Saturday, April 29, 2006

Weekly Update

It was an active week for the stock market. The net drop of less than 1 point in the S&P belied the level of volatility and the heavy news calendar.

The most dramatic action came in response to Fed Chairman Bernanke's testimony on Thursday before the Joint Economic Committee of Congress. Before he spoke, the S&P was down 9 points on fears that he would reveal a more aggressive policy stance towards combating inflation. Instead, the market assessed his position as conciliatory. He said the Fed might pause in its current rate hike cycle soon even if the risks of an inflation pick-up persisted.

The S&P shot higher and was up 9 points in early afternoon for an 18 point turnaround. Then the market recognized that his comments reflected little change from the assessment after the release of the March FOMC minutes, and that a "pause" implies a subsequent rate hike. It doesn't signal the end of the rate hikes. The market sold off but still closed the day with a 4 point gain.

That offset the modest net decline that had occurred Monday through Wednesday. The weakness had largely been caused by a sense that the market was overbought and concerns about rising commodity prices. Also contributing was an increase in the 10-year note yield to 5.07% from 5.01% at the end of last week.

Friday was relatively sedate as the S&P 500 index and the bond market closed little changed.

There were plenty of earnings reports this week. The overall effect was to support the conclusion reached last week - that the first quarter was a good quarter, and that second quarter guidance was reasonably good as well.

The most noteworthy report, however, was negative. Microsoft reported earnings below expectations, warned of lower than expected profits for the current quarter, and said that long-term investment would have to increase to maintain growth. The stock was hammered on Friday after the report, and the Nasdaq lost 22 points that day. That accounted for the loss in the index for the week.

Industrial companies were noteworthy this past week for very good reports. Cummins, Caterpillar, Lockheed Martin, Northrup Grumman, US Steel, and Boeing all posted impressive numbers. Oil companies were less impressive. ExxonMobil reported weaker than expected profits even though they captured many headlines with their $8.4 billion in profits. Murphy Oil and Marathon Oil also missed.

The economic data was strong. First quarter real GDP was reported up at a 4.8% annual rate. March durable goods new orders were extremely strong at +6.1%. That followed a 3.4% February gain and shows high levels of business confidence. Surprisingly, both new and existing home sales in March were up. Strength in the Chicago April PMI index was an early indication that manufacturing remains strong.

Every aspect of the economy is strong. Consumer spending, job growth, business investment, and even housing - all are trending strong.

Inflation concerns are mixed. Oil closed the week near $72 a barrel. Bernanke expressed the necessary concern of a Fed Chairman towards all inflationary pressures, but certainly showed no signs of panic. It is possible that the strength in the economy leads to an increase in inflation in the months ahead, but there is great disagreement about the degree of any such problem.

The stock market has thus held up well through earnings season. The prospect of a likely hike in the fed funds rate at the May 10 FOMC meeting, and the possibility of a subsequent one later in the summer have not hurt the market. Neither has the continued backup in the 10-year note yield. Yet, the market now heads into the classic slow period. The May-October time frame has not produced any of the market gain the past fifty years. The summer doldrums could hit again.

We remain skeptical about the chances for significant gains in the months ahead with rising interest rates and building inflationary pressures. Yet, the strong economy and continued earnings growth help provide support to the market.

Friday, April 28, 2006

Stocks Finish Mixed

The SPX closed basically flat on the day, while the COMP was drilled courtesy of Mister Softee (MSFT). Volume ran below yesterday's levels, so there was not distribution day. And breadth improved from yesterday's poor readings.

Despite the strong 1Q GDP report (4.8%), bond yields finished slightly lower at 5.07%. Oil also finished a bit lower at $71.50. Nonetheless, energy stocks were today's big winners. Financials also added handsomely to yesterday's gains, making for a powerful 2-day move. Thank g-d for diversified portfolios.

There looks like a bit of a rotation out of brokers, which have had a great run, and into banks and diversified financials. But I don't expect the damage to the brokers to last, as the earnings momentum in the group is simply too strong.

Sentiment indicators were about neutral. The put/call ratio closed at 0.86, the VXO was flat, and the VXN was up slightly.

long MSFT

Microsoft Malaise

Morning News of Note:
  • CME: Heard on the Street... Hot Stock Finally Takes a Hit Shareholders of Chicago Mercantile Exchange Holdings Inc. are finding out that it is fun to ride a tiger. The trick is getting off without a scratch. For the CME, one of the best-performing stocks in one of the best-performing sectors of the market, this hasn't been a great week (Full Story) WSJ
  • AAPL: Apple patent relates to iPod wirelessly working with a TV On April 27, the US Patent & Trademark Office revealed an Apple patent titled “Image scaling arrangement,” originally filed October 2004. The interesting aspect of this patent relates to the iPod wirelessly communicating with a television. (Full Story) Macsimum News
  • GOOG SINA: Why Google Could Gobble Up Sina As Google (GOOG ) spreads its wings in China, many think it may try to buy Sina (SINA ), the country's top Net portal. With its online ad business projected to grow 30% to 35% annually for the next three years, Sina is a "very attractive target" for Google, says Jane Hsieh of investment firm Clay Finlay, whose $7 billion portfolio is heavily invested in China, Japan, and Korea. (Full Story) Business Week
  • RIMM NOK PALM: RegHardware reports over 16.7 mln 'smart mobile devices' were shipped worldwide in Q106, up 55% on the same period a year ago. The Asia-Pacific region has now overtaken Europe, Middle East and Africa in sales of smart mobile devices. Asia-Pacific represented 46% of all shipments during Q106, compared to 39% for E.M.E.A. and 15% for the Americas. Globally, despite a sequential fall in quarterly smart mobile shipments, leader Nokia's (NOK) YoY growth of 60% meant the Finnish firm increased its mkt share slightly, helped by demand for popular multimedia models such as the N70. RIM (RIMM) made substantial gains to strengthen its position in second place, growing at 85% and overtaking Palm (PALM) both globally and in the US mkt for the first time. During the quarter PALM posted slight growth and estimates that Treo smartphone shipments were up 44% compared to a year ago. However, the Treo has yet to gain traction outside the US and, more worryingly, the co experienced a sharp decline in handheld sales.
  • Mad Money Summary: Jim Cramer opened his show discussing the health care sector. He said investors should get into these stocks while the sector is out of favor. He suggested two health management companies, Matria Healthcare (MATR) and Healthways (HWAY). Then he suggested Nektar Therapeutics (NKTR), which makes the diabetes drug Exubera. Cramer did warn that Nektar was a trade, not an investment. Cramer then welcomed UnitedHealth Group (UNH) CEO William McGuire to the show. Cramer said despite Aetna (AET) taking the entire health care sector down, he still believes UnitedHealth Group is a winner. In the "Lightning Round," Cramer was bullish on Weight Watchers (WTW), Devon Energy (DVN), Caterpillar (CAT), Nokia (NOK), Sealy (ZZ) and Penn National (PENN), and was bearish on Sirius (SIRI), Nutrisystem (NTRI), Xerox (XRX), Novell (NOVL), Suntech Power Holdings (STP), Albany International (AIN), Motorola (MOT), Bausch & Lomb (BOL) and Pinnacle Entertainment (PNK).

Market Comments: The Microsoft news is weighing on the market this morning, which would likely be trading higher otherwise. After a down open, the SPX has climbed back into positive territory.

1Q GDP came in strong as expected (+4.8%), while the Employment Cost Index came in better than expected (+0.6%). The ECI is a pretty broad measure of inflation, in terms of labor costs, so it is good to see that it isn't rising too quickly.

MSFT's report was really disappointing, and the stock is reflecting it this morning (although even this selling looks overdone). The strongest reports I saw last night included ISRG, RACK, AGP, HET, and CAM to name a few.

long MSFT

Thursday, April 27, 2006

Nasdaq Puts In Outside Day

The market was able to hang on to its gains from this morning's reversal. The SPX tried to make it to new highs, but wound up closing just below the 1310 resistance level that has acted as a ceiling since mid-March.

The COMP also closed off its intraday highs, but the action there was a little better, as that index did put in an LROD (large-range outside day) reversal. Volume rose on both exchanges, making for an accumulation day, even though the percentage rises were modest.

Looking under the hood a bit more, breadth was actually negative, whichisn't very encouraging. But the drop in energy as well as the reversal in yields (thanks Ben) helped light a fire under stocks.

Bernanke's comments really sparked a rally in the financials, with the BKX surging to new highs. Biotechs also rebounded strongly, while commodities and energy stocks were down the most.

