. If the market can turn higher, these positions will quickly be under water and excert additional upside pressure on the market. But for the time being, the put buyers have been right.

Semis are getting the strongest bounce so far, after some positive news for AMD and MRVL. Biotechs are down again, as are most energy and commodity stocks.


Friday Humor

A reporter is interviewing a 104 year-old woman:

"And what do you think is the best thing about being 104?" the reporter asks.

"No peer pressure," the woman replies.

Thursday, May 18, 2006

After Hours Movers

MRVL reported earnings 2 cents ahead of estimates. Revenues grew +43% yr/yr. The stock, which has sold off hard lately, is currently trading $3 higher.

DELL reported in-line earnings, and it's stock is trading about $0.75 higher. They also said they would start using AMD chips in servers, which is really boosting AMD stock and weighing on shares of INTC.

CTRN beats earnings by $0.11 and raises guidance for FY07. Revenues rose +44% yr/yr. The stock is trading roughly $2 higher after hours.

FMCN beat by 8 cents, and also guided Q2 revenues higher. Their revenues rose +246% yr/yr. And the stock is up $2 after hours.

long INTC; net long MRVL

The Elusive Bottom

Stocks sold off hard in the last hour of trading. I heard a lot of people scrambling to come up with reasons why, but the truth is that no new news hit the tape late in the day. So it was just additional selling pressure that hasn't been fully worked off yet. It also could have been exacerbated by options expiration tommorrow.

Breadth was again negative, and the markets are that much more oversold as a result. But measures of investor anxiety spiked again today, which I think is helping to build what will be a tradable bottom.

Volume was not as heavy today, so we avoided another distribution day. Small caps sold off the most (-1.0%), with the SPX falling -0.7%. In terms of sectors, biotechs were hit hardest (-2.1%) while retailers (+0.9%) and homebuilders (+0.1%) were actually up on the day.

Market bottoms are painful processes, but they are a normal occurrance in the market. It is what it is. With the Nasdaq and Russell 2000 now down more than 8% from their highs, this has been a quick and powerful correction.

Standout Stocks

Here are some stocks making notable moves today on high volume:
  • OII: bounces on Mad Money mention, and large contract signing
  • AP: spikes to new highs after bouncing off 20-day
  • ZUMZ: positive reaction to earnings
  • GYMB: hits new high after reporting earnings
  • STP: bounces nearly 20% after raising guidance
  • BLUD: gaps lower on analyst downgrade
  • RAVN: gaps lower after reporting earnings
  • BKS: stock tanking after reporting earnings
  • PLCE: falls back to 50-day after reporting good earnings
  • YHOO: falls to a new 52-week low

Market Comments: The market is not getting much of a bounce. But measures of investor anxiety continue to rise. The VXN is up again today, the CBOE put/call is again over 1.0, and the bull/bear spread in AAII is now negative again. These are the necessary ingredients for a tradable bottom. I have began to add to my long positions.

