More Signs of Steady Job Growth, Low Inflation

The markets are mixed in early trading. The retail sales reports were released this morning for August and were basically a mixed bag. I will show some of the highlights in my next post.

Oil and gas prices are lower again today, which was weighing on the energy stocks, but they seem to be bouncing as I write.

The Monster Employment Index showed a strong rebound in August, rising 8 points to 173. This is indicative of further, steady job growth, especially in terms on online recruitment.

The core PCE inflation reading came in lower than expected this morning, and that has bond prices rallying and yields falling again. The 10-year yield is now down to 5-month lows at 4.74%. This is more than 50 basis points below the fed funds rate, and increasing the odds of recession. Those who think the Fed will raise again should stop smoking.

Also, Japan released some economic data that showed a slowing of its economy. If the BoJ stops raising rates, that could cause some to put back on the yen carry trade, and help global markets.
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Standout Stocks

Here is a partial list of stocks making strong moves on above-average volume:

• OMRI
• KAI
• HITT
• COOM
• FORM
• SNDK
• COST
• UNFI
• TZOO
• HOC
• ALJ
• MRO

GDP Data Revised Upward

Q2 GDP was revised upward to +2.9%, from an earlier forecast of +2.5%, although the consensus was that it would be revised to +3.0%. So basically, this is an in-line report. Of course, this is still a lagging indicator, so don't place too much emphasis on it in terms of what the Fed is going to do.

Oil & gas prices are slighltly lower again this morning, which is weighing further on the energy stock complex. Tech, on the other hand, is getting a nice bid and is up across the board. Most other sectors are positive so far as well.

Bond yields are slightly lower again, with the 10-year at 4.77%. And the dollar is down a touch against the Euro.

It seems that the consensus opinion is for the market to pull back in early September. But the market sure isn't acting like it. Yesterday was another solid day, with slightly higher volume. So far, it's been a quietly solid week. But let's not get ahead of ourselves--
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Back In Black (or...green)

The markets have now moved into positive territory. You have heard me say that the sign of strong markets are ones that open weak, but close strong. Today looks like it will be one of those days. Volume is light, but should exceed yesterday's levels.

Here are some stock making strong moves on above-average volume:

• BAB
• VIP
• TNL
• RG
• ECL
• JBX
• FHN
• WCC
• JTX
• ZGEN
• NDE
• BSC

Interesting Reaction to FOMC Minutes

The minutes from the last FOMC meeting were just released, and the market experience a volatile reaction. The initial move was lower, as the market tested today's lows, but then it quickly reversed higher and snapped back all the way to break-even for the day.

Here is a quick summary of the comments:

• FOMC says growth, inflation pressures may ease gradually
• Lacker was the lone dissenter
• August rate decision was a close call
• Below potential growth may last for six quarters
• Past tightening may hold growth below potential
• Limited risk in deferring necessary tightening
• Considerable uncertainty about housing outlook
• Upside risk to inflation remains significant

From these comments, it appears the Fed was still focused on inflation and implying that they are merely pausing while awaiting more data. I believe that inflation has peaked and that they will not raise rates again.
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Early Look

The market was finding some footing in early trading until the Consumer Confidence number hit. It came in at 99.6 vs. 105.0 consensus. This took stocks down a bit, although I wouldn't place much longer-term significance on this number. With the recent housing stats and the current negativity bubble, who thought consumer confidence would be high?

Oil is plunging again today, as is natural gas, on continued data on Ernesto, which is now headed for the Florida coast. So the Gulf is breathing a sigh of relief. That has oil breaking below $70, and the energy stocks are lower across the board as well.

Traders will also be eagerly awaiting the FOMC minutes that will be released later today, to see what the Fed's comments are on housing, the economy, etc.

Bond yields are moving higher, with the 10-year at 4.82%, ahead of today's bond auction.

There was also more stock buyback activity announced, with the latest buybacks coming from Boeing (BA) and Amazon (AMZN).

Last, BofA upgraded the chip sector today, saying they believe a bottom is close. Also, there was another brokerage group downgrade this morning, by Punk Zeigel. I think sentiment is too negative on this group, and am still looking to add, but being patient.
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The Technimental Take

Despite the rally today, the CBOE put/call ratio continues to run at above-average levels (1.10). That should help keep a bid under stocks.

If you look at the daily chart above, you can see that the SPX is above last week's highs, as the counterintuitive rally continues. The market is in overbought territory, which could cap some of the upside. But sometimes, an overbought market moves to more overbought before pulling back.














I also included the weekly chart above, as it looks to be in good shape as well. As long as we hold these key moving averages on any future pullback, I think the market will remain in good shape for a strong year-end rally.

Here is a look at some highlights from the weekly sentiment indicators last week:

• The bull/bear spread on AAII bounced to +2. This ends a 14-week consecutive string of negative weeks, the 2nd most since the survey began in 1987. Nonetheless, this is still a very low level, as bearishness continues to run high.
• The Rydex Nova/Ursa ratio is still very low at .097; still lots of flows into bearish funds
• The 10-day average of the ISE Sentiment Index hit a new record low last week at 98; this is indicative of a lack of call buying, which emboldens my thesis that few are positioned for a continued rally

On a net basis, sentiment is still very negative. This is not how bull markets usually end. I still think that we get another strong leg higher, fueled by short-covering and led by growth stocks. The combined technical picture with the current sentiment backdrop suggests maintaining a bullish stance.
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Monday Morning Musings

The market is rallying in early trading, despite a slightly soft open. Oil is trading lower and natural gas is down nearly -10%, as Ernesto was downgraded and has crude prices down towards $71. This is weighing on the energy stocks, but this should help the rest of the market.

Gold is lower, but so is the dollar this morning. Go figure. Bond yields are up slightly at 4.81%.

Big tech is starting to act better (see INTC and MSFT), which could help the overall market. If we take out last week's highs, I would expect to see some additional short covering. I do not get the sense that a lot of people are correctly positioned to take advantage of a rally this week.

I am surprised how weak the brokers have been. I think these stocks should be valued higher than they are, and an looking for an entry point to add exposure there. Beyond that, I still have ample cash and am looking for a new group that is going to provide some leadership.

A sentiment streak was broken last week. My next post will recap the weekly sentiment indicators.

long INTC, MSFT

More on the Negativity Bubble

A buddy of mine told me that this month's Men's Journal magazine has an article titled "How You Can Make Money In This Market". The article talked about investing in hedge funds that focus on shorting stocks. I found this amusing. Now all we need is for Al Michaels to come back on CNBC and tell us how his shorts have been doing.

Also, the AMG Data Services report on fund flows for the week again showed withdrawals from equity funds and inflows into money markets. Including ETFs, domestic equity funds showed net ouflows of -$2.09 billion. In contrast, money market funds showed inflows of $17.4 billion.

The negativity out there is palpable. I don't know when it breaks, but at some point there is a good chance of a huge short-covering rally.
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If The Market Rallies On Friday, Will Anyone Notice?

After a brief dip at the open, the market has found a bid again. The SPX held the 1292 level, and if it can close above 1300, we might see another pop next week. Of course, volume will likely be very light again today. And next week will be even worse. Why aren't I on vacation again?

Bernanke's speech today offered little insight, and didn't say much about the economy or monetary policy. Bond yields are slightly lower nonetheless, with the 10-year at 4.79%.