Standout Stocks

Here are some stocks making notable moves on high volume (most are earnings related):
  • PMTI - surges to new high; record EPS & favorable outlook
  • ASPV - gaps to new high on strong earnings
  • SKX - adds to its long rally after reporting strong quarter
  • SHOO - continuation breakout from last week; SKX rally helps
  • PSYS - strong rally near old highs; beats estimates and raises guidance
  • AET - 21% plunge on concerns about cost pressure; CFO retires
  • NVT - 19% plunge after reporting flat earnings
  • BOBJ - big gap down on weak profits and guidance
  • NAFC - another gap down after missing estimates badly
  • NCR - gaps below 50-day after revenues miss, and guidance weak

Analyst Actions

Here are some analyst recommendations that caught my eye today:
  • NTGR - BWS goes from Hold ==> Strong Buy
  • SO - AG Edwards goes from Hold ==> Buy
  • PWR - Matrix goes from Hold ==> Sell
  • CVD - UBS goes from Buy ==> Neutral
  • GME - JP Morgan initiates at Neutral
  • WFR - UBS ups target from $55 ==> $61
  • TRID - CIBC ups target from $30 ==> $40
  • MNST - Prudential ups target from $60 ==> $64
  • GLW - UBS ups target from $31 ==> $35
  • UARM - BofA ups target from $36 ==> $45
  • NOV - Calyon ups target from $73 ==> $79

Let me know if you would like me to continue to post analyst actions. It is something I look at each day. Regardless if you think the analyst are right or wrong, it is good to know what is impacting your stocks on any given day.

Bernanke Saves the Day

Morning News of Note:
  • UVN: Televisa to Join U.S. Group That Will Vie for Univision Mexican broadcaster Grupo Televisa SA is structuring a bid with a group of U.S. private-equity investors for Spanish-language broadcaster Univision Communications Inc. in which it will limit its own stake to 25%, amid a recent Washington backlash against foreign control of firms in sensitive industries, said people familiar with the situation. Televisa had hoped to quickly gain full control of Los Angeles-based Univision, which put itself up for sale, and had considered a variety of ways to do so, including having its chairman, Emilio Azcarraga, obtain U.S. citizenship, said these people. (Full Story) WSJ
  • Rate Hikes: Bernanke Won't Hint At Ending Rise in Rates Federal Reserve Chairman Ben S. Bernanke is going to disappoint a lot of listeners when he addresses Congress today and provides no guidance on when the central bank will stop raising interest rates to keep inflation under control. Financial market analysts and investors have longed for such a signal and thought they saw it last week when a summary of Fed officials' last policymaking meeting in March suggested they might be done after lifting their benchmark short-term rate once more in May. (Full Story) Washington Post
  • AAPL: Aperture future in question as Apple axes bulk of team Apple recently asked the engineering team behind its Aperture photo editing and management software to leave, Think Secret has learned. The move, which resulted in the departure of several engineers while others were transferred to different projects inside Apple, raises questions about the future of Aperture, Apple's most heavily criticized and bug-ridden software release in recent years. (Full Story) Think Secret
  • Oil Tax Breaks: Second Thoughts in Congress on Oil Tax Breaks As anxiety spread in Congress on Wednesday over soaring oil prices, lawmakers in both parties said they were ready to take a tough look at oil and gas incentives they passed as recently as eight months ago. Citing record industry profits and huge executive pay packages, the top Republican and top Democrat on the Senate Finance Committee asked the Internal Revenue Service to turn over tax returns for the nation's 15 biggest oil and gas companies. (Full Story) NY Times
  • TRLG: Co announces it has increased its intl distribution with the appointment of a distributor for Hong Kong, Macau and mainland China. Bright Unity International, a private co based in Hong Kong, has been selected to be the co's exclusive distributor for that territory
  • Mad Money Summary: Cramer opened his show by discussing ethanol and how it can make mad money. He said that you should look at Agco (AG) and Gehl (GEHL), two companies that thresh, separate and clean corn. Both should get a lot of attention because of ethanol. Then Cramer discussed the nuclear energy sector. He said we are in a nuclear bull market, and suggested buying BHP Billiton (BHP), Cameco (CCJ), Shaw Group (SGR), FirstEnergy (FE) and American Ecology (ECOL). Cramer then looked at "an exciting biotech company," Coley Pharmaceutical (COLY), which he said is worth buying incrementally starting now. In the "Lightning Round," Cramer was bullish on Level 3 (LVLT), WellPoint (WLP), Brush (BW), Dynegy (DYN), Brocade (BRCD), Openwave (OPWV), Broadcom (BRCM), Nabors (NBR), Coach (COH), Halliburton (HAL), Bank of America (BAC), Progenics (PGNX), Chevron (CVX), Occidental Petroleum (OXY), Phelps Dodge (PD), Southern Copper (PCU) and Conexant (CNXT), and was bearish on Pioneer Drilling (PDC), Vitesse (VTSS), Murphy Oil (MUR), EuroZinc Mining (EZM) and CBOT Holdings (BOT).

Market Comments: Wow, talk about a crazy first hour of trading. The market opened extremely weak this morning, and it looked like most groups were breaking down. The catalyst was China's central bank raising rates for the first time in 12 years. That had stock markets across the globe moving lower.

But when the text of Bernanke's testimony was released this morning, it contained a comment that said that the Fed may pause even ir risks aren't balanced. That caused yields on the 10-year to drop 4 basis points from 5.12% to 5.08%, and it caused stocks to quickly bottom and turn higher.

It remains to be seen if this quick rebound will stick for the remainder of the day, but the bulls are cetainly breathing a sigh of relief. Interestingly, the SPX came down and kissed its 50-day support just before bouncing higher.

Biotechs are getting a big bounce this morning, while energy stocks remain under pressure.

Quote of the Day

"Money, not morality, is the principle of commerce and commercial nations." ~ Thomas Jefferson

Wednesday, April 26, 2006

Mixed Day for Stocks

The market rallied back a bit in the last half hour, enabling the indexes to finish up slightly for the day. Biotechs and energy were sold the hardest. Biotechs look like they are getting oversold, as a group, while energy looks like it is just profit taking.

The ISE Sentiment index has close above 195 for a third straight day. This is a big change of character for that index, and indicates the retail options players are favoring bullish call options right now.

These investors had been resistent to the recent rally most of the way up, so if they are now joining the party, it could be a sign that there isn't much ammo left to power the market further in the near term, and more of a correction is needed.

Now, I want to be the first to point out that forecasting any sort of correction has been a losing game so far this year. It could be that all of the potential negatives on the horizon are so well known, that they are already priced in.

Under this scenario, most investors would already have raised cash in advance of an expected pullback. But as the market continues higher, underperformance anxiety sets in, and money comes back off the sidelines.

I am sort of in the middle of the two camps right now, as I think we are overdue for a pullback, but I suspect it will be more shallow than most are looking for.

Standout Stocks

Here are some stocks making notable moves on high volume:
  • LIFC - up 17% on earnings beat and guidance raise
  • UARM - stock gaps higher on earnings beat
  • WIRE - breaks to new highs on record earnings
  • CBG - back near new highs on strong home sales reports
  • ITRI - gaps higher on record earnings
  • BHI - moves to new highs on earnings beat and guidance raise
  • ZBRA - down 12% on earnings miss and lowers guidance
  • CAKE - stock sells of on flat profits report
  • MCO - string of earnings beats broken; stock plunges
  • SIRF - another causalty of flat earnings; investors let down
  • LSS - double digit selloff; EPS related
  • TZOO - finally some profit taking in this stock!

Market Comments: The market is still hovering around the levels it settled into after the first hour of trading. The ISE Index is high (213), but the put/call ratio is also high (0.91), so the sentiment indicators are mixed intraday.

Oil prices are down, despite bullish inventory data. And bond yields are still at 5.10%.