Looking For A Bounce

Morning News of Note:
  • YHOO: Yahoo to Roll Out New Ad-Ranking Technology Yahoo Inc. is making several strategic "big bets" for the next five years that embrace new technologies and new ways to squeeze revenue from them, Chief Executive Terry Semel said. The Sunnyvale, Calif., Internet company also plans to start rolling out its new search-advertising ranking technology in the fourth quarter, a move that the company hopes will help it close the "monetization" gap with search-engine company Google Inc. (Full Story) WSJ
  • GM: GM's Recent Share Gains Don't Add Up WHEN IT COMES TO General Motor's stock, things just haven't been adding up. Despite declining market share and a debilitating cost structure, the stock is up about 26% since mid-April while the Standard & Poor's 500 index fell 2% in the same period. If you are scratching your head, asking what has changed, so are GM short sellers. (Full Story) BARRONS
  • MMM CSCO GLW QCOM: Hardware firms oppose Net neutrality laws Some of the largest hardware makers in the world, including 3M, Cisco, Corning and Qualcomm, sent a letter to Congress on Wednesday firmly opposing new laws mandating Net neutrality--the concept that broadband providers must never favor some Web sites or Internet services over others. That view directly conflicts with what many software and Internet companies have been saying for the last few months. (Full Story) CNET
  • OII: Oceaneering Intl Inc-OII announces largest services contract in company's history: The company announced today that it was awarded the largest Inspection & Corrosion Mgt Services contract in their history. The contract was awarded by BP Exploration Operating Company Ltd and is expected to generate $90M over a three year term.
  • Mad Money Summary: Cramer opened his show addressing the struggling stock market. He said what is important to remember is that some stocks are done suffering. He recommended Qualcomm (QCOM), which dropped on a possible patent infringement with Broadcom (BRCM). Then he recommended Oceaneering International (OII), a company which provides drilling support, technology services and hardware to oil companies and drillers that operate in "harsh areas," which Cramer noted were the only places left with new oil. Then Cramer recommended Chico's FAS (CHS), which he believes is a best of breed stock. Cramer then spoke to the CEO of Earthlink (ELNK), and gave the stock "one thumb up." In the "Lightning Round," Cramer was bullish on Koppers (KOP), Cheesecake Factory (CAKE), Yum! Brands (YUM), Darden (DRI), BP (BP), Chevron (CVX), ConocoPhillips (COP), Exelon (EXC), VF Corp (VFC), TD Ameritrade (AMTD), Toyota (TM), General Motors (GM), Apple (AAPL), The Children's Place (PLCE), Men's Wearhouse (MW), Abercrombie & Fitch (ANF) and Akamai Technologies (AKAM), and was bearish on IBM (IBM), Krispy Kreme (KKD), Emcore (EMKR), Red Robin Gourmet Burgers (RRGB), Energy Transfer Partners (ETP), Exxon Mobil (XOM), Northgate Minerals (NXG), Under Armour (UARM), Lithia Motors (LAD) and Paccar (PCAR).

Market Comments: The market is getting a small bounce at the open, but it's nothing to get excited about. It might have been better for the market to open down, and shake out the last of the weak holders. Nonetheless, if bond yields continue to decline, and oil stays under $70, I expect the market to build on its gains.

The market has become increasingly jittery about inflation, but I think these concerns are overblown. If energy and commodity prices are topping, the housing market is cooling, and the economy is slowing down a bit, inflationary pressures will naturally moderate.

Moreover, a few years ago everyone was worried about deflation. But the Fed assured us that they could reflate the economy. So now that we are indeed seeing a little inflation, maybe we should accept it as a victory for the Fed that they were able to stave off deflation like they said. All growing economies exhibit some measure of inflation.

long GLW

Quote of the Day

"They say that knowledge is power. I used to think so, but I now know that they meant money." ~ Lord Byron

Wednesday, May 17, 2006

Another Distribution Day

The market finished near it's lows today, and volume rose on both exchanges, making for another distribution day. The selling has certainly been nasty, but the market is now deeply oversold.

Brokerage stocks (-2.9%) and materials (-2.6%) were hit hardest, though every sector I follow was down on the day.

It looks like I was a bit early in calling for a snapper in the market today. But I stand by my call, and think the market will finish higher into the end of the week. Measures of investor pessimism spiked today. Witness the CBOE put/call ratio hitting 1.72, or the VXO index spiking +25% intraday, to levels not seen since October 2005.

It is somewhat rare to see such a big spike in these fear indicators this early in a correction. Typically, the indicators spike toward the end of a correction, as investors throw in the towel. As such, I suspect that we should get a pretty good bounce. But since this correction likely needs to put in more time, I will be looking for some sort of retest after said bounce runs its course.

Calling For A Snapper

I rarely go out on a limb publically. But on, I posted today when the market was down over 180 points that I thought a snapper was lurking. I am seeing such a spike of negativity, that I think a late rally could erase all of today's losses!

The put/call ratio has been above 1.0 for 3 straight days, and today it opened at 1.72. That's huge. Also, the ISE Sentiment Index hit a new 52-week low at 83. Add to that the volatility indexes (VXO/VXN) which are spiking to new highs (ytd).

I am also looking at a few stocks we own, which I think are good "tells" for this market. Look at GOOG, SNDK, and KSS. They are all up today, in this terrible tape, and bode well for a strong close.

Engine room, more steam!!