Oil is moving higher on fears of Ernesto, the latest storm to watch. This has the whole energy complex trading higher, including the natty gas stocks. But tech is also strong this morning, which shouldn't be surprising considering the weire correlations we have been seeing in the market.

I would like to see the financials gain some strength soon, especially the brokers. I am contemplating adding more exposure to the group.
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Another Bounce and Fade Dance

I want to reiterate that the volume was so light yesterday that I would not view these sessions as being as meaningful as the action will likely be once we get past Labor Day.

That said, it is what it is, and you have to repsect the price action. So this mornings bounce has already started to fade, likely exacerbated by the weaker than expected new home sales report. The yield curve is already inverted, which signals recession in the future. If the decline in the housing market accelerates, then the odds of recession likely increase.

Bond yields are falling again today, with the 10-year at 4.80%. That is a full 45 basis points below the fed funds rate. And yet there are still people calling for another rate hike.

Oil looks to me like it has topped, and this morning we took profits in one of the largest integrated companies.

The market is short-term overbought, so I am willing to hold some cash and wait for some things to pull back.
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Could Have Been Worse

The selloff today was really not that bad. The market bounced back a bit in the last half hour of trading to trim its losses. Also, the SPX was able to hold the 1290 level and close at 1293.

Moreover, volume was so low today that I don't think there is much of a takeaway from the action. NYSE volume didn't even reach 1 billion shares. I think that is the lowest volume this year for a non-holiday trading session.

Big-caps outperformed on a relative basis, with small-caps declining -1.3%. Energy stocks were hit hardest (-2.1%), followed by housing (-1.5%). The DRG (big pharma) was the only sector that finished positive on the day, although there were select stocks in other sectors that bucked the weakness.

Is it time for the weekend yet?

Selloff Picks Up Steam

The profit taking in the market has accelerated today. And the news out of Iran that they have a significant nuclear announcement to make isn't helping matters. Although, surprisingly oil is still lower when usually fear about unrest in that region drives oil higher.

Investor sentiment is showing fear on the rise. The VIX/VXN are both higher, the TRIN is running at elevated levels, and the CBOE put/call has been well above 1.0 most of the day.

Moreover, the ISE Sentiment index hit a new low yesterday (63), which I believe is a record low for that index. The quick spike in bearish sentiment should put a floor under the market fairly soon.
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More Weakness In Housing

The market opened higher this morning, but quickly sold off on the weaker existing home sales report. The report showed a further weakening in the housing market and dropoff in prices. But with mortgage rates moving lower, I think we should see a little bounce soon.

NSM cut its forecast, but the semi group (SOXX) is still trading higher. Many chip stocks look washed out, so the group can easily trade higher.

The inventory data on oil & gas this morning showed a smaller draw in inventories, which is slightly bearish for energy prices, and thus weighing on the stocks at the moment.

Bond yields are slightly higher at 4.84%. The dollar is basically flat.

Initial support for the SPX is around 1292, so that is the level to watch.

Adding ENER

My stock of the day is Energy Conversion Devices (ENER). The stock looks like it has bottomed and is breaking back above its overhead 50-day moving average. Money flow has also turned positive.

The stock has had positive news recently, and this has helped the stock put in a bottom. It has been a steep correction, falling roughly -40% from its May highs (the stock topped along with the market in May).

I think the stock looks good, at least for a rally back up to its 200-day.

long ENER

Moskow Makes Hawkish Comments

The market is taking a midday swoon as Fed governor Moskow speaks and is making hawkish comments.

He states that:

• housing is undergoing a great deal of softening;
• says core inflation may run above 2.0% for some time;
• and that inflation risks are greater than slow growth risk

This last point is one that I have been harping on for a while now. If you follow the 10-year Treasury yield, which is a much better predictor than any Fed govenor, it has been indicating that the bond market is far more worried about slowing growth than inflation.

So take Moscow's comments with a grain of salt. I see almost zero chance of the Fed raising rates at its September meeting.
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One-day Selloff?

First off, I went back and added the graphs to yesterday's post. Thanks.

The market is getting a small bid in early trading. Semis, brokers, and housing stocks are all strong. Retailers are a bit weak, as are energy stocks on lower oil prices.

Oil and gold are both lower, and bond yields are lower as well (4.81%). That is moving the yield curve into further inversion, an environment that does not usually coincide with economic strength. This one bears watching. A chart of the 10-year yield does not paint a bullish picture, unless the Fed is going to cut rates in the near future.

After five straight up days last week, it seems everyone is out with skeptical comments on this rally continuing. So was yesterday's selloff a one-day event, or will more weakness surface soon? If we take out last week's highs, it could spark some additional short covering.

I'll be back with my favorite stock setup and sector play in a bit--
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The Technimental Take

I like to look at both technicals and sentiment in conjunction with one another. I often hear traders lament that sentiment is so negative, the market has to bounce. But without some positive technical action to spur a rally, sometimes negative sentiment merely moves to more extreme levels.

The charts above show the technical action in the SPX and COMP. The SPX has broken above both of its key moving averages, and could make a run towards previous highs after some consolidation. The Nazz is not there yet. Although it has broken above its 50-day, it still faces formidable overhead resistance.

Despite last week's sharp rallies (the Nazz has its biggest weekly rally since 2003), sentiment is still mostly negative. As such, it is going to take even higher prices and more short covering before we start to see the tide turn in any meaningful way.

Two extreme examples that I found over the weekend are the AAII bull/bear spread and the ISE Sentiment Index:

• The bull/bear spread in the AAII has now been negative for 14 consecutive weeks. I went back all the way to 1987 (as far back as the data goes) and only found one longer streak - 1990.
• The 10-day average ISE Sentiment Index hit a new multi-year low last week at 107 (read: very light call buying = bullish from contrarian perspective)

The fact that so many remain skeptical of last week's rally could help it last longer and propel it further than most expect.

Monday Morning Musings

The market remains lower in the first hour of trading, expect for the energy complex. The selling is likely profit taking after last week's strong rally, combined with post options expiration pressure.

Iran refused to stop its uranium enrichment, and fears of possible sanctions are pushing global oil prices higher. Gold is also trading higher, while the dollar is lower again. Bond yields are slightly lower at 4.83%.

Semis are the weakest so far, with the SOXX down -2.0%. LOW reported earnings that were a penny shy, and offered conservative guidance. That is weighing on the retail sector (-1.3%). GOOG is also lower on reports that its market share slid last month. I think this is just short-term noise, and an excuse for profit taking.

Asian stocks are also trading lower after China raised interest rates last week.

long GOOG

Fun With Expiration

Today is options expiration, so expect some additional volatility around the open. I would then expect some weakness early next week, since this has been a big week and there could be an options expiration hangover like we sometimes get.

Oil and gold are trading slightly higher this morning, while the dollar and bond yields are slightly lower. The 10-year is hovering around 4.86%.

Despite yesterday's strong market, the ISE Sentiment index closed at 0.96, an elevated level and one that is indicative of skepticism with respect to this market rally.

AMG's fund data showed that including ETFs, domestic funds reported net outflows of $1.38 billion last week, while money market funds reported net cash inflows of $19.1 billion. Who said everyone is bullish?