Housing Strong, Yields Higher

Morning News of Note:
  • GE: Heard on the Street... GE's Challenge: Make Stock Jump Like Profit General Electric Co. is in Wall Street purgatory. The Fairfield, Conn., conglomerate increased income from continuing operations by 14% in the recently completed first quarter. Its cash flow from operations more than doubled in the first period. It is buying back billions of dollars in stock. And Chairman and Chief Executive Jeffrey Immelt has been dumping slow and volatile businesses for what he views as faster-growing ones. (Full Story) WSJ
  • AMZN: Amazon's Brighter Horizon? Higher spending on new technology has been doing a number on's profit in recent quarters. But the company -- and its investors -- may be seeing the light at the end of the tunnel. Amazon executives said on Apr. 25 that spending growth on new tech and content initiatives will slow considerably later this year. "It's going to be substantially lower in the second half," Amazon Chief Financial Officer Tom Szkutak said on conference calls with the press and analysts. (Full Story) Business Week
  • MSFT: Microsoft's 'Massive' Move Into Game Ads Microsoft Corp. plans to acquire Massive Inc., a closely held start-up that places ads in videogames, in a deal that highlights the growing flow of advertising into nontraditional media. Massive, a two-year-old start-up with 80 employees, is one of several companies pioneering the business of placing ads in videogames. (Full Story) WSJ
  • SIRI: Mark Cuban, the billionaire owner of the Dallas Mavericks, is the latest high-profile personality to join Sirius Satellite Radio's programming lineup. Cuban, who made his fortune when he sold to Yahoo! in 1999 for $4 billion, is launching his own weekly talk show on Sirius beginning this summer. The company described the show as "a weekly discussion on sports, business and everyday life." Cuban said, "I'm fired up about doing the show on Sirius. I plan on raising hell and covering any and all topics that I think are interesting and taking no prisoners along the way." The show, which will be called "Radio Maverick," will air on Sundays between 12 noon and 2 p.m. - NY Post
  • Mad Money Summary: Last night Jim Cramer broadcast from Michigan as part of his "Back to School" tour. He opened his show discussing footwear maker Wolverine World Wide (WWW). He said to buy Wolverine after its earnings report on the pullback, after investors take profits. Cramer then welcomed University of Michigan alumnus and Domino's Pizza (DPZ) CEO David Brandon. Cramer noted that Domino's grows earnings at 11% and has an 18 multiple, considerably lower than Papa John's (PZZA) 26 multiple. Cramer then evaluated Comfort Systems (FIX), determining the company was undervalued. Cramer also said he would look at SPX (SPW), which makes cooling towers. A student then asked Cramer to recommend a stock that was cheaper than Google (GOOG). Cramer said he'd rather own one share of Google than many shares of a lesser company, but said if even one share is not possible, to look at Yahoo (YHOO). In the "Lightning Round," Cramer was bullish on Cisco Systems (CSCO), Wells Fargo (WFC), Abercrombie & Fitch (ANF), Occidental Petroleum (OXY), Nabors (NBR), GameStop (GME), Anglo American UK (AAUK), Lehman Brothers (LEH), Bear Stearns (BSC) and Goldman Sachs (GS), and was bearish on Wachovia (WB), Pacific Sunwear (PSUN), Royal Dutch Shell (RDS.A), BP (BP), Diamond Offshore Drilling (DO), North American Palladium (PAL) and Dick's Sporting Goods (DKS).

Market Comments: New home sales came in much stronger than expected this morning. That's good if you're worried about a pop in the so-called housing bubble, but it's not good if you want the Fed to stop raising rates.

The odds of a June rate hike grew to 66% today, and yields on the 10-year rose another 3 basis points to 5.10%. That's the highest level since June 2002.

That said, it hasn't had much effect so far on the stock market. The DOW is up 90 pts so far, and the SPX is back at the 1310 level, after bouncing off its 20-day moving average.

The earnings reports that came out last night were pretty solid, and plenty of stocks are moving higher today (see GLW, MNST, UARM, JCOM, etc).


Quote of the Day

"Too many of us look upon Americans as dollar chasers. This is cruel libel, even if it is reiterated thoughtlessly by the Americans themselves." ~ Albert Einstein

Tuesday, April 25, 2006

Slight Distribution Day

The action in the market today was somewhat bearish. Bond yields spiked higher, and that provided a tough environment for stocks. Many recent leaders were down significantly on the day.

Volume rose on the NYSE, making for a slight distribution day for the SPX. The COMP was only down -0.1%, so that doesn't qualify.

After the close, the earnings parade continues:
  • SIRF reported in-line quarter, but that doesn't look to be enough to keep the stock from selling off.
  • WIRE reported blowout EPS and the stock is trading roughly 10% higher in after-hours
  • AMZN reported in-line results, and the stock looks to be pretty flat
  • ITRI beat the numbers, and the stock should hit new highs
  • GLW beat the numbers by 4 cents, but offered tempered guidance

Tomorrow should be another fun day, so rest up--

long GLW

Quick Sentiment Check

The sentiment indicators are mixed so far.

  • The NYSE ARMs Index is running low at 0.96 (neutral)
  • The ISE Sentiment Index is at 204 (showing bullishness)
  • The CBOE put/call is at 1.01 (showing bearishness)
  • The volatility indexes (VXO/VXN) are both higher

While the high put/call ratio might help support the market from plunging further, it is unlikely that the market is going to make much headway with bond yields spiking. The 10-year is now up 10 basis points to 5.08%, providing a stiff headwind.

And to the fellow who e-mailed me earlier, I sure am glad I didn't short NTRI into earnings! The company trounced estimates and the stock is up 32%. Wow.

Bond Yields Higher, But So Is Consumer Confidence

Morning News of Note:
  • AAPL: Redesigned iPod nano due this fall Apple Computer has begun assembling plans and aligning suppliers for a redesign of its iPod nano digital music player that will go on sale this fall, AppleInsider has learned. Industry contacts with a solid track record of predicting Apple's future music directions say the company, like last year, is shooting to introduce the player in September. While any comment on the device's external design aesthetics would be premature at this time, early engineering plans from the iPod maker signal a "significant internal redesign," these contacts says. (Full Story) Apple Insider
  • Gas Price Gouging: Bush Aims to Rein In Gas Costs With rising gasoline prices spurring calls for action among worried congressional Republicans, President Bush will respond with a series of measures today aimed at curbing possible market manipulations. In a speech to a renewable-fuels group, Mr. Bush is expected to instruct the Justice Department, the Federal Trade Commission and the Energy Department to vigorously enforce laws relating to price gouging. (Full Story) WSJ
  • EBAY: SKYPE SINGS FOR DEAL Internet phone giant Skype has reached deals with four major music publishers that will pave the way for it to launch an online music store. The deal, which the companies say is the first of its kind, will allow Skype to license the copyrights from EMI Music Publishing, Warner Chappell, Sony/ATV and MCPS-PRS for downloading and ringtones, as well as for a subscription music service. A formal announcement is expected today. (Full Story) NY Post
  • CMCSA CVC TWX: Heard on the Street... Cable-TV Companies Hold Great Expectations There have been plenty of high-fives in the cable-television industry as major operators prepare to release first-quarter earnings, starting Thursday with Comcast Corp. While the first quarter is typically a good one for operators, this is expected to be one of the best in years in terms of revenue growth and other financial measures for companies such as Comcast, Time Warner Inc. and Cablevision Systems Corp. All three are expected to add more subscribers than they have for years, setting the stage for the industry to show an annual gain in customers for the first time since 2002. (Full Story) WSJ
  • Exchange Consolidation: Takeover Talk Spreads To the Italian Exchange The takeover speculation swirling around Europe's stock exchanges has spread to Borsa Italiana SpA, Italy's stock-market operator, as it prepares to sell shares to the public. Earlier this year, initial estimates suggested the company could be valued at €800 million, or almost $1 billion, in an initial public offering later this year. (Full Story) WSJ

Market Comments: The President announced that they will stop adding to the Strategic Reserve for oil, in order to make more available for consumers. But oil is still trading higher, despite the news.

Existing home sales came out better-than-expected, and that has helped push bond yields back near their recent highs (5.04%). Despite rising rates and higher oil and gas prices, the consumer confidence index came in at 109.6 vs. 106.4 consensus. Pretty impressive (or are they just naive?).

The market opened slightly higher, but is now dipping into the red during the first hour of trading. A few oil services companies reported strong earnings this morning, which is helping those stocks. BJS beat estimates by 9 cents and raised guidance.

long BJS, TWX

Quote of the Day

"The entire essence of America is the hope to first make money -- then make money with money -- then make lots of money with lots of money." ~ Paul Erdman

Monday, April 24, 2006

Standout Stocks

Here are some stocks making notable moves on high volume:
  • TZOO - best 5-day run I can remember; up +160%
  • BEAV - gaps to new high; strong earnings, raises outlook
  • RTI - extends rally to new highs
  • AP - breaks out of short consolidation to new highs
  • LDSH - breaks out to new highs; no news
  • SCHK - day 2 of high-vol selloff; analyst downgrade
  • SLAB - in-line guidance not good enough to prevent selloff
  • PXP - gaps down on news to acquire Stone Energy
  • ASTE - gaps down on earnings; finds support at 50-day
  • HDB - Indian bank reports earnings and sells off

Market Comments: The market has bounced since making a low this morning. The put/call ratio got above 1.0 and the NYSE ARMs Index was also running above-average. Most energy-related stocks are trading lower, which is weighing on the market since this has been an area of leadership.

The SPX could still have a surprise follow-thru day to last Tuesday's initial rally, but it would have to come in the next few days. The distribution day logged on the Nasdaq last Friday leaves me a bit skeptical, but that doesn't mean it couldn't happen.