Investor Anxiety Is Rising

Morning News of Note:
  • TWX: AOL Enters Social-Network Fray Playing catch-up with rivals like MySpace and Microsoft Corp., AOL has launched a social-networking site for its 43 million U.S. instant-messaging users. AIM Pages, which debuted last week, allow AIM users to chat with "buddies" while creating and searching profile pages similar to those on other leading social-networking sites. (Full Story) WSJ
  • MOT: Motorola's Q could ring by next week Motorola's Q, a multimedia phone that's something of a cross between a BlackBerry and a video iPod, will hopefully come out next week, said the company's CEO. "We're in the final throes of getting it released," Ed Zander, Motorola's CEO, said during a question-and-answer session at the Gartner Symposium ITxpo taking place here this week. "We are a little late. We thought it would be out in January." (Full Story) CNET
  • Hedge Funds / Commodities: Heard on the Street... Fast Money Cools on Commodities Despite the criticism being leveled at hedge funds for driving up commodity prices this year, many of the large funds have actually been cautious, or downright bearish -- costing them money in the process. The prices of gold, copper, silver and other commodities have weakened this week and energy prices have eased, so some of these skeptical funds and other large speculative investors are seeing gains. (Full Story) WSJ
  • AAPL: How Apple's Store Strategy Beat the Odds When Apple Computer Inc. opened its first Apple retail store in 2001 in a shopping mall in McLean, Va., critics saw the initiative as an expensive, dubious gamble. But as Apple prepares to take the wraps off its latest, most ambitious store yet -- on New York's Fifth Avenue, opposite the Plaza Hotel and Bergdorf Goodman -- there are few doubters left about Chief Executive Steve Jobs's retail strategy. (Full Story) WSJ
  • GE: The Financial Times reports General Electric (GE) sharply increased its revenues from environmental goods and services last year, and more than doubled its future order book from these businesses. The co will announce on Wednesday that revenues from products and services gathered under its Ecomagination brand, for environmental products, rose from $6.2 bln in 2004 to $10.1 bln in 2005, and the co's backlog of advance orders, mostly to be fulfilled in three to five years, has risen to $17 bln. GE estimates that revenues from Ecomagination will continue growing at a similar annual rate.
  • YHOO GOOG: Yahoo seeks to narrow search engine gap vs. Google-Financial Times: Yahoo (YHOO) on Tuesday set out plans to harness the collective knowledge and interests of its 400M regular users to develop the next generation of search technology and narrow the gap with Internet juggernaut Google (GOOG), the Financial Times reported Tuesday. The vision, to be outlined at the company's analyst day in San Francisco, comes as Google's growing lead in search and its steady encroachment in e-commerce and other forms of Internet activity have touched off a scramble among rivals

Market Comments: The market has opened down this morning on a slightly higher than expected CPI report (+0.3% vs. +0.2% consensus). This news of creeping inflation is disconcerting to the market as it raises fear that the Fed will have to keep raising rates to stave off rising inflation.

Of course, I think the market is poised for a bounce. Not only is the market now short-term overosold, but the put/call ratio has been rising sharply over the last few days. It has closed over 1.0 for the last 3 days, and this morning opened at 1.72. This is as high a number as I have seen in a long time. I wouldn't be surprised to see a snapper in the market today.

That said, I am still looking for the market to put in more time on this correction. But these things never come in a straight line, so I expect to see some strength that will serve to keep the newly minted bears on their toes.

long GE, GOOG, TWX

Quote of the Day

"The person who doesn't know where his next dollar is coming from usually doesn't know where his last dollar went." ~ Anonymous

Tuesday, May 16, 2006

No Bounce Yet

The market finished on a somewhat weak note. Lower bond yields didn't do much to help. Volume eased on the NYSE, but rose on the Nasdaq. That makes for 4 distribution days in the last 6 sessions. Not exactly a sign of strength, but one that does set us up for a bounce.

In terms of market caps, small-caps fared the best (-0.2%) while large-cap tech led to the downside (-0.7%).

Drilling down to the sectors, consumer staples and healthcare led the way (+0.3%), while retailers (-2.2%) and biotech (-1.2%) were sold the hardest.

For the most part, the commodity stocks were weak again, and when a momentum group that has led the market gets taken to the woodshed, it tends to weigh on the market as a whole. Longer-term, lower commodity prices (and thus lower inflation) should be construed as a net positive for equities.

