Not Sweating A Down Open

Morning News of Note:

• Gapping Up
  Gapping up on strong earnings/guidance: GM +4.5% (up in sympathy: F +2.4%), MNST +4.3%, YCC +7.8%, BEAV +7.3%, SGTL +19%, PMTC +9%, NHWK +8.2%, WIRE +7.6%, IDTI +4.7%, AJG +4.7%, QLGC +3.6% (also FBR upgrade), SPIL +3.2%, MEA +3%, SUNW +2.9% (also Bear Stearns upgrade), ATI +2%... Other News: CPWR +7.6% (Piper believes CPWR benefits from HPQ's purchase of MERQ.PK), WFR +5.9% (finalizes solar deal with Suntech), MT +3.2% (Arcelor holders accept bid), CRME +2.9% (extends recent momentum), BOBJ +2.6%, BBBY +2% (JP Morgan upgrade), HCA +1.5% (Blackstone considering bid for co - WSJ), OLAB +19% (developments in Partner Success Holdings merger, light vol 2,400 shares)... Under $3: GNTA +9% (receives Special Protocol Assessment from FDA).
• Gapping Down
  Gapping down on disappointing earnings/guidance: SIRF -19%, AMZN -15% (also downgrades from Piper and Wachovia), SOLD -13% (also Piper downgrade), CHH -15% (also downgrades from Bear Stearns and Susquehanna), CYMI -14%, PLT -12% (also Kaufman downgrade), PNRA -10%, GYI -9.4% (also downgrades from Credit Suisse and Kaufman Bros), PFCB -8.5%, GLW -7.2%, LLTC -6.8%, UARM -6.7%, CRS -6.4%, BYD -6.3%, RFMD -6.2%, NSC -5.9%, ESLR -5.8%, HES -5.3% (also Deutsche downgrade), TASR -5.1%, XLNX -4.7%, FDRY -4.7%, BWLD -4%, LSS -3.9%, CX -3.7%, GSK -2.2%, BA -1.7%... Other News: NTRI -2.8% (extends yesterday's 20% decline, could also be no analysts defended the stock with an upgrade), AMLN -1.5% (Wachovia downgrade), SBUX -1.1%.
• WFMI Whole Foods: checks indicate that both industry growth and Whole Foods' comps remain strong- RBC (56.26 -0.38) -Update-
  RBC says part of this under-performance is a function of the market systematically selling off high multiple retailers. However, they believe a portion of the weakness can also be attributed to investor concerns that comps will slow just as Whole Foods is accelerating its square footage growth and working to reduce prices in an effort to rid itself of the "Whole Paycheck" stigma. The firm says their checks indicate that both industry growth and Whole Foods' comps remain strong, but likely moderated somewhat due to tougher comparisons. They think Whole Foods will report comps of about 11% (vs. 11.9% last quarter), and believe earnings will meet or modestly exceed consensus of $0.34. The firm thinks these results should satisfy investors at current levels. The firm says Whole Foods' Q3 earnings release would still be a negative event if mgmt were to provide disappointing initial guidance for fiscal 2007. They say that fears that mgmt will "guide below the Street" should prove overblown.
• WFR MEMC Elec and Suntech Finalize Solar Wafer Supply Contract (29.73 )
  Co announced today that MEMC and Suntech Power Holdings (STP) have executed the binding definitive agreement for the supply of solar grade silicon wafers. The companies had previously announced the signing of a non-binding letter of intent for this transaction on July 6, 2006. Under the terms of the definitive agreement, MEMC will supply solar wafers to Suntech over a 10-year period, with pre-determined pricing, on a take or pay basis beginning in the first quarter of 2007. Sales of the wafers over the 10-year period would generate between $5 billion and $6 billion in revenue for MEMC. As part of the definitive agreement and in order for MEMC to meet Suntech's supply requirements, Suntech will advance funds to MEMC in the form of an interest-free loan or security deposit which will be used by MEMC for expansion of MEMC's manufacturing capacity. In addition, MEMC has received a warrant to purchase an approximately 4.9% equity stake in Suntech.
• Cramer's 'Mad Money' Recap - TheStreet.com
  On Tuesday's edition, Jim tells viewers to buy (CSX) and sell Wrigley (WWY). He notes CSX is now more than 60% non-cyclical and sees it as a secular growth story. The lack of new rail networks, the fact that "roads in the country have become very, very bad" and high gasoline costs means that trucking won't be able to comete with rail haulage. He labels Wrigley a poorly managed co facing some severe competition. He expects an upgrade Wednesday morning, which could provide viewers with a suitable selling opportunity. It's also squeezed by Cadbury Schweppes (CSG) in the gum market. He also said to avoid comparables ConAgra Food (CAG) and Sara Lee (SLE).

Market Comments: I am not worried that the market has opened lower this morning. I prefer a market that opens soft and then builds strength into the close. That is what we saw yesterday, and is bullish action.

What is not bullish is the market's reaction to some of these earnings reports. Unless a company totally blows out the numbers, it seems that the stock gaps lower. I could rattle off plenty of tickers, but if you look above at the "gapping down" list you will get the jist. I bought some puts yesterday on AMZN and CRS, just as a speculation on their earnings reactions. Sometimes these work out well.

But for investors holding a portfolio of stocks, this earnings season feels like a minefield. You just have to take the good with the bad. We have raised cash in our portfolios recently, which should allow us to take advantage of some of the dislocations in stocks that have created good buying opportunities.

Energy stocks are up again this morning on bullish inventory data. The oil services stocks that were sold off so hard have reported very good earnings, and most of them are bouncing back.

net long WFR, WFMI