Some of the companies reporting earnings tonight include:

ATHR, BSTE, HYDL, NTRI, and ZRAN (to name just a few)

Monday Morning Musings

I have been experiencing some technical problems with Blogger, which is why I haven't posted that much lately. Hopefully, it will start running smooth again today.

Morning News of Note:
  • CME: Futures Shock It is hard to take your eyes off that stock flirting with $500 a share whose company is printing money based on what its backers call a "new paradigm." We're talking about shares of Chicago Mercantile Exchange Holdings Inc., of course. The big futures exchange -- where companies and investors buy and sell bets on the future value of a range of items such as stocks and bonds and lumber and even butter -- is slated to report its earnings tomorrow (Full Story) WSJ
  • NWS: For MySpace, Making Friends Was Easy. Big Profit Is Tougher. ALMOST on a lark, Chris DeWolfe bought the Internet address in 2002, figuring that it might be useful someday. At first, he used the site to peddle a motorized contraption, made in China and called an E-scooter, for $99. Selling products online comes naturally to him. Having jumped into the Internet business in the early days, Mr. DeWolfe had become a master of the aggressive forms of online marketing, including e-mail messages and pop-up advertising. After the Internet bubble burst, he even built a site that let people download computer cursors in the form of waving flags; the trick was that they also downloaded software that would monitor their Internet movements and show them pop-up ads. (Full Story) NY Times
  • MOT: Digitimes reports Motorola recaptured the No. 1 spot in Taiwan handset sales with a 0.1% lead on Nokia in March, after sitting at number two for six consecutive months, according to estimates made by the local channel. According to the estimates, Motorola captured 25.5% of the 595,000 handsets sold in Taiwan during the month. The total shipments were down 13% sequentially and down 10% on-year, according to the channel.
  • TWX: According to, John Malone's Liberty Life has swapped almost his entire 4% stake worth $3 bln in American media giant Time Warner in return for ownership of the Atlanta Braves baseball team, some cash, and a 50% holding in American cable network Court TV. The deal is expected to be announced this week. Malone and Time Warner have been in talks for weeks over how to unwind Liberty Life's stake in Time Warner in a way that minimises tax liabilities for Malone.
  • Mad Money Summary: Jim Cramer opened his show discussing the visit of Chinese president Hu Jintao, saying the best defense play against possible military threats from countries like China, and the war in Iraq, is General Dynamics (GD). Cramer then said he would consider buying AAR (AIR), a company which does maintenance and repairs for the airlines. Then Cramer recommended Pharmaceutical Product Development (PPDI), a best-of-breed company for clinical trials, after reading a New York Times article about a drug test in Britain that almost killed six people. Cramer then discussed Royal Caribbean (RCL), which he used to believe should trade at a discount to rival Carnival (CCL), but after seeing Royal Caribbean's results this quarter, he has changed his mind. In the "Lightning Round," Cramer was bullish on Goldcorp (GG), Cephalon (CEPH), Crystallex International (KRY), Yahoo! (YHOO), Matsushita (MC), Corning (GLW) and UnitedHealth Group (UNH), and was bearish on Tanzanian Royalty Exploration (TRE), Deckers Outdoor (DECK), MedImmune (MEDI), Pozen (POZN), International DisplayWorks (IDWK), Jabil Circuit (JBL), Zoltek Companies (ZOLT), Travelzoo (TZOO) and Bowater (BOW).

Market Comments: The market opens under continued selling pressure, after closing weak at the end of the day on Friday. Higher gas prices are getting a lot of press today, while oil is trading lower. The dollar continues its slide today, hitting a 7-month low. And bond yields are down below 5.0%.

The Nasdaq is seeing the most pressure, with the semi group down over 1.0%. Brokers are also seeing some profit taking, which is normal after the run they've had. And most energy stocks are seeing some profit taking as well, after being up big on Friday.

Earnings season continues in full force this week, so expect more volatility surrounding specific reports. We will also get a peek at 1Q GDP, which should show a sharp rebound.

long TWX

Saturday, April 22, 2006

Weekly Recap

The market had a literally almost unbelievable week. It surged on FOMC minutes that in fact brought little new and it ignored oil going over $75 a barrel.

The S&P was down 4 points on Monday as oil went over $70 a barrel. Then, the momentum returned in a big way.

The S&P surged 22 points on Tuesday as the Fed released the minutes of the March 10 FOMC policy committee meeting. The market was up sharply even ahead of the afternoon release, anticipating good news. It got it, or at least found it.

The focus was on the statement that "most members thought the tightening process was likely to be near the end as some expressed concerns about the dangers of tightening too much." This was considered a positive statement even though virtually all market participants already thought the end was near - it is simply a matter of how near. There had also already been public statements from some members about the risk of going too far.

Further noted was the statement that members were concerned that the policy statement "could be misconstrued as suggesting the Committee thought that several further tightening steps were necessary." Several means "three" in any dictionary. Virtually no one expected three more rates. So, this really isn't anything new. Yet, it was widely quoted as showing a conciliatory tone.

The fed funds futures reacted rationally. Previous to the minutes, the implied expectations were that a rate hike on May 10 was likely. A second rate hike after that was considered about 60% likely. After the minutes, that dipped to a bit below 40%. In other words, there was only a modest change in expectations.

The stock market rally based on the minutes was perhaps fueled by the elimination of fears that "several" more rate hikes would be likely, or that the Fed showed concern about economic growth slowing too much. In any case, it was an impressive reaction that reflected just how sensitive the stock market is to the interest rate outlook. It also reflected a continuing underlying bullishness.

The momentum continued on Wednesday and Thursday as the S&P managed further small gains. The S&P lost all of 0.18 points on Friday even though on that day oil shot above $75 a barrel. That showed amazing (unbelievable?) resilience.

It was a busy week for earnings. About one-third of the S&P 500 companies reported. Almost 70% of companies reported better than expected earnings. That figure typically runs about 65%. Aggregate earnings are on track for about 12% growth. That is a bit above the 10% growth expected as the quarter started. It is also normal for the total gain to run several percent above expectations.

Strong reports came across many sectors and included Google, Citigroup, Amgen, IBM, Coca-Cola, General Dynamics, ETrade, and 3M. Even the pharmaceutical sector produced good reports. Not so the automotive sector, as General Motors and Ford continue to struggle.

The economic reports were mixed. March core PPI was up just 0.1%, but the March core CPI was up 0.3%. The core CPI is up at a 2.8% annual rate the past three months compared to a 2.1% year-over-year gain. The market seemed not to care about this possible uptick in inflation. March housing starts dipped, but unemployment claims showed the labor market remains strong.

The market tone was clearly upbeat this week. It might even be called pollyannaish. The March core CPI at 0.3% and oil surging through $75 a barrel caused virtually no concern at all. Neither did the fact that the 10-year yield remained above 5%. Instead, the market is hoping that the Fed won't raise rates so much as to significantly curtail the continuing strong earnings gains.

Friday, April 21, 2006

Google Friday

Morning News of Note:
  • GM: GM Is on Pace to Amass $32 Billion, A Big, Fat Cushion to Stay Afloat On The specter of a bankruptcy filing is haunting General Motors Corp.'s stock and bonds. The evidence can be seen in the derivatives market, where investors can buy insurance against corporate default. Right now, the instruments that convey that insurance signal a 50% probability that GM will file for bankruptcy protection within five years, according to J.P. Morgan Chase & Co. (Full Story) WSJ
  • EBAY GOOG MSFT YHOO: EBay Talks to Microsoft, Yahoo About a Common Foe: Google EBay Inc. is talking to both Yahoo Inc. and Microsoft Corp. to determine whether one of them might be a worthy ally against a common threat: Google Inc. After years of working closely with the search giant, eBay last year became alarmed as Google started assaulting its turf in multiple ways. (Full Story) WSJ
  • LUV: Southwest Airlines preparing to launch cross-border flights-FT: Yesterday Southwest Airlines (LUV) announced preparations to launch cross-border flights with partner ATA Airlines, although Southwest CEO Gary Kelly said the domestic market would remain the focus of the company for the next two years. He said the ATA deal, which will fly to Hawaii and Mexico and is also examining transatlantic flights, has helped prepare the company's reservation system for international flights.
  • PLAY: PortalPlayer could be in play-BusinessWeek: Apple's (AAPL) decision not to use PortalPlayer's (PLAY) chips in the forthcoming iPod Nano caused PortalPlayer's stock to drop $9.46, or 42% of its value, in a single day. This drop in value could make PortalPlayer an acquisition target. Potential acquirers include Texas Instruments (TXN), Broadcom (BRCM) and Marvell Technology (MRVL), says Stanford Financial Group analyst Christopher Chaney.
  • Mad Money Summary: Cramer opening his show by looking at Scientific Games (SGMS), a gaming firm that is involved in lotteries, which he says are "Reverse Robin Hoods" because they rob the poor to give to the rich. Cramer doesn't like lotteries, but he likes owning gaming companies, which are profitable. Then Cramer turned his attention to a "confusing company," Emcore (EMKR), which has four businesses. He says despite being difficult to judge, it is a good company and can make you money because it has legs. Cramer then looked at Freescale Semiconductor (FSL). He says the stock used to be ignored by Wall Street, but since it just reported a blowout quarter, it will now get some serious attention and the stock will go up. In the "Lightning Round," Cramer was bullish on New Corp (NWS), Ciena (CIEN), BE Aerospace (BEAV), Schering-Plough (SGP), Agilent (A), Goldman Sachs (GS), Advance Micro (AMD), Canadian National Railway (CNI), Cooper Industries (CBE), Coldwater Creek (CWTR), and Billiton (BHP), and was bearish on Chico's FAS (CHS), Stats ChipPAC (STTS), Altera (ALTR), Southern Copper (PCU) and Cooper Tire & Rubber (CTB).