But as I have said over and over on this site, the market has had quite a stretch without much of a correction. Each time it looked like one might be upon us, the market saved itself. I think this time the market won't be able to save itself. I don't think it will too much of a drop, but it should be a slow enough grind to bring out the requisite levels of bearishness needed for the market to put in a tradable bottom.

How Strong Will The Bounce Be?

Morning News of Note:
  • OXY: Ecuador Revokes Occidental Pact Over Sale of Local Drilling Rights Ecuador Monday expelled Occidental Petroleum Corp., the latest hostile move against foreign-oil companies by a Latin American government. The move by the small, coastal nation, Latin America's fifth-biggest oil producer, came after a long-running legal dispute over whether the California-based firm had broken local laws in selling some of its local oil-drilling rights to a Canadian firm, EnCana Corp., without government approval. (Full Story) WSJ
  • GE: NBC Looks Beyond TV for a Prime-Time Revival NBC, eager to improve its ratings and advertising sales, is counting on digital media as much as television for a comeback in the 2006-7 season. In a two-hour presentation yesterday to advertisers and agencies at Radio City Music Hall, executives at NBC, which is finishing fourth again in ratings for the 2005-6 season, emphasized the breadth and depth of their digital offerings as they talked up the prospects of their new dramas and sitcoms. (Full Story) NY Times
  • Japan / Commodities: Heard on the Street... Markets Brace for Impact Of Japan's Growing Hunger Commodities markets around the world are facing a new wild card: Japan. The world's second-largest economy appears to be firmly on the mend after years of lackluster growth. That is an important development for commodities markets. Even as prices gyrate -- or, like yesterday, retreat -- Japan adds another driver of demand at a time when supplies of copper, crude oil and other goods already are tight. (Full Story) WSJ
  • VIA AAPL: Viacom B-CIA.B MTV to launch competitor to Apple's iTunes-Financial Times: MTV, the cable television music channel owned by Viacom (VIA.B), will launch a digital music download service on Wednesday designed to compete with Apple Computer's (AAPL) highly popular iTunes service, The Financial Times reported Monday. The service, called 'Urge,' will use Microsoft's (MSFT) latest Media Player technology and represents perhaps the most serious challenge to Apple's dominance of the legal digital music download market to date.
  • Mad Money Summary: Cramer dedicated his show last night to the top ten best-of-breed retail stocks. They are more expensive then their peers, but you are paying for consistency. His first pick was electronics retailer Best Buy (BBY). His second pick was the runner up in hardware, Lowe's (LOW), which is second to Home Depot (HD). His third pick was warehouse retailer Costco (COST), which he chose over Wal-Mart (WMT). His fourth pick was Men's Wearhouse (MW). His fifth pick was high-end retailer Federated Department Stores (FD), which owns Macy's, Bloomingdale's, Filene's and Lord & Taylor. His sixth pick was Sears (SHLD), which Cramer notes is more of a real estate story than a retail story. His seventh pick was JP Penney (JCP), which just added Sephora cosmetics to its stores. His eighth pick was Coldwater Creek (CWTR), a regional-to-national story. His ninth pick was "yuppie heaven" Starbucks (SBUX). His tenth and final retail pick was retail bank Commerce Bancorp (CBH).

Market Comments: The market has a slight bid at the open. The core PPI came in below expectations for a second straight month. This has helped bond yields move lower again today, currently at 5.13%.

The Nasdaq is very oversold now, and that has the bulls looking for a big bounce. I'm not seeing it yet, but if buyers show up later in the day that would be a good sign.

Materials stocks have corrected sharply the last few days, after enjoying meteoric rises over the last month or so. It is too early to say, but it looks like a typical blowoff move, where stocks rise in a parabolic fashion and then come crashing down. The test will be what happens after these stocks bounce. Do they then consolidate nicely, or do they continue to break down below support?

It will be interesting to see which group moves into the leadership position after the market correction. Although we still don't know how deep this correction will be.

long GE

Quote of the Day

"Having money does not insure happiness. People with ten million dollars are no happier than people with nine million dollars." ~ Hobart Brown

Monday, May 15, 2006

Metropolitan Home Sales Report

The NAR's quarterly report of metropolitan existing home sales was released this morning. It showed some of the usual overheated areas as still red-hot, but also showed some cooling elsewhere.