I have taken some profits and raised some cash for what could be a modest pullback. But I am also scouring for new breakouts and new leadership that could begin to emerge. Happy hunting.
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Metropolitan Existing Home Sales

Ealier this week, the NAR released its Q2 report of median home sale prices by metropolitan area. Here is a quick recap of that report, which for the most part showed a continued slowdown in home price appreciation.

Some of the hottest markets showed notable slowdowns, and some severe ones too. But overall, they are still showing modest appreciation, as opposed to outright declines in home prices.

Here are some of the highlights:

• Baton Rouge, LA showed the largest increase: +27.3% yr/yr
• Virginia Beach-Norfolk, VA grew +23.6%
• Portland-Beaverton, OR rose +19.1%
• Jacksonville & Tampa, FL each gained +18.8%

Here are how some of the previous hottest markets fared last quarter:

• Las Vegas grew +6.3%, a marked slowdown from its mid-teens rate
• Los Angeles continues to show good growth, rising +14.6%, but down from 20%+
• New York-Long Island posted growth of +4.6%
• Phoenix showed moderate growth of +11.8%, also down from the 20s
• And red hot San Diego slowed all the way down to +1.2%

The one area that did show outright declines in home prices was Northeastern Ohio. This hits home for me, as I grew up and have family in Cleveland. Hopefully they aren't reading this, as home prices there declined -5.2% from the year-ago period. Ouch.

So what does it all mean? For now, it continues to paint a picture of a moderating housing market. But one that is coming in for a soft landing, as opposed to the precipitous drop that many are predicting. I would expect some additional weakness in the quarters to come, but I find it acceptable given the multi-year period of torrid growth we just experienced.

long one Los Angeles home

Standout Stocks

Here is a partial list of stocks making notable moves on high volume: (most of the big moves today are retailers reacting to earnings reports)

• NVEC
• PWEI
• MW
• GYMB
• HITT
• FFIV
• SSI
• SHLD
• CTRN
• OCR
• ZUMZ
• FLO

The market is hanging in pretty well. Tech stocks are solid, despite the selloff in energy and commodities. This looks like there is finally a normal rotation occurring out of energy and materials into other areas of the market.

Oil is plummeting near $70, despite the recent Prudhoe Bay disruption. Gold also tumbled $13 today, and broke below its 50-day average. And despite the stronger Philly Fed report, bond yields are stable. All of these are positive developments.

Sensing Slight Changes In The Market's Tone

The market is roughly flat at the open, although a handful of tech stocks are continuing to bounce.

I am noticing a slight change in character by the market. Oil and bond yields are both lower again this morning, signaling a further decline in inflation worries. For the past several months, when the energy complex traded lower, it took the whole market down with it.

But this week, we have seen the energy stocks sell off while tech and the rest of the market rocketed higher. And growth stocks in particular have performed very well. Many stocks have made big moves higher from their July lows.

Check out the action in stocks like: RIMM, SIRF, WFMI, CWTR, SNDK - just to name a handful.

I think that this is an important shift, and one that should lead to better performance into year-end. I have been saying that the Fed on the sidelines removes a considerable overhang from the market, and that at some point the buildup in negative sentiment would propel the market higher.

While there will certainly be further corrections in the near future, I think we have seen the lows for the year.

long SIRF, WFMI

Volume Picks Up Again

Volume levels rose again today, which is what you want to see on days when the market rallies. Today marked the 3rd consecutive accumulation day for the Nasdaq, the first such streak I can find this year.

Oil closed lower again today, and looks to have put in a major top. Bond yields also closed lower again, confirming the belief that inflation has peaked.

As these two views become more widely accepted, the market should continue to rally. And the buildup of pessimism, high short interest, and abundance of put option bets could add fuel to the fire.

Breadth was again solid, and the Hi/Lo index turned positive on the Nasdaq for the first time since early July. Outperformance in the COMP is often a bullish sign. I think now is the time to start hunting for breakouts and new leadership groups.
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Back-to-Back Bear Cooker

The market is putting in a solid continuation rally today. I suspect again that most people were ill positioned for this rally.

The SPX is up more than 2% this week, while the COMP is up more than 4%.

Many of the indexes are breaking above their 50-days, or extending their moves above them. Most notably are the biotechs (BTK), semis (SOXX), retail (RLX), and small-caps (RUT). Chips are up another 4% today.

Energy stocks are lower again as oil continues to fall ($71.90). Bond yields are also significantly lower (4.87%), and well below the 5.25% fed funds rate. I bet my boss that the next Fed move will be to lower rates vs. raise them again.

Homebuilder sentiment hit a 15-year low yesterday. I also saw more signs of slowing price appreciation in many of the nation's hottest markets. I will post an update on the NAR report later.

And most importantly, growth stocks have started make strong moves. These trends are likely ingnored initially, but then as performance anxiety kicks in, a late rush of buyers often propels the group to even bigger gains.

I am still worried about another potential leg down, but I am beginning to think it will simply be a pullback, and possibly this year's last good buying opportunity.
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Strong Accumulation Day

Yesterday was a strong day for the market. The SPX was able to close above last week's high of 1283 and this morning it is attacking the 1290 level.

But the graph above is more important, as it shows the Nasdaq breaking above its overhead 50-day moving average. This could mark a significant change in trend, although there will certainly be days ahead that make us question that premise.

This morning's CPI report was in-line, and further calmed inflation fears. The 10-year yield is plunging to 4.88%. I think the notion of the Fed raising rates at its next meeting is absurd. Oil is lower again today also.

I sense that few market participants are positioned well for a rally to begin in August. The build-up in bearish sentiment has been aggressive, and the potential for further short-covering rallies remains. With earnings season winding down, and the Fed out of the way, I think the market is signaling that we have seen the lows for this year.
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Another Rally At The Open

Sorry for the lack of posts yesterday. I was in and out of meetings all day, and will be today also. It happens.

This morning, the market is getting a strong bounce on the benign PPI data. Yesterday, the market also bounced strongly at the open, only to be knocked down like a feather by the closing bell.

If you've been reading me for more than a day, you now know why I don't like strong opens. I prefer a market that opens weak and builds strength into the close. How many times can the market sell-off late in the day before it totally breaks down? Just askin.

The core PPI actually fell this morning (-0.3% vs. +0.2% consensus). That's a pretty good sign that inflation has peaked, as I have been saying for a while now. And that is what the 10-year yield has been telling us.

The consumer staple stocks have been on fire (read: defensive). PEP announced the retirement of its CEO and still rallied. Check out the rallies in MO, K, GIS, etc. They are all up big. Have you seen the pop in DEO? Same story. I think this sector rotation is nearly played out, and it is time to start leaning the other way.

MMM authorized an additional $1 billion buyback. I hope that is enough to lift this stock off of the canvas.

There was also good pin action in the solar plays, courtesy of strong earnings from STP. My favorite related play there is WFR.

The NAR home sales report showed more slowdowns in housing prices. I'll try to do a wrap-up on that later. For now...more steam!

long DEO, PEP; net long WFR

Monday Morning Musings

Back in the saddle after a restful weekend? Not. But who's complaining?

The market is getting a bounce at the open courtesy of an announced cease fire between Israel and Hezbollah. That is sending safe-haven investments like gold lower on the session. Oil is also falling, due to the downtick in terror premium coupled with the news that BP is going to keep the western half of its Prudhoe Bay oil pipeline open.