Market Comments: The earnings land mines continue. Google (GOOG) knocked the cover off of the ball, reported a great quarter and the stock is up $33 this morning. But F5 (FFIV) reported a not-so-hot quarter and it's stock is down nearly $9 on the disappointment. Ouch. Broadcom (BRCM) was pretty good, I thought, but it's stock is off nearly $2 as well.

eBay (EBAY) is selling off for a second day, and that combined with the semiconductor complex weakness is holding back the Nasdaq so far. The SPX is up, led by energy and materials stocks.

BJ Services (BJS) is finally playing catch-up in the oil patch. You'll remember I pounded the table on that one when it was wallowing in the low $30s.

Today is Day 4 from that big rally/accumulation day on Tuesday. So this is the first day we can start looking for a follow-through confirmation rally. Stay tuned.

long GOOG

Quote of the Day

"There was a time when a fool and his money soon parted, but now it happens to everybody." ~ Adlai Stevenson

Thursday, April 20, 2006

Quick Wrap

Sorry for the lack of posts today, I have been in and out of meeting all day.

The market was pretty solid again today. Commodity-related stocks, which have been on a real tear lately, got sold hard. It's too early to say if this is the start of the long awaited commodity correction, but it a warning signal if nothing else.

Bond yields finished slightly higher at 5.04%, and oil finished slightly lower at $71.95.

After the close, Google (Nasdaq:GOOG) blew away the numbers and the stock is up and additional $30 after hours. Broadcom (Nasdaq:BRCM) reported in-line to slightly BTE results, but raised Q2 guidance which pulled its stock up. F5 (Nasdaq:FFIV) was the disappointment, reported weak results, and the stock is down $10 in late trading.

long GOOG

SPX Hits 5-year High

Morning News of Note:
  • PHG: Philips device could force TV viewers to watch ads An invention from Royal Philips Electronics prevents TV viewers from switching the channel during commercials or fast-forwarding past commercials when watching DVR content. Viewers would be released from the freeze only after paying a fee to the broadcaster. The freeze would be implemented on a program-by-program basis, giving viewers a choice at the start of each one. (Full Story) CNET
  • AAPL: APPLE'S NO. 1 HIT: RECORD BIZ MAY SING JOBS' ITUNE AFTER ALL The record industry may be on the verge of waving the white flag in front of Apple boss Steve Jobs, and abandoning its demand for iTunes to charge different prices for different songs, The Post has learned. Negotiations between Apple and the four major music companies - with which iTunes deals all expire in the next two months - have reached a crucial point as several record executives now say they are unlikely to convince Jobs to allow variable pricing, sources said. (Full Story) NY Post
  • HD: HOME DEPOT'S BIG FIX Major suppliers, including Duracell and General Electric, raised concerns about the way Home Depot collects payments to cover the cost of damaged or defective merchandise, according to court testimony given here yesterday. Michael Davis, a former Home Depot employee who says he was dismissed for reporting the practices, said that a manufacturer's representative for Duracell questioned how a Home Depot store in Aspen Hill, Md., had collected $9 million worth of credits for defective batteries in 2002, when Duracell had only sold the store $10 million worth of batteries that year. (Full Story) NY Post
  • BNI: Rising Demand, Prices Help Rail Company Engineer A Turnaround When you're sitting in your car waiting for a line of boxcars to rumble past, you don't typically think you're watching a growth industry in action. Well, you are. More business is being pushed to the rails, thanks to rising imports from China, a resurgence in coal usage and problems in the trucking industry. (Full Story) IBD
  • Mad Money Summary: Cramer opened his show by recommending Halliburton (HAL) "wholeheartedly." He says the company is now two companies, an energy services group and an engineering and construction business, Kellogg Brown & Root. Last Friday, KBR filed for an IPO, which will make Halliburton a pure play in oil, which will propel it higher. Then Cramer suggested buying Sports medicine company DJ Orthopedics (DJO) after reading an article in this weekend's New York Times about baby boomers continuing to exercise past the age of 50. Mitch Caplan, the CEO of E*Trade (ET), then joined Cramer by phone. Caplan talked about his company's strong quarter. He added that E*Trade has seen over $1B in investments from international customers. He also said industry consolidation has helped the company. In the Lightning Round, Cramer was bullish on Iflow (IFLO), Express Scripts (ESRX), Texas Instruments (TXN), Goldcorp (GG), Google (GOOG), JDS Uniphase (JDSU), Conexant (CNXT), Finisar (FNSR), Sirf (SIRF), Apple (AAPL), Petroquest (PQ), Hewitt (HEW), Grey Wolf (GW), Southwest Energy (SWN) and Newell (NWL), and was bearish on Pacific Ethanol (PEIX), Kinross Gold (KGC), Fronteer Development (FRG), Bookham (BKHM) and Nortel (NT).

Market Comments: So the resilient market continues to impress, with the S&P 500 hitting a new 5-year high this morning. I am suprised at how each time the SPX has dipped below its 50-day support this year, and looked like a correction was at hand, it soon after reversed higher and went on to make new highs.

This reminds me of 2003, where the market never really staged a deep correction, but continued to stair-step higher. Now, that was the first year out of a bear market, so it was very different. But one sign of a strong market is one that never really "let's you in", in terms of giving you a good buying opportunity.

Earnings reports have come in better than expected, for the most part, at least so far. Tonight is another busy night with BRCM, GOOG, SNDK, FFIV, VRSN, and CERN reporting, just to name a few.

long GOOG

Wednesday, April 19, 2006

Nice Breadth

Although the price action in the market today, at least going by the indexes, wasn't anything to jump up and down about, it was still solid. The market didn't give back any of yesterday's rally, and even added a little bit.

Companies that reported stong earnings saw their stocks rally nicely, and vice versa. And breadth was surprisingly strong. There were more than 300 new highs on both the NYSE and Nasdaq. Can you say broadening leadership?

Both indexes are still not yet at new highs, but at this pace they could be before the week is over. I was worried about some of the earnings reports that came out tonight, but INTC and AAPL are both trading higher, while EBAY is slightly lower. Again, not bad.

Standout Stocks

Here are some stocks making notable moves on strong volume:
  • APH - gaps to new high on record earnings
  • GRP - breaks out to new highs; strong earnings
  • GILD - ditto the above; stock buyback announced also
  • BTU - day 2 of the strong commodities rally
  • CYMI - gaps to new high on strong earnings, guidance
  • MOT - reports in-line results; networks weak
  • STX - light guidance hits stock
  • SMSC - weak earnings hit stock for 20% plunge
  • GENZ - gaps down on volume; sales miss estimates
  • AMGN - beats on EPS, but product sales light

Nearly all of the big movers today are earnings related. In terms of groups, brokers and semis are the strongest, followed by energy stocks. Housing stocks are the weakest.