In areas like Los Angeles and San Diego, year/year growth rates continued to decline, coming in at +19% and +4%. San Francisco came in at +5%, contuing its streak of 4 quarters of declining growth. Miami falls into this boat also, coming in at +11%.

Moreover, not only are the yr/yr growth rates declining, but in LA and Miami, the median sales price actually declined last quarter for the first time in several years. This is likely indicative of the peak we have seen in the housing market.

Here are some of the hottest, and coolest cities in the report:
  • Phoenix, AZ: +38.4%
  • Gainseville, FL: +31.9%
  • Ocala, FL: +30.8%
  • Virginia Beach: +27.1%
  • Daytona, FL: +25.4%
  • Eugene, OR: +25.3%
  • Portland, OR: +21.8%
  • Boston, MA: -1.5%
  • Cleveland, OH: -3.0%
  • Indianopolis, IN: -2.4%

Monday Morning Musings

Morning News of Note:
  • GM: Hummer H1 Reaches The End of the Road The Hummer H1, the biggest, toughest sport-utility vehicle on the road, could crush anything in its way -- except poor sales. Cheering just about every other driver on the road, General Motors Corp. yesterday said it was ditching the H1 by June. (Full Story) Washington Post
  • WMT KSS TGT JCP: Will Discount Retailers Bounce Back? The dollar is weakening, the housing market is cooling, and consumers are reining in their spending. That doesn't sound like the ideal backdrop for investing in the stock of retail companies. But for those who are willing to take a little risk -- and who have better-than-average patience -- now might be the right time to latch on to discount retailers (Full Story) WSJ
  • SNDK: SanDisk's Hope: Flash Chips Everywhere SANDISK WAS IN TOWN LAST WEEK, to pick up $1 billion for its flash- memory factories. In a sit-down with your favorite tech-stock columnist, SanDisk CEO Eli Harari said it was unbelievably easy for SanDisk to sell the convertible notes offering. He's got a use for the money. (Full Story) BARRONS
  • N RIO RTP BHP: Heard on the Street... Mining for the Canadian Jewels Think of it as the mining industry's version of "The Great Game," a high-stakes international chess match for sector supremacy. As prices soar for copper, nickel, zinc and other base metals, big mining companies are jockeying to gain control of some of the industry's crown jewels: Canadian mining companies with huge production of suddenly hot metals. (Full Story) WSJ
  • GOOG: BusinessWeek reports a small team inside the co for two years has been zeroing in on an entirely different audience: corporate IT departments. By hooking into the co's search appliance, such companies as Cognos (COGN), (CRM) and S.A.S. can bring the co's familiar search functions to business apps that have traditionally been anything but user friendly. The linchpin for the co's software partnerships is its so-called "OneBox" function, which has been deployed in recent months across its consumer search engine. OneBox is an attempt by the co to pull out relevant information and answer the user's query immediately above the search results. The co clearly wants to sell more than enterprise search appliances to companies. It is already finetuning versions of Gmail and its desktop-search offering for businesses and universities. The co hasn't yet decided how it will attempt to make money on these enterprise versions of its consumer products. They won't command lofty license fees like its search appliances, and instead may end up being ad supported. In addition, the co has taken a hands-off approach to selling corporate-search products, offering less in the way of professional services or ongoing customer-support contracts.
  • Mad Money Summary: Cramer opened his show on Friday discussing PetroChina (PTR), a huge oil company that is unloved in America because Americans are wary of Chinese companies cooking the books. But Warren Buffett bought into PetroChina and is now a major stakeholder in the company. Cramer believes PetroChina could replace ExxonMobil (XOM) as the granddaddy of oil companies. Cramer then discussed an alternative energy play that is not solar or wind related, called the Fischer-Tropsch process, which turns coal into gas. He recommended Rentech (RTK), but noted that it is a very speculative stock. Cramer then discussed an upgrade of Office Depot (ODP) from Citigroup, which raised the price target of the company to $60. In the note, the analyst also noted that Office Depot will probably buy Buhrmann (BUH), which Cramer called either "very brave or very stupid." He said the speculation should be taken seriously and added that Buhrmann had good fundamentals. In the "Lightning Round," Cramer was bullish on Tenaris (TS), PetroChina (PTR), Openwave Systems (OPWV), Votorantim Celulose e Papel (VCP), Fluor (FLR), McDermott (MDR), Pacific Ethanol (PEIX), Crocs (CROX) and Foster Wheeler (FWLT), and was bearish on Powerwave Technologies (PWAV), Petroleo Brasileiro (PBR), Sirius Satellite (SIRI) and Goldcorp (GG).