Bonds are also selling off, pushing the yield on the 10-year up to 4.99%. Retail stocks are the strongest so far, followed by industrials. Energy and materials stocks are off the most.

I still think that the oil service stocks are too low, especially given the strong earnings they reported. I would be looking to trim my exposure to the big integrateds and hold on to my service stock exposure, or even add to it.

I also think that the broker stocks are undervalued here, and remain perplexed at the low multiple afforded to these great companies.

This week is options expiration, so expect some added volatility to the usual nuttiness.

Nothing To Write Home About

While the action today is not as nasty as we have seen before, it is still somewhat disheartening (unless you're short). There just isn't a lot that is working right now.

A lot of people are talking about the consumer staple stocks (PEP, K, GIS, etc.), and while those are holding up much better, it's still a case of relative outperformance. But I don't think that you are going to make big money overweighting your entire portfolio into those names.

I own some staples, and they have been steady. But I also think there are a lot of undervalued growth stocks out there. The key is to be patient and weather the current bout of pessimism. As such, I am holding higher cash balances than normal.

But I am not predicting the type of downside that many are. I think we are more in a trading range for the time being, and may be revisiting the lower end of the range in the near future. But I also expect another strong 4Q rally this year.

TGIF

long PEP

Stocks Open Lower

The market has been under pressure in the first hour of trading. Poor results from ADI and CREE are weighing on the semi stocks, and the tech sector in general.

Oil is slightly lower again, and most of the energy stocks are lower, although the Canadian energy trusts are mostly higher. Bond yields are trending higher, around 4.96%.

Retail sales came in above expectations, and many retail stocks are bouncing again. The debate about a consumer-led recession rages on, but I doubt it will get that bad. These stocks are already reflecting a significant slowdown in consumer spending, and I think there are some bargains worth pouncing on soon.

I expect volume to be fairly light again today, as they tend to be on Fridays in August. I wish I were heading out early for the Hamptons today, but with a new baby at home, well you can pretty much envision my weekend.
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Less Than Meets The Eye

Today's action was pretty bullish, especially in a contrarian sense. The market was under pressure at the open on the news of the thwarted terrorist attachs and the raised terror alert. But it bottomed early and closed nicely higher on the day.

Small-caps and tech led the way. Retailers were the strongest (+2.2%), followed by semis (SMH +1.5%). Oil and commodity-related issues fared the worst, as oil plunged $2 to $74.

But below the surface, volume ran at lower levels than yesterday. So we got no accumulation, and continued the pattern of higher volume on the down days and lower volume on the rallies. Moreover, the Hi/Lo indexes deteriorated on both exchanges.

This leads me to believe that this is more of the markets simply chopping around. I sense that the pattern from the last few years is set to play out again, with the market making a bottom sometime in September/October before launching on a nice rally into year-end.
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URBN: Reversing Its Downtrend?

My Stock of the Day is Urban Outfitters (URBN). Yesterday I posted that I thought the stock was washed out, and that even if the negative news simply dried up, the stock would likely rally.

I guess that was an understatement. The company reported earnings today that were in-line, and did not offer specific guidance for earnings and revenues. Nonetheless, the stock is spiking more than +14% on a huge increase in volume.

It still needs to get over its 50-day moving average, but it looks like this might be a start at the stock finally reversing its downtrend.

Retail stocks overall are also doing better, after earnings reports from TGT and JCP as well.

long URBN

Terrorist Attack Avoided

The market has opened under some pressure this morning. The obvious headline is that the thwarted terrorist attack and elevated threat level is causing the selloff, but a lot of it is more likely related to yesterday's late day weakness spilling over.

Oil is down more than a buck ($75.25), as are other commodities as well as bond yields.

Surprisingly, the semis are bucking the early weakness. So are the retailers, which got some nice reports from TGT and JCP. Everything else is mixed.
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Back-to-Back Reversals

Today was shaping up to be a really nice day - at least it was for a while. After the opening spike, the market drifted lower only to find support and surge back to new highs. The SPX rose above yesterday's highs, and it looked as though it might challenge last week's highs.

But as I have said, and it is not always a popular statement, this market is not hard to push around. And it seems anyone with an agenda to knock the market lower has been able to do so without much difficutly lately. Although you could also argue there has not been a lot of downside follow through either.

Nonetheless, the selling this afternoon left another outside negative reversal in the charts. I can't remember the last time I saw back-to-back outside days, but it seems like a pretty bearish development. And I have raised more cash to reflect this stance.

Volume also rose on both exchanges, making for a 2nd distribution day. Don't you wish you were going on vacation in August?

The put/call ratios were both high today, and the Investor's Intelligence poll showing more bears and less bulls than last week. I still think that this prolonged build in negative sentiment is going to lead to a huge rally at some point. We just need to get through this near-term malaise once again.

Interestingly, while the stock market is highly pessimistic, the corporate bond market is quite sanguine. And that is what makes this market so different from 2001-02. The tone of the corporate bond market suggests that stocks will move back to new highs. But again, timing is the key.

Spiking At The Open

The day to day volatility continues. Yesterday the markets reversed lower after the FOMC meeting, leaving a potentially bearish outside day on the charts.

This morning that weakness is being reversed again, as the markets opened sharply higher. Strong earnings from CSCO and DIS are helping, along with the fact that the Fed paused (even though the initial reaction was to sell).

The SPX has to get above 1292 to keep this uptrend intact. My sense is it has a little more consolidating to do before it attacks that level again. And the COMP still needs to get back above its overhead 50-day.

Yields are up a bit to 4.95%. Oil and commodities are up slightly as well, while the dollar is lower (the FXE is close to new highs).

Trading volumes are likely to lighten as the month of August progresses, so it might be asking too much to see this occur this month. I kind of expect the market to remain choppy, although I sure hope I'm wrong.

Fed Keep Rates Unchanged

The FOMC decided to leave rates at 5.25%, saying that inflation expectations are contained, growth has moderated on energy and housing.

The initial reaction in the stock market was a sharp spike higher, while bond yields have remained essentially flat.

Let's see if the positive action is sustainable into the close.

Job Opening

We are looking for an Operations Manager / Portfolio Associate to join our firm. The job posting is available on Bloomberg and CFALA.

If you know anyone who might be interested, please have them contact me.

thanks-

The Yen Carry Trade

Our recent Focus On Finance piece is now up on our website.

If you are interested in reading about the unwinding of the carry trade, and its effects on global markets, please take some time to read FOF and tell us what you think.

For this, as well as other Focus On Finance pieces, click here.

Hurry Up And Wait

The market is up a little at the open. There was a flurry of M&A activity this morning, which normally would probably lead to a stronger open, but I suspect it is hard for the market to get any early mojo ahead of the big FOMC meeting.

I am on record as saying that the Fed will pause, and have been calling for this for a while. I would not be surprised to see a "sell the news" reaction in the market, but if this occurs I think any declines will be made up in the near future. The removal of this headwind should be significant for the market.

Sector action is mixed so far. Banks and brokers are up, which is good to see, while tech and retailers are lower, as is energy and materials.

But the real action will come in the final 90 minutes of trading. Don't you love these days?

Disaster Du Jour

Today's growth stock that reported in-line results but had its stock hammered is Hansen (HANS).