long AMGN

Mixed Inflation Data

Morning News of Note:
  • EBAY: Bargain Hunters On eBay (the Stock, That Is) One of the Internet's glamour stocks is looking like a relative bargain. Shares of online auctioneer eBay Inc. have been in the doldrums for more than a year. The shares, which were at $38.88, up 85 cents, at 4 p.m. yesterday in Nasdaq Stock Market composite trading, are down 10% from $43.22 at the beginning of this year and off 33% since the beginning of January 2005. (Full Story) WSJ
  • SGMS: Lottery may have to pay Scientific Games for Powerball option North Carolina's lottery may be forced to do business with Scientific Games, a company that was part of a lobbying debacle last year and fueled investigations into House Speaker Jim Black's office. Scientific Games owns the rights to the "Power Play," a popular feature of the multistate Powerball lottery game that North Carolina is scheduled to join May 30. (Full Story) Greensboro News-Record
  • $1000 Gold: Jim Rogers Says Gold Will Reach $1,000 as Commodity Prices Soar Jim Rogers, the former George Soros partner who foresaw the start of a commodity rally in 1999, said the boom in energy and raw material prices will endure, driving gold to a record $1,000 an ounce. ``The shortest bull market for commodities lasted 15 years, the longest 23 years,'' Rogers, 63, said in an interview. So if history is any guide, ``they've got a long way to go.'' (Full Story) Bloomberg
  • AZR PNK: Pinnacle Entertainment Nears Deal to Buy Aztar for $1.5 Billion Aztar Corp. is close to striking an agreement to be acquired by Pinnacle Entertainment Inc. for about $1.5 billion, or $43 a share, in cash, according to people familiar with the situation. The move could conclude a frenzied bidding war for the company that owns the Tropicana casino properties in Las Vegas and Atlantic City, N.J. (Full Story) WSJ
  • Mad Money Summary: Cramer opened his show discussing an airline play he feels deserves attention, GOL Linhas Aereas Inteligentes (GOL). He says GOL is in a good position to profit from the struggles of another Brazilian airline, Varig. Cramer then apologized for two past mistakes, his calls on Dick's Sporting Goods (DKS) and @Road (ARDI). Senior Marketwatch columnist Herb Greenberg then told Cramer he would avoid True Religion Apparel (TRLG) because something seems wrong with their business in Japan. Cramer then played "Break the Analyst," disagreeing with a UBS analyst who had a Sell recommendation on Wheeling-Pittsburgh (WPSC). Cramer feels the stock is still a Buy as the steel sector is moving higher. In the "Lightning Round," Cramer was bullish on Cisco (CSCO), Ciena (CIEN),Finisar (FNSR), JDS Uniphase (JDSU), Fed Ex (FDX), UPS (UPS), Whole Foods (WFMI), Pepsico (PEP), Hansen (HANS), Nokia (NOK), Yahoo! (YHOO), JLG Industries (JLG), Terex (TEX), Chicago Merc (CME) and Altria (MO), and was bearish on Redback (RBAK), ABX Air (ABXA), Wild Oats (OATS), Martha Stewart (MSO), Dell (DELL), Intel (INTC) and Sify (SIFY).

Market Comments: The CPI came in slightly above expectations this morning, and that has bond yields (10-yr) ramping back above 5% to 5.04%. If this rally in bond yields persists, I would expect it to weigh on equities today. Their will also be comments by Fed members that could affect things.

Earnings season was mixed last night. MOT and AMGN's earnings are being treated as disappointing, while TXN and YHOO reported strong results and their stocks are up.

Tonight is a big night for earnings reports, with several heavyweights reporting (AAPL, EBAY, QCOM, etc.)

long AMGN

Quote of the Day

"Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game." ~ Donald Trump

Tuesday, April 18, 2006

Big-Time Rally

The market closed at its highs today, punctuating a very strong day. The COMP outperformed today, rising nearly 2% on heavy volume, making it a strong accumulation day.

Breadth was also strong, and the Hi/Lo index on the NYSE rebounded from negative territory into the triple digits (+133). So there are lots of stocks back at new highs, and that is where we should look for leadership in this market.

All of the market's sub-sectors were up today, led by semis, which gained +3.4%. If you were long stocks, you pretty much couldn't help but have a good day.

The SPX spiked back above its 50-day as well as its 20-day moving averages. It is now well within striking distance of another new high for the year. If this occurs, it will likely lead to additional short covering.

FOMC Minutes Provide Additional Boost

The market was up nicely on the day when the FOMC minutes were released. The dovish comments contained in the minutes served to fuel this rally even more, and the indexes spiked to new highs on the day.

The minutes indicated that the FOMC feels the end of rate hikes is "probably near". They said that some members were worried about "tightening too much". And they also said that the slowdown in the housing market was discussed at length.

These are all good signs, and the bond market has taken them to heart. The 10-year yield has fallen further, now at 4.96%.

If bond yields stabilize and the Fed stops hiking rates, that removes two overhangs on this market. The third wildcard is oil, which needs to still be monitored.

So is the correction over? I have warned that we could get a big up day that would make it feel that way, and this could be that day. It's possible that the correction is over for now, but follow through will be the key. If the market closes strong, I would have to acknowledge that the bulls are back in control.

Updating Some Picks

A long play of mine, East West Bancorp (Nasdaq:EWBC), reported earnings last night that were better than expected. The company beat consensus estimates by 2 cents, posting EPS growth of 25%

And earnings quality was very high, with a sharp decline in nonperforming assets and higher loan loss provision. ROA and ROE were +1.5% and +16.7%, respectively.

So analysts are praising the quarter and raising their estimates and price targets. This helped the stock gap higher at the open on a huge volume increase, propelling the stock to a new high.

Also, another recent pick, Fisher Scientific (NYSE:FSH) is this close to a new high after being added to Merrill's Focus List yesterday.

long EWBC, FSH

Strong Open for Stocks

Morning News of Note:
  • BSC: Heard on the Street... Bear Stearns Flirts With China Trailing many of his Wall Street rivals in the rush to establish a foothold in China, Bear Stearns Cos.' Chief Executive Officer James Cayne, a competitive bridge player, is hoping to trump his rivals by striking a deal with China Construction Bank. Since at least March, Bear and the Chinese bank, one of China's Big Four state-controlled banks, have had exploratory discussions that could lead to CCB becoming Bear's biggest shareholder by taking a minority stake in the firm, as reported in yesterday's Wall Street Journal. (Full Story) WSJ
  • URBN: Urban Outfitters' Urban Renewal URBAN OUTFITTERS HAS BEEN OUT OF FASHION with investors lately. Shares of the specialty apparel retailer have fallen wider than 33% from a 52-week high and are flirting with a 52-week low mark of almost 12 months ago. Shares closed Monday at $22.58 per share. But hedge fund Ziff Asset Management recently acquired a 5.6% stake in the company according to a Securities and Exchange Commission filing last Thursday. (Full Story) BARRONS
  • Homebuilders: Start Worrying They can't say they weren't warned. For many years, economists have worried that the U.S. housing market was bound to slow once interest rates started rising. And the apparent slowdown that started last summer has been well documented. So homebuilders -- and the people who invest in them -- shouldn't be surprised by the big risk now standing at their front door. (Full Story) WSJ
  • Mobile Handsets: Digitimes reports Samsung Electronics plans to launch three handsets -- the slide form factor D528, the ultra-slim P308 and a 3G handset, the Z548 -- in the Taiwan market on April 21, aiming to boost its share in the local market to 10% in 2006, according to sources at Samsung Taiwan. Since the three handsets are all ultra-slim form factor, Samsung is aiming to attract customers in the ultra-slim segment away from Motorola (MOT), said market sources, adding that Nokia (NOK) is expected to join the ultra-slim segment by the fourth quarter of this year.
  • NDAQ: Hedge funds increasing their holdings in LSE-FT: Hedge funds, which are anticipating a higher bid for the exchange from either Nasdaq (NDAQ) or another bidder, are increasing their holdings in the London Stock Exchange. DE Shaw, Halcyon Asset Management, and Chesapeake Partners Management have all increased their holdings in the LSE at prices above what Nasdaq paid for their 15% stake in the LSE last week

Market Comments: The market has opened on a very strong note following some better than expected earnings reports from Merrill Lynch (MER) and United Health (UNH) to name a couple.

The core PPI also came in lower than expected, easing inflation fears and helping bond yields fall. The 10-year yield is hovering around 4.98% currently, and oil is still above $70. The latter is really helping the energy stocks rally this week.

I have been on the record as saying I felt the oil service stocks were due for a run back to new highs, and they seem to be doing quite well lately. The question is where and when to take profits?

I'm sure I don't need to say it again, but I am skeptical of markets that open this strong. They usually set themselves up for disappointment late in the day. But let's give the market the benefit of the doubt for the time being.

long UNH, URBN

Quote of the Day

"Money is a stupid measure of achievement, but unfortunately it is the only universal measure we have." ~ Charles P. Steinmetz

Monday, April 17, 2006

Another Outside Day Averted

The market finished on a negative note, although it was not as bad as it was looking with an hour of trading left. The SPX was carving out what was shaping up to be a third outside day reversal (LROD), but then rallied a quick 5 points into the close.

The Nazz was a laggard today, falling by more than the SPX. Volume on the Nasdaq rose, making it another distribution day as well. Oil closing at a new high (>$70) certainly didn't help the cause.

The SPX is now trading below its 50-day support, while the COMP bounced higher off of its resepective 50-day today. I suspect this level will give way in the near-term. This week is options expiration week, so there is likely to be some volatility. I would not be suprised to see a nice rally at some point, but I don't think it will stick.