Market Comments: The market has already been pretty volatile this morning, and that's just in the first hour of trading. After opening lower, the market made a stab higher, then broke back below its early lows, only to rise again. If this keeps up, traders will need more maalox.

This is options expiration week, so we should expect to see some higher volatility. The commodity stocks have gapped lower at the open. I expect these stocks to bounce before heading lower again, so I have not shorted my basket yet.

Financials and healthcare look solid in the early going, while tech and energy are weak.

The NAR's report on metropolitan home prices came out this morning. I will be back with some of the highlights in a bit.


Saturday, May 13, 2006

Weekly Recap

The stock market had a very rough week. Reality finally hit home on the interest rate front.

The S&P 500 index was dead flat on Monday and Tuesday. The reason was simple. The market was awaiting the Fed's policy announcement on Wednesday. Another 1/4% hike in the fed funds rate to 5% was fully expected, and it happened. There were also high hopes that the Fed would give an indication that it would either pause at the next meeting and not raise rates then, or that it would indicate that the rate hikes were over. That didn't happen.

Instead, the Fed policy statement said "some further policy tightening may yet be needed" and that the "extent and timing" was uncertain. The statement also said, to no one's surprise, that the upcoming data would be critical in determining policy. After all, if the economy weakens significantly, the Fed probably won't raise rates again. If inflation picks up, the Fed will keep raising rates.

The problem was that the market was hoping to look past the top of the interest rate cycle while economic growth remained strong. Now, there are by no means any assurances that the Fed won't raise rates again. In fact, if economic growth continues to put pressures on resource utilization, more rates hikes are likely. The market is not likely to get the best of both worlds - strong economic and earnings growth and no more rate hikes.

The S&P vacillated on Wednesday after the announcement and closed down just 2 points.
Then the selling started. The S&P plunged 17 points on Thursday. This was at times ascribed to a continued sharp rise in commodity prices or to a weaker than expected April retail sales reports. But the commodity story is by no means new, and the retail data could have been spun as a reason why the Fed would be cautious. The real reason for the selling was the realization that interest rates are still going higher, perhaps much higher than was priced into the stock market.

The selling continued on Friday, and for the same reason. There was no news, and oil prices were actually down a bit. Yet the S&P dropped sharply again.

This week, it was all about the Fed.

Earnings season essentially closed out. Over 90% of the S&P 500 have now reported first quarter earnings and the reports tail off sharply in the weeks ahead. Oil is holding well above $70 a barrel. The 10-year note yield has backed up to 5.18% from 5.11% at the end of last week as it continues its steady march higher.

The focus in the weeks ahead will be on the incoming data. The market is caught in a bit of a vise. Strong economic data represents a risk in that it may lead to the Fed raising rates. Weak economic data undermines the market optimism about earnings growth. Furthermore, any uptick in inflation data could send tremors through the market. The stock market is not yet priced for further rates hikes which may well be coming. This reality set in last week, and some further consolidation may yet be needed.

Friday, May 12, 2006

Market Closes At Its Lows

So much for a potential bounce. The market basically closed at its lows for the day. This could result in additional weakness at the open on Monday.

The SPX fell -1.1% today, the COMP was -1.3%, and the RUT was -2.0%. Energy and material stocks were down the most.

Breadth was very negative, and it won't take much more selling to move the markets into oversold territory. The Hi/Lo index went negative on both exchanges, and this marks the first time the number of new lows exceeded new highs on the Nazz all year.

Volume rose on the NYSE, making for a 2nd straight distribution day, but it did not rise on the Nasdaq.

In all, this turned out to be a pretty ugly week, with the market merely hovering near its highs before the FOMC meeting, and then getting the rug pulled out from under it thereafter. The NDX is actually down for the year after today. TGIF--

2 Hours To Go

With less than 2 hours left, the markets are still hovering near their lows for the day. The SPX has broken below its 50-day, as has the Russell 2000 small-cap index.