The company missed EPS by a penny and reported +83% revenue growth. For that, the stock gapped down on huge volume and closed down more than -25% for the day.

Obviously, this is a huge overreaction, but not surprising given what we have witnessed this earning season. And this is the reason why I use the word "brutal" to describe some of these reactions.

I don't know how long the healing process will be for some of these stocks, but HANS is quickly becoming a great value, and that much more attractive as an acquisition candidate.

Stock of the Day

Today's SOTD is Syneron Medical (ELOS), which reported earnings this morning.

Pro forma EPS beat estimates by 2 cents, and revenues rose 37% from the year-ago period. Gross margins decreased slightly due to a higher international mix of revenues.

Europe, Asia, and Latin America continue to grow well, and totalled 50% of revenue. N. America was flat, but management expects it to pick up in 2H06.

The company has invested lots in its sales force, and has lots of new products in its lineup.

The stock is gapping higher today by more than +15% on a huge spike in volume. This should be the signal that a new uptrend is at hand.

Ahead of the Fed

This was my comment to some of the recent posts about the Fed and tomorrow's FOMC meeting:

"I think if the Fed raises tomorrow, then they have gone too far. I think they should definitely pause now.

While the immediate reaction is hard to guage, since there could always be a "sell the news" type response, having the Fed out of the way will remove a considerable overhang from this market."

Monday Morning Musings

The market has opened under a bit of pressure, which is likely a follow-through from Friday's late day weakness.

Oil is trading higher on the news that BP will shut down its Prudhoe Bay facitlity due to corrosion issues. They said this will impact roughly 400,000 barrels. Already there is talk from OPEC as well as the U.S. strategic reserve to step up so that no shortage is felt.

Most of the energy issues are trading higher, though not by any dramatic amount. Most of the other sectors are down so far, expect the homebuilders which are bouncing slightly. HANS disappointed a bit, and the stock is getting whacked.

Bond yields are hovering around 4.92%. Tomorrow is the big FOMC meeting. While a pause is almost assured now, if you go by the fed funds futures, the reaction is still far from certain. Often, the market will react strongly in one direction after the announcement, but then trade in the opposite direction in the days that follow. Stay tuned.

I am still looking for what the leadership group is going to be out of this latest market malaise. Any ideas out there?

Weekly Recap

It was a flat week for the stock market. That wasn't bad considering the strong gains the previous week. The comment in last week's Weekly Wrap that "the underlying tone is improving as the worst fears are fading" is still valid.

Earnings and Fed expectations dominated the action this week.

Second quarter earnings reports continued to impress. It now appears that second quarter operating earnings for the S&P 500 companies in aggregate will post a very strong 15% gain. That is well above the 12% forecast when the reports started. There have been very few earnings warnings as well. That has led to forecasts of a similar gain in earnings for the third quarter.

The earnings trend is very impressive considering that economic growth is clearly slowing down. The growth in earnings has pushed the price/earnings multiple for the S&P 500 down to 15.2 for operating earnings (including the second quarter). The S&P 500 index has been flat for six months while earnings growth has continued. That has pushed the price/earnings multiple down and increased the relative value of stocks.

Earnings reports of note this past week included good reports from Humana, Exelon, MetLife, Archer Daniels Midland, EDS, Emerson, International Paper, Marathon Oil, Parker-Hannifin, Verizon, Cigna, Procter & Gamble, Time Warner, CVS Corp., Sunoco, and Tyco.

A quick scan of those companies reveals that, apart from Dow components Procter & Gamble and Sprint, there weren't many influential names. This is the time in earnings season when the companies reporting are not likely to set the tone for the whole market. The big tech and financial companies have already reported. The market has settled into its conclusion about the quarter - and it is upbeat.

Economic reports were light this week, but there was one big one. The July employment data was released on Friday. The 113,000 gain reported for nonfarm payrolls was below expectations of a 125,000 to 150,000 increase. That led to a heightened expectation that the Fed will not raise rates at their policy meeting on Tuesday.

Fed funds futures now assume only about a 20% probability of a rate hike at the August 8 meeting.

Other economic releases this past week included moderate growth readings on both the ISM manufacturing and ISM services indices, a smaller than expected 1.2% increase in June factory orders, an uptick in weekly new claims for unemployment to 315,000, a modest increase in July auto sales from June levels, and moderate growth in June personal income and spending. Same store sales reports for retail chains were a mixed bag, reflected moderate growth.

All in all, the economic numbers were very much consistent with a broad slowdown in economic growth, but nothing dramatic. The "soft landing" that the Fed seeks appears to be developing.
There were some slight inflation concerns. The June core PCE deflator was up 0.2%. That in itself is not so bad, but the year-over-year gain inched higher to 2.4%. July hourly earnings in the employment report were up 0.4%. The year-over-year increase there is 3.8%. The trend in these series is slightly higher, but not severe. The Fed has expressed a willingness to wait for inflation to ease in response to slower economic growth. These data points are therefore only slightly worrisome, and are not expected to prevent the Fed from holding rates steady at this next meeting.

The 10-year note yield dipped to 4.90% this week. That reflects long-term optimism on the inflation front, and has supported the stock market. Oil closed near $75 a barrel.

The action next week will be determined not only by the Fed action on rates on Tuesday, but also by the accompanying policy statement. The stock market is now largely priced for a pause in the rate hike cycle. But a statement that reminds investors that a rate hike later this year is still possible could roil markets. The underlying tone has clearly improved, but the potential for a significant upward move is still not limited.

-- Briefing.com

Payrolls Data Softer Than Expected

Nice call on taking the under on the jobs report. Nonfarm payrolls rose +113k vs. consensus of +145k. The softer data has the stock markets rallying across the board, as this datapoint helps seal the deal that the Fed won't raise rates next week.

Bonds are rallying a bit also, pushing the yield on the 10-year down near 4.90%. Commodities are mostly rallying as well, helping to push the materials stocks higher.

Of course, we are cheering weak data right now, because we know the Fed has gone far enough. But if weak data continues to pick up, we are going to quickly start bemoaning that the Fed has gone too far. That's the tricky part of this equation. We really need the soft landing, and that's why we dont' want housing to collapse.

This is a lot of early strength, the opposite of what we saw yesterday. Some people out there don't like it when I talk about traders heading out early to the Hamptons, and leaving the market vulnerable to being knocked down by a feather. I guess we'll see later today.

Back-To-Back Accumulation Days

When was the last time we saw back to back accumulation days? Well, actually it was mid-July. But it feels like longer. Nonetheless, the action today was pretty solid, with the market shaking off early weakness and closing in positive territory.

The homebuilders led (+3.2%), which is good to see because we don't want a total collapse there. Retail stocks were the next strongest group (+2.2%), followed by semis (+1.5%) and brokers (+1.4%). So that is a nice mix of sector strength and shows some broadening participation. It's also nice to see a day where the market was not led by energy.

The COMP had a positive outside day. Last Thursday it had a negative outside day, but there was no follow-thru to the move. So we'll have to see if this bullish sign has any legs to it. Regardless, I think the Nazz has a date with its overhead 50-day in the near future.

The 10-year yield finished even lower today, closing at 4.95%. Guess the bond market isn't too worried about inflation. I am still in the camp that says the Fed pauses next week.