I will be looking at some selective short scalps to try to take advantage of potential negative earnings reactions. If you have any ideas that you think are good candidates, feel free to share.

Standout Stocks

Here are some stocks making notable moves on rising volume:
  • JOBS - strong breakout to new highs (cup w/ handle)
  • GDI - gaps more than 10% higher on strong Q1 and guidance
  • CTSH - breaks out to new highs; INFY earnings helping
  • WIRE - breaks out to new highs; no news
  • ITRI - also breaking out to new highs on no news
  • IVGN - gaps down on lower sales forecast
  • NOIZ - breaks below 50-day support on volume spike
  • MDCC - breaks below 50-day on analyst downgrade
  • CAL - gaps below 50-day on downgrade and spike in oil
  • SEPR - reverses early gains and moves to new lows

Checking Investor Sentiment

I try to track several different areas of investor sentiment to be gauge the investor landscape. Rarely do they all line up and point to the same message. But sometimes they start to move in directions that have been good indicators in the past that a buying opportunity could be close at hand. And that is what I think we may be seeing now.

Here are some of the indicators I am watching:
  • The AAII bull/bear survey fell 6 points to +18% (45% bulls, 28% bears); this survey often goes into negative territory before the market bottoms
  • The Market Vane survey fell to a 9-week low of 67% bullish; last October this survey dipped below 60%
  • The Rydex Ursa/Nova ratio fell to 0.16 last week, indicating money flowing to the more bearish funds; this indicator hit 0.14 last October
  • The ISE Sentiment index hit 105 last Thursday, which is a new 52-week low; the 10-day ISE is already at levels below last October

In addition to these sentiment indicators, the market is already short-term oversold on both the stochastics and oscillators. They are not yet at levels that would be considered extremely oversold, but could get there in the near-term.

So I think the sentiment indicators are flashing the signal that bearish sentiment is rising, which could coincide with more selling pressure. That is usually the time to update your buylist and prepare for the buying opportunity that could surface when more of these indicators move to extreme readings. And the fact that we are now starting earnings season in earnest could exacerbate this trend.

Monday Morning Musings

Morning News of Note:
  • GLW: Heard on the Street... Corning Sees the Light in LCDs Corning Inc., which once made the glass for Thomas Edison's light bulbs, was on the verge of bankruptcy in 2002. Now, a year after posting its first profit since the telecommunications-stock bust that started around 2000, the 150-year-old manufacturer has a market value of about $42 billion. Corning, which had 2005 sales of $4.58 billion and profit of $585 million, bounced back mainly by becoming the world's largest producer of ultrapure glass for liquid-crystal-display panels, or LCDs, which feed consumers' hunger for giant flat-panel television sets and continuing demand for laptop screens. (Full Story) WSJ
  • NSC: Railway Operator Gaining Speed, Thanks To Strong Industry Trends If it's not exactly the golden age of railroads, it's pretty close. Railcars are in great demand for carrying everything from coal to sea containers, and rail rates are the highest they've been in decades. Orders began to improve in late 2003 as the U.S. economy and global trade picked up steam, resulting in volume growth in 2004 and 2005. (Thursday) (Full Story) IBD
  • Ethanol: CORNPONE REMEDY BUSH FUEL PLAN IS VINTAGE CARTER, BUT WHO CARES? WE'LL call it the Ethanol Rule, in recognition of some wisdom found lurking in President Bush's State of the Union address back in January, and it boils down to this: In the short attention span theater of American life, anything that happened more than 20 years ago may safely be assumed never to have happened at all. (Full Story) NY Post
  • TIVO DISH: Tivo-TIVO wins case in Texas against EchoStar Comm-DISH: "TiVo is pleased that the jury found that TiVo's pioneering time warping patent is valid and that EchoStar has been infringing on our intellectual property. TiVo is particularly gratified that the jury found that EchoStar willfully infringed on our patent and the consequences their actions had on our overall business. This decision recognizes that our intellectual property is valuable and will ensure that moving forward EchoStar and any others that want to use our patented technology will be required to provide us with compensation."
  • Mad Money Summary: Cramer opened his show stating that he wants to help his viewers get revenge for how much they are paying at the pump. He said the best pure play on oil was Occidental Petroleum (OXY), which has "the most to gain from high crude prices." Another great oil play is Energy Partners (EPL), which is leveraged to getting new oil. Then Cramer discussed Advanced Micro Devices (AMD) and Intel (INTC), saying that Intel does not have "the essential qualities" to mount a comeback against AMD. He believes AMD will continue to take market share from Intel. Cramer then discussed VeriFone Holdings (PAY), which acquired Lipman Electronic Engineering (LPMA), a move Cramer feels "was brilliant and should propel the stock higher." In the Lightning Round, Cramer was bullish on LifeCell (LIFC), Schering-Plough (SGP), Copart (CPRT), Starbucks (SBUX), Charming Shoppes (CHRS), CarMax (KMX), Chartered Semiconductor (CHRT), Northern Orion Resources (NTO), Matsushita Electric (MC), PerkinElmer (PKI) and Coach (COH), and was bearish on Sirius Satellite Radio (SIRI), Chevron (CVX) and Sony (SNE).

Market Comments: The market has opened on a slightly positive note this morning, despite the fact that oil has popped above the $70 level, albeit it briefly. Bond yields are flat around 5.03% on the 10-year.

Citigroup (NYSE:C) reported better than expected earnings this morning, and also announced a $10 billion stock buyback. Overall, the financial sector is up, led once again by the broker group.

Tech stocks are also getting a nice bounce, with the alternative energy group looking especially strong. Biotechs are once again lagging.

Earnings season will kick into full gear this week, and it will be interesting to see how stocks react to these earnings reports. That is often the best indication of investor expectations.

I'll be back with a sentiment check for my next post.

long C, GLW

Quote of the Day

"Let us all be happy and live within our means, even if we have to borrow the money to do it with." ~ Artemus Ward

Thursday, April 13, 2006

Saved For The Holidays

The market opened like it might resume its recent selloff, but was "saved" by the end of the day. Volume over the last 2 days has run well below average, so we will have to wait until next week to see whether the bulls or bears are currently in the drivers seat.

Breadth ran negative today on the NYSE, and the Hi/Lo index worsened to -102. That's the lowest reading since November 2005.

One intersting development was the ISE Sentiment Index, which made a new 52-week low today. That means that retail options traders are buying very few bullish call options. This is an indication that sentiment among individuals is already very skeptical, and this should serve to limit the damage from any further selloff.

Enjoy the day off from the markets tommorrow--

Interest Rate Jitters

The yield on the 10-year has spiked today above the psychological 5.0% level. This is the highest rate since mid-2002. But it is not that high of an absolute level when looked at in a historical context. It only appears high in comparison to the unsustainably low rates when the Fed took the fed funds down to 1.0%.

There is a lot of talk in the media about rising rates and what this means for the economy and the markets. First of all, the reason that rates are rising is because the economy is strong. True, if the Fed were to take short-term rates too far, it would likely kill the economy and the market as well.

Second, if the futures market are already pricing in that fed funds is going to 5.0%, it is reasonable to expect the 10-year to rise above that rate, unless you thought the curve would stay inverted.

So I think the adjustment is that the Fed will take rates to 5.0% - 5.25% (hopefully the former), and the yield curve will maintain a modest positive slop, which would put the 10-year in the 5.25% -5.5% range.

I would prefer that the adjustment occurs quickly, rather than gets dragged out in a prolonged process that weighs on the market. If you have been keeping your bond maturities short, then we might be finally getting into a range where you can look at some longer maturities that actually have some higher yields.