Energy and material stocks are leading the decline, which should not be suprising given the parabolic moves in many of these stocks. I am considering shorting a basket of them on a bounce. Retailers and financials are also down quite a bit.

We are seeing some fear enter the market, as the CBOE put/call ratio has been running above 1.0 all day. The volatility indexes (VXO/VXN) are also getting jumpy.

This is shaping up to be a pretty rough week for the market, but let's see what kind of bounce (if any) the bulls can put together before the close.

I'll be back--

Market Opens On A Weak Note

Morning News of Note:
  • Airports / Airlines: Cleared for Landing The Federal Aviation Administration has begun opening "express lanes" for planes into and out of airports nationwide that could mean fewer canceled or diverted flights. These new flight paths, following successful test runs in Alaska, California, Oregon and Washington, D.C., result from technical advances in navigation that allow planes to take off and land in poor weather, even at airports near mountains or other obstacles on the ground. (Full Story) WSJ
  • UVN: Televisa Forms Investor Group for Univision Bid Grupo Televisa SA plans to join with Venezuelan billionaire Gustavo Cisneros and four buyout firms to bid for Univision Communications Inc., the largest U.S. Spanish- language television network, two people with knowledge of the situation said. Mexico's Televisa, the world's largest Spanish-language broadcaster, hasn't decided how much to offer for Univision, whose market value is $10.9 billion, said the people, who declined to be identified before a bid is made public. (Full Story) Bloomberg
  • WMT: Wal-Mart Eyes Organic Foods Starting this summer, there will be a lot more organic food on supermarket shelves, and it should cost a lot less. Most of the nation's major food producers are hard at work developing organic versions of their best-selling products, like Kellogg's Rice Krispies and Kraft's macaroni and cheese. (Full Story) NY Times
  • PG: Will Audience Stomach Coffee Pitch? How do you market a product as strong and weak at the same time? That's Procter & Gamble's challenge as it launches a new line of Folgers coffee this week that it promises is both gentle on stomachs and packs the same taste and caffeine punch as its regular brew. (Full Story) WSJ
  • Mad Money Summary: Cramer opened his show finding the bull markets for his viewers. He said to remember the acronym BRIC, which stands for Brazil, Russia, India and China. Cramer said to look at Brazilian steel company Gerdau (GGB), which trades on the NYSE. Then Cramer suggested "worldwide power merchant" AES (AES), which has business in Chile, Brazil, India, China, Pakistan and Vietnam. He said the stock was burned by the Enron scandal and is now cheap and undervalued. Cramer then recommended Triumph Group (TGI), which supplies both Boeing and Airbus. Cramer then discussed microprocessors, speaking to Advanced Micro Devices (AMD) CEO Hector Ruiz. Cramer said he likes AMD, but would be a seller of Intel (INTC). In the "Lightning Round," Cramer was bullish on Sysco (SYY), KFX (KFX), Qwest (Q), Level 3 (LVLT), Hexcel (HXL), Matria (MATR), Baidu (BIDU), Eastman (EMN), First Data (FDC), News Corp (NWS), and Union Pacific (UNP), and was bearish on Empire Resources (ERS), Spartan Stores (SPTN), (NTES), Ashland (ASH), Lightbridge (LTBG) and Medtronic (MDT).

Market Comments: The market has opened under some pressure this morning, following yesterday's schmeissing. Volume rose yesterday, making for a strong distribution day. That is number 5 or 6 for the Nazz in the last several weeks.

I am surprised to see KSS down, considering how strong the quarter was, but maybe it just needs to mark time for a little.

The semis are bouncing. BRCM and MRVL were down at the open, but have reversed sharply higher. And many financial stocks on my screen have done the same this morning.

Bond yields are moving higher, which is a headwind. And the plunge in the dollar is likely disconcerting to some as well. Every time the dollar swoons, you have people who come out and start talking about 1987 all over again. But the strength of the corporate bond market should comfort them, as tight spreads signal confidence.

The SPX is testing support at its 50-day, while the COMP has gapped down even further this morning.

long PG, WMT; net long MRVL