A lot will depend on tomorrow's payroll report, or so we are told. The consensus is for about +145k jobs, but I think I am taking the under.
'

Morning News Roundup

Morning News of Note:

• Gapping Up:
  Gapping up on strong earnings/guidance: CRYP +14.4%, SINA +14.3% (also upgrades from CE Unterberg and Brean Murray), FOXH +12.5% (also Wm Blair upgrade), HIHO +29% (light vol 1,200 shares), ACLS +4.8%, GLBL +4.7%, NT +2.9%, STKL +2.9%, PAAS +2.9%, CVS +2.4%, DCP +2.1%, PTEN +1.8%... Retailers gapping up on strong July comps/guidance: BEBE +5.4%, AEOS +3.8%... Other News: MROI +17% (to be acquired by IBM), ARWR +10.8% (announces research collaboration), VC +3.8%, IR +3.5% (raises dividend; accelerates share repurchase program), BDCO +2.2%, MEH +2.2%, NVDA +1.6% (ThinkEquity upgrade), IIP +1.5% (Mad Moeny mention), KNL +1.4% (prices offering), RACK +1.1% (positive TWP comments), SGP +1%.
• Gapping Down
  Gapping down on disappointing earnings/guidance: COGT -26% (also downgrades from Morgan Stanley and Needham), ECLP -21%, LF -19% (also Citigroup downgrade to Sell), S -12%, SBUX -11.5% (also Thomas Weisel downgrade), TOPT -11.5%, MDT -10.2% (guides lower; also multiple downgrades), INSP -7%, ZEUS -6.2%, QDEL -6%, UL -4.4%, TFSM -4.1%, RIG -4%, POZN -3.6%, F -3.5%, THE -2.9%, PRU -2.3%... Retailers gapping down on disappointing July comps/guidance: ARO -6.4%, PSUN -4.8%, GYMB -4.2%... Hurricane/energy stocks give up yesterday's gain as Chris not likely to become hurricane: HSOA -2.7%, NBR -2%, CHK -2%, HAL -1.8%... Other news: HANS -8% (Citigroup downgrade), STJ -7.5% (in sympathy with MDT; also Pru downgrade), BSX -4.9% (in sympathy with MDT), RMBS -4.7% (WSJ runs article on FTC news from yesterday), HRLY -4.7% (profit taking after gap up late yesterday on takeover speculation), KOMG -2.8%, ZMH -2.7% (Wachovia downgrade to Underperform), AVCI -2.6% (profit taking after 7% move yesterday), ICI -2.4%, AKAM -2.2%, TIE -1.8%, SAP -1.8% (Cowen initiates at Underperform), GRMN -1.5%.
• Google, Yahoo, others team against click fraud - CNet
  CNet reports after numerous class action lawsuits and criticism from advertisers, the major Web search cos finally announced on Wednesday plans to work together with two industry groups to quantify click fraud. The Interactive Advertising Bureau and the non-profit Media Rating Council said they are teaming with Google (GOOG), Yahoo (YHOO), Microsoft (MSFT), Ask.com, LookSmart and others to form the Click Measurement Working Group. The group's mission is to establish guidelines for what constitutes valid clicks and invalid clicks on ads. Guidelines can help the industry measure how prevalent click fraud really is. Third-parties who sell click-fraud combatting services to advertisers claim that click fraud rates are as high as 30 percent. Google and Yahoo counter that click fraud rates are minimal.
• AAPL Apple Computer teams up with Ford, General Motors & Mazda to deliver seamless iPod integration (68.16 )
  Co announces it has teamed up with Ford Motor Company (F), General Motors (GM) and Mazda to deliver seamless iPod integration across the majority of their brands and models, making it easy for iPod users to enjoy and control their iPod's high-quality sound through their car's stereo system. With the addition of these models, more than 70% of 2007-model US automobiles will offer iPod integration.
• RACK Rackable Systems: Bullish outlook on the co's prospects appear well justified - TWP (19.29 )
  Thomas Weisel says the general summary they can provide after 2 days with management is that the RACK story is not very well understood by the investment community and that their bullish outlook on the co's prospects (35-40%+ top line growth for several years with expanding margins seems likely to them) appear well justified, with strong long term pipeline of opportunity apparently in place. They say RACK is not losing one or more of its "Big 3" customers. All 3 are still ordering; Amazon was down as expected after strong rollouts, and 1 of other 2 is pausing to re-evaluate Intel. Firm also says RACK is unlikely to lose significant business and margin due to the Woodcrest transition.
• GRMN Garmin upgraded to Buy from Hold at Needham- tgt $108 (88.13 )
  Needham upgrades GRMN to Buy from Hold with a $108 tgt saying they were frankly surprised by the market reaction to GRMN's strong earnings report yesterday. They say while GRMN's Aviation business was light in the quarter, they think the co made a strong case for this business rebounding sharply in 2H06. And while there will undoubtedly continue to be concerns around eventual margin erosion in the co's P.N.D business, the co's 2Q06 results demonstrated impressive margin resiliency. The firm says the combination of substantially raised estimates with a stock price that is below where it was following the 1Q06 report results in a meaningfully better risk/reward profile for the shares.
• Bank of England raises bank rate 1/4 point to 4.75%
• Cramer's 'Mad Money' Recap - TheStreet.com
  On Wednesday's edition, Jim recommends Chevron (CVX) and says even though the co had everything working in it favor, it still missed numbers. It is the perfect example of a co that can do anything without the stock going lower. Shares dipped down and came back because with the rising price of oil, the co could do no wrong. Even though Cramer has emphasized buying best of breed, which in this case might be ConocoPhilips (COP), he said he's going to break the rules this time. Chevron might look like a bad oil co, but it has proven that it's invulnerable. If other oil companies reported bad numbers, they could go down, Cramer said. Next, he suggests staying away from Whole Foods (WFMI) and Rackable Systems (RACK). Finally, he is bullish on Fortune Brands (FO) and Masco (MAS), two cyclical plays on the refurbishment of homes for sale. Furthermore, he says they are still cheap and earnings aren't falling apart.

long AAPL, GOOG, WFMI; net short GRMN

Volatility Set To Pick Up Again

The market has opened on a down note following yesterday's rally. SBUX reported weak comp sales, and the stock is down big (-11%), even though I think it is an overreaction.

MDT issued a profit warning, and that stock is also down -10%. And the retail sales reports that came out this morning were a mixed back, although overall the retail index is trading lower. I'll be back with a highlight of some of the names later.

The 10-year yield is bouncing a bit to 4.98%. Oil and gas are trading lower, which is weighing on the energy stocks. Interestingly, yesterday when the market began to soften it was the energy sector that turned lower first and led the market down.

It is very strange to have the energy sector leading the market. You would think that when energy prices go down, that would benefit the other sectors of the market, for the most part. But such has not been the case with this wacky market.

