Tuesday, May 16, 2006

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


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