And when is GOOG going to bottom and pull an AAPL?

long AAPL, GOOG, MDT

The Streak Is In Danger

All fund managers fall on rough times at some point. This year, it's Legg Mason's Bill Miller that is in jeopardy of ending his streak of beating the S&P 500. In this news blurb today, the fund manager explains his recent losses:

BOSTON, Aug 2 (Reuters) - Legg Mason fund managerBill Miller, widely regarded as America's best stock picker, onWednesday said bets on Internet, home builder and managed-carestocks led to the fund's recent sharp losses.
"We had a dreadful second calendar quarter," Miller, whoseValue Trust Fund has beaten the benchmark Standard & Poor's 500index for 15 straight years, said in a letter to shareholders.
In the three months ended June 30, the $18 billion ValueTrust Fund lost 5.67 percent, Miller said. Bets on Amazon.com AMZN, Yahoo YHOO, UnitedHealth UNH, Aetna AET and certain home builders dragged down returns, he said.
Since January, the losses are even greater -- research firmMorningstar calculates the fund has lost 9.97 percent in thefirst seven months of the year. But Miller assured his investors that recent dramatic declines in some of his top holdings -- Amazon lost more than20 percent in one day last week -- have not yet prompted him to alter his long-term strategy.
"It is our willingness to own securities which other people regard as wrong which historically has been part of the long-term success of the fund," Miller wrote. "We are verypatient and will own a company as long as we are confident ofthe business value and of management's ability to execute thestrategies they have outlined."
In the last 15 years, the fund's average annual rate of return has been 15.03 percent, beating the S&P's 10.73 percent.
To beat the index, Miller said, the fund needs to lookdramatically different from the index, something that might be making some investors' stomachs churn right now.
"For those who are newer, or nervous, or whose psychological equilibrium is disturbed by non-linearity, some context might be helpful," Miller wrote, explaining his reasons for holding the Internet stocks and others.

Morning News Roundup

Morning News of Note:

• Gapping Up
  Gapping Up on strong earnings/guidance: NILE +20% (also Piper upgrade), AQNT +20% (up in sympathy: TFSM +9% which reports tonight), GRMN +12% (up in sympathy: SIRF +6%), VCLK +17% (also Kaufman upgrade), TSRA +12% (co reports, but licensing deal with Infineon driving the stock higher), VPHM +8.6%, HL +7.6%, CI +6.8%, ADBE +6.6%, ASTSF +6%, CTSH +6% (up in sympathy: SIFY +7.3%, INFY +2.4%), ERTS +5.7%, MA +5%, ALVR +5.2% (also Merriman upgrade), MDRX +3.2%, TWX +2.8% (also co shifts AOL strategy with free offerings), AL +2.4%, WYNN +2.3%, PG +1.8%, SWN +1.8%, DVN +1.5%... Other News: POZN +33% (announces collaboration with AZN), F +4.3% (co launches strategic review of brands, may lead to asset sales - WSJ), XMSR +4% (deal with Google), TLAB +3.3% (bounces after recent weakness), AVCI +3.2%, USEY +2.8%, TIE +2.2%, TEVA +2.2% (announces Copaxone sales), PALM +2.8% (Cramer bullish on Mad Money; Merrill resumes coverage with $19 tgt), UNH +2.2%, LAMR +1.8% (Credit Suisse upgrade), BYD +1.6% (prices offering), CHK +1.4% (Cramer positive on Mad Money)... Momentum enrgy names moving ahead of possible Hurricane Chris: BDCO +7.2%, NGAS +4.1%, FUEL +2.5%... Medical device stocks are higher following final Medicare ruling: BSX +4.6%, THOR +4.2%, BVX +3.2%, MDT +2.5%... Under $3: AVAN +9.5% (reports Q2).
• Gapping Down
  Gapping down on disappointing earnings/guidance: CTLM -18%, CKFR -17%, TECD -12.5% (guidance only), JCOM -3.9%, BF -1.6%... Other News: BVF -10.5% (stock halted; chatter of adverse court ruling), SCT -5% (profit taking after 71% move yesterday), UTSI -3.9% (Bear Stearns downgrade), UARM -3.9%, ISSX -3.4% (Raymond James downgrade), ELN -2% (Piper lowers tgt to $10 from $14), AVP -1.7% (Matrix downgrade), GSK -1.5%, AZN -1.2%, GS -1%.
• CTSH Cognizant Tech beats by $0.04; guides above consensus (63.52 )
  Reports Q2 (Jun) earnings of $0.37 per share, $0.04 better than the Reuters Estimates consensus of $0.33; revenues rose 59.1% year/year to $336.8 mln vs the $319 mln consensus. Co issues upside guidance for Q3, sees EPS of at least $0.38 vs. $0.36 consensus; sees Q3 revs of at least $363 mln vs. $343.78 mln consensus. Co issues upside guidance for FY06, sees EPS of at least $1.45 vs. $1.39 consensus; sees FY06 revs of at least $1.37 bln vs. $1.32 bln consensus.
• MCO Moody's beats by $0.03, revs above consensus, provides 2006 guidance (54.11 )
  Reports Q2 (Jun) earnings of $0.59 per share including stock-based compensation, $0.03 better than the Reuters Estimates consensus of $0.56; revenues rose 14.5% year/year to $511.4 mln vs the $485.8 mln consensus. MCO guides year-over-year growth non-GAAP EPS growth in the mid-to-high teens percentage range, vs. $2.08 consensus (consensus implies EPS up about 13% from previous year). Co guides 2006 revs in the low double-digit percent range vs. $1.899 bln consensus (consensus implies revs up about 10% from previous year).
• PG Procter & Gamble beats by $0.01, beats on revs, guides above consensus (55.93 )
  Reports Q4 (Jun) earnings of $0.55 per share, $0.01 better than the Reuters Estimates consensus of $0.54; revenues rose 25.1% year/year to $17.84 bln vs the $17.5 bln consensus. Co issues upside guidance for Q1, sees EPS of $0.79-0.81, excluding $0.03 in one time charges, vs. $0.78 consensus. Co issues upside guidance for FY07, sees EPS of $3.02-3.08, excludes $0.06-0.08 in one-time charges vs. $3.00 consensus.
• GRMN Garmin beats by $0.14, guides Y06 above consensus, sees softer results in OEM programs (90.00 )
  Reports Q2 (Jun) earnings of $1.10 per share, $0.14 better than the Reuters Estimates consensus of $0.96; revenues rose 63.5% year/year to $432.5 mln vs the $378 mln consensus. Co reports gross margins of 50% vs ~49-50% street expectation. Co issues upside guidance for FY06, sees EPS of exceeed $3.90 vs. $3.67 consensus; sees FY06 revs of Exceed $1.6 bln vs. $1.5 bln consensus.
• TWX Time Warner announces AOL will offer its software, e-mail and other products for free to broadband users (16.25 )
  Co announces that AOL's software and e-mail as well as various other products will be made available for free to broadband users in a move to enhance the growth of its online advertising business. Among the AOL products that will be available for free to anyone with an Internet connection are: AOL's integrated software; communications features, including AOL e-mail, instant messaging, a local phone number with unlimited incoming calls, and social networking applications; and safety and security features, such as parental controls.
• Cramer's 'Mad Money' Recap - TheStreet.com
  On Tuesday's edition, Jim recommends Pfizer (PFE) and reasons that Medicare drug schemes are causing people to buy more prescriptions. For companies that have the best risk/reward regarding businesses for the elderly, Pfizer is the best. He said market players have a six-month window to buy Pfizer, adding that shares have a good risk/reward situation with ten up and two down. Next, he suggests Comcast (CMCSA) and sees growth ahead and notes all its divisions are profitable. Finally, he believes Under Armour's (UARM) valuation is too high and says he wouldn't hold it on its way down. Besides valuation, he thinks the growth story has come to an end and added they have no technological or patent advantage over Nike (NKE) or Reebok. With the Celgene (CELG) chief executive as a guest, Cramer called Celgene his favorite biotech stock other than Amgen (AMGN) and feels that shares could still climb.

long PG

Strong Bounce At The Open

The market is rallying in early trading. Strong earnings from PG were well receieved, and the news in the medical space about the CMS reimbursement rates is helping the medical device stocks (MDT, BSX, STJ, etc).

GRMN has a strong report in the tech sector, and is helping other GPS stocks and the chip sector. GOOG is still under pressure. The energy complex is also higher again today, as oil and natty gas are both up slightly.

The 10-year yield is slightly lower at 4.98%.

The SPX needs to get above near-term resistance at 1280 to have some running room. Otherwise, it is likely we will remain rangebound ahead of two key upcoming datapoints: the Friday payrolls report and next Tuesday's FOMC meeting.

long GOOG, MDT, PG

Market Felt Heavy Today

Despite the rally in the last half hour of trading, the market felt heavy all day. The rally at the end of the day pared the losses in the SPX to -0.5%, but small-caps fell -1.5%, and large-cap tech declined -1.6%.

Moreover, volume rose today, making for another distribution day. So this is not the action we want to see. This is the second day of distribution in two weeks, while rallies have come on lighter volume. We want to see it the other way around.

On the plus side, the SPX did successfully test its 200-day support and bounce higher. But that doesn't mean it won't break this support in the near future.

We are also getting into an interesting juncture in terms of the upcoming FOMC meeting. This could mark a turning point in stocks. The question is whether it will mark a high or a low?

Bond yields fell today, despite the media harping about the inflation report. What this means is that the bond market is saying that inflation is a lagging indicator, and likely has peaked. But if the Fed keeps raising rates, it will probably force a hard landing.

I think they will pause. And if I were at the Fed, I would have stopped at 5.00%.

Morning News Roundup

Morning News of Note:

• Gapping Up
  Gapping up on strong earnings/guidance: VC +8%, IACI +7.6%, UTHR +6.2%, ENZN +5.5%, PKD +4.7%, VSH +4.1%, SIRI +3.3%, ADM +2.7% (up in sympathy: PEIX +2.5%), MRO +2%, MRO +1.5%, COH +1.4%... Other News: SCT +15% (co says it does not face any near term liquidity or solvency issues; also UBS upgrade), VPHM +5.8% (Piper upgrade ahead of Q2 report tomorrow in pre-mkt), XMSR +5.2% (Cramer thinks XMSR has bottomed and may be a takeover target, possibly by Sirius), NGAS +4.8% (extends yesterday's 12% move), BUH +2.5%, AMD +2.1% (IBM to expand AMD chip use as Intel steps up counterattack - WSJ), MT +2% (reports tonight), CHK +1.7% (Goldman upgrade), NTRI +1.5% (announces stock repurchase plan), NVO +1.1%, ASMI +1% (Needham upgrade)...Under $3: CD +20% (Wyndham and Realogy splits from company today), OSCI +16% (approval of Factive tablets in Mexico), AIRN +6.4% (enters into financing deal).
• Gapping Down
  Gapping down on disappointing earnings/guidance: ZVXI -23%, CYBX -16% (guidance only), AFFX -15.6% (also Thomas Weisel downgrade), PWAV -11.5% (also multiple downgrades), WFMI -9.3%, EXPD -8%, PLAB -7.3% (guidance only), CMG -4.3%, VMC -2.9%, PFG -2.3%, UTHR -2.2%, ISSX -1%... Other News: HOTT -13.5% (weak July comps, guides lower), ANR -3% (delays earnings announcement), RACK -2% (Cramer negative on Mad Money), RMBS -1.9% (profit taking after 13% move yesterday), FLSH -1.9% (JP Morgan downgrade), TS -1.6%, AKAM -1.2% (profit taking after 30% move in last 3 days), SNDK -1.2% (boutique firm says another bidder could come in and drive up price for FLSH).
• WFMI Whole Foods: Color on quarter (57.51 )
  RBC says that WFMI's Q3 earnings release was a mixed bag. Underlying business trends remain robust, but investor concerns over slowing comps are unlikely to subside in the near term. Firm says positive takeaways are 1) EPS beat consensus by a penny; 2) margin trends appear very strong; and 3) the high end of management's preliminary FY-07 sales and store contribution profit guidance supports our estimates, leaving firm's earnings ests for 4Q06 and FY-07 unchanged. Firm believes the Q surfaced some question marks about the direction of comps, as well as anticipated square footage growth for FY-07. Factors leading firm to this conclusion includes: 1) comps for the quarter were a touch light (10% vs. firm's est of 11%); 2) FY-06 sales guidance was tempered slightly and implies a very wide range for comps in Q4; and 3) management appears to have backed off of its preliminary FY-07 square footage growth guidance provided last quarter. Firm believes WFMI's comp decleration is more of a function of a less vibrant consumer and the "law of large numbers." BofA maintains their Buy on today's weakness following an inline qtr and comps of 9.9% below their 11.1% est. Firm maintains EPS ests given that margins at 6.1% were above our 5.95% est. Given recent concerns around the strength of the high-end consumer, some investors may choose to stay on the sidelines until there is some stabilization of sequential comp numbers. Firm believes, however, that the stock is attractive at these levels.
• CHK Chesapeake Energy upgraded to Buy from Neutral at Goldman (32.90 )
• EMR Emerson beats by $0.02; raises guidance (78.92 )
  Reports Q3 (Jun) earnings of $1.18 per share, $0.02 better than the Reuters Estimates consensus of $1.16; revenues rose 16.8% year/year to $5.22 bln vs the $5.07 bln consensus. Co raises guidance for FY06, to EPS of $4.33-4.38 from $4.25-4.35 vs. $4.36 consensus.
• Cramer's 'Mad Money' Recap - TheStreet.com
  On Monday's edition, Jim believes that Amazon (AMZN) needs to fall further before it can be a buy. He added that the co's earnings growth is decelerating, and it needs to be trading at half of where it is now. He also predicted Barnes & Noble (BKS) will report a bad quarter and advised investors to wait until this happens and then buy shares. Next, he thinks XM Satellite (XMSR) has bottomed and thinks it's worth buying. He feels the co is a takeover target as well, possibly by Sirius (SIRI). XM has some problems with the FTC, but it may prove to be a short-term issue. Finally, he still thinks stocks like Altria (MO) and Wells Fargo (WFC) are values at current levels.

long CHK, EMR, WFMI

Opening Look (Lower)

The market has opened on a down note. The core PCE deflator came in in-line (0.2%), which should bring some comfort on the inflation front as it eases concerns with the Fed that this indicator was going to show a further pickup in inflation.

Nonetheless, the 10-year yield is up slighlty to 5.00%. Oil looks like it is slightly higher this morning also, as is natural gas, which is helping th eenergy stocks.

In earnings, EMR reported another solid quarter, and the stock is higher. WMFI reported an in-line quarter, but comments about higher store opening expenses next year has scared investors, and the stock is getting whacked.

Of course, down openings haven't been too scary lately, so let's see if the market can recoup some of this early damage by the close.

News roundup is coming--

long EMR , WFMI