Lofty Expectations

Morning News of Note:
  • WMT: Wal-Mart Sticks With Fast Pace Of Expansion Despite Toll on Sales After decades of relentless expansion in the U.S., Wal-Mart Stores Inc. is cannibalizing its own business in many markets. But the huge retailer says the strategy of opening new stores that compete with older ones is paying off and will continue, despite Wall Street's rising dissatisfaction. When the Bentonville, Ark., company opens new Wal-Mart stores in markets already served by older ones, same-store sales -- sales at stores open for at least a year -- average two percentage points below those for stores free of competing new stores. (Full Story) WSJ
  • VZ: Roses for Shoppers? To Sell TV Service, Verizon Hits the Street In Fairfax County, Va., one of the first places that Verizon Communications Inc. has begun offering television service, the telecom giant is trying out something else new: grassroots sales and marketing. Verizon salesmen are walking door-to-door offering the service to residents. The company has put its logo on pizza boxes and Chinese food takeout containers and given away discounted fuel at a gas station and free coffee to commuters. (Full Story) WSJ
  • PSUN: CEO's Day in the Pacific Sun THE SURF'S BEEN LOW for Pacific Sunwear of California lately but insiders at the company are betting that will soon change. Two executives at the company, including the chief executive officer, bought a total of 30,000 shares worth $657,650 last Friday. Shares of the specialty-apparel retailer have lost a tenth of its value over the past 12 months. The stock currently changes hands for $22.98 a share. (Full Story) BARRONS
  • SNE: Beatles Songs May Help Pay Pop Star's Debts Michael Jackson, the debt-laden pop star, could begin to lose his grip on his most prized asset -- his stake in the lucrative music-publishing catalog that includes 251 Beatles songs -- under the terms of a proposed $325 million debt refinancing, according to people familiar with the matter. The performer, whose star has fallen in recent years, is expected to announce as early as today that he has refinanced loan agreements originally valued at a total of about $270 million with the New York hedge fund Fortress Investment Group LLC, people familiar with the matter say. (Full Story) WSJ
  • GOOG: Google's name in China will be Gu Ge [Harvest Song] Google (GOOG) on Wednesday announced the adoption of a Chinese name, a move intended to help the U.S. search company expand its presence in the world's second most populous Internet market. Eric Schmidt, chief executive, unveiled the new name at a ceremony in Beijing where he also defended Google's controversial decision to censor its new China-based search service to avoid angering Beijing. Google will now be known in Chinese as Gu Ge, which means “harvest song.” China now has more than 110M people online, making it the second most populous Internet market after the U.S
  • Mad Money Summary: Jim Cramer opened his show last night by discussing automation and how it can make mad money. He said the best online banking play is Online Resources (ORCC), which makes online banking and bill payment software. He also likes Digital Insight (DGIN) and Cerner (CERN). Cramer then went in the "Mad Money" mailbag and answered a viewer who wanted to know how he would play NuVasive (NUVA) ahead of its earnings announcement. He said buying a huge position is risky, he would buy half of a position and wait for the announcement. Cramer then recommended Sealy (ZZ), which he sees going to $20. In the Lightning Round, Cramer was bullish on Rackable (RACK), Apple (AAPL), Crown Holdings (CCK), Avaya (AV), Biogen Idec (BIIB), Tom Online (TOMO), Procter & Gamble (PG), Crystallex International (KRY), Illinois Tool Works (ITW), Arena Pharmaceuticals (ARNA), Darden Restaurants (DRI) and Yum Brands (YUM), and was bearish on China Medical Technologies (CMED), AudioCodes (AUDC), Intuitive Surgical (ISRG), Kimberly-Clark (KMB), Oracle (ORCL), Fastenal (FAST) and Applebee's International (APPB).

Market Comments: The market opened on a down note this morning, but it currently making a stab at moving into positive territory. The yield on the 10-year has spiked above the psychological 5.0% level, its highest level since mid-2002. Expect to hear the media focus way too much attention on this. I will have more comments later.

GE reported earnings this morning, but the stock is off a bit. Also, AMD reported what looked like a solid quarter, but that stock is down a full -9%. So although it is still early in the earnings season, it is beginning to look like expectations are running a little high, and merely reporting in-line results is going to cause weakness in your stock.

long GE, GOOG

pre-Friday Humor

"Money, it turned out, was exactly like sex; you thought of nothing else if you didn't have it, and thought of other things if you did." ~ James Baldwin

Wednesday, April 12, 2006

Sellers Take A Breather

The market was fairly stable today after yesterday's sharp selloff. Breadth was weak though, with the Hi/Lo index declining on both exchanges. It fell to -56 on the NYSE and +2 on the Nasdaq, very close to negative territory. The yield on the 10-year also rose again today, finishing at roughly 4.98%, a new 52-week high. So that's a bit of a headwind.

The action today looked more like a lack of sellers that renewed conviction on the part of the bulls. I still believe that the correction has more to go, and I am not committing new money until I see something that convinvces me otherwise.

After hours, AMD beat estimates and SNDK got added to the S&P 500 Index.

Happy Passover to all those celebrating this evening.

Standout Stocks

Here are some stocks making notable moves today:
  • ROLL - hugh volume breakout; only news is secondary offering?
  • CRDN - says Q1 EPS to beat estimates
  • NNDS - consolidating just under old highs; nearing breakout?
  • UNH - finally getting a nice bounce
  • BTUI - strong breakout to new highs
  • AIRM - high volume reversal off 50-day support
  • AVID - warns about earnings; stock near new lows
  • BOL - more weakness following Renu product disaster
  • PEIX - high flyer ehtanol stock reversing lower
  • HDI - EPS related; shipments data raising concerns
  • DNA - EPS related; stock reversing earlier gains

long UNH

Will Early Strength Last?

Morning News of Note:
  • Autos vs. Oil Co's: As the Price of Gasoline Takes Off, Oil and Auto Firms Trade Barbs With consumers again facing rising gasoline prices, the two industries most often blamed for the energy crunch -- oil and auto companies -- are trading potshots over who is at fault. In an unusually public exchange, a senior official at DaimlerChrysler AG's U.S. unit has publicly slapped Exxon Mobil Corp., the world's most profitable company. (Full Story) WSJ
  • EBAY: U.S. Seeks PayPal Customer Data In Attempt to Find Tax Evaders The Justice Department has asked PayPal Inc., the online-payment-processing unit of Internet auctioneer eBay Inc., to turn over some customer records as part of a tax-evasion probe, a top tax official said. U.S. District Judge James Ware in the U.S. District Court for the Northern District of California in February issued a "John Doe" summons to PayPal, of San Jose, Calif., for the records. (Full Story) WSJ
  • IGT: From the Back Office, a Casino Can Change the Slot Machine in Seconds By law, Nevada casinos must on average return at least 75 percent of slot machine wagers. The reality is they return more than 90 percent, casino operators say, though they do not publicize the figures. Also under the law, they cannot modify the payback percentages while someone is playing. State law allows them to change the odds after a machine has been idle for four minutes, and then they must not allow anyone to play the machine for four more minutes. During that time, the screen must indicate a change is being made to the game's configuration, said Travis Foley, laboratory manager for the technology division of the Nevada State Gaming Control Board, who is overseeing the Treasure Island test. (Full Story) NY Times
  • GOOG: Google-GOOG expects revenue growth in China to be large-Reuters: CEO Eric Schmidt said that Google would have 100 software engineers in China by the end of 2006 and that the company plans to eventually have thousands
  • OPWV: In the "Feature Round," Cramer began by evaluating the concept of digital convergence, i.e. how your cell phone can do more than make calls. It can receive data, streaming video, so many uses that the device is now known as an multi-purpose handset. Cramer: I expect this digital convergence to continue, and the play is: Openwave (OPWV). Cramer: OPWV has the software that acts as a gateway to data and messaging. As cell phones become more complex, demand for OPWV's products will increase. OPWV has contractors with some of the largest wireless communications providers in the U.S. Further, handset sales should grow at double-digit rates, further supporting OPWV's position. And the company has a new program that allows them to deliver video on demand, quickly to handsets. Bottom Line - don't read endlessly about convergence. Cramer: Buy OPWV

Market Comments: The market is trading higher in the first hour of trading. Semis and biotechs, which were hit the hardest yesterday, are getting the largest boost so far. Genentech (NYSE:DNA) reported a solid quarter, and the stock is up slightly after dipping at the open.

Sentiment is getting more bearish. The CBOE put/call ratio closed above 1.0 yesterday, and opened at 1.08 this morning. This could help keep a bid under stocks today. Of course, I am always skeptical of markets that rally early in the day.

Circuit City (NYSE:CC) also reported strong earnings, with some comments about strength in flat panel TVs. My shorts are going against me right now, but I expect some interim pain to keep the bears on their toes.

long GOOG

Tuesday, April 11, 2006

More Distribution

Stocks took a hit today on the geopolitical fears stemming from Iran and its nuclear activities, as well as a continued rise in oil prices.

On Friday, I highlighted the negative LROD in the markets. After a pause day yesterday, the markets continued lower today with the SPX breaking below its 50-day average. Volume rose on both exchanges, making it a distribution day, the third in about three weeks.

Bearish sentiment also ticked higher today, with the CBOE put/call ratio hitting 1.0, and the volatility index (VXO) jumping +8% to 12.6.

Every sector that I follow finished negative today, with semis and biotechs down the most.

I put out some of those shorts I listed yesterday, just to add some downside protection to my portfolio. I am not looking for something more than a garden variety correction, but still want to be proactive in my approach. I will look to increase my long exposure when the market reaches oversold levels and bearish sentiment rises again.

SPX Nears 50-day Support

Morning News of Note:
  • VNO: Close to historic deal: Filene’s landmark vote may be key for Vornado A major New York developer is wrapping up a deal for downtown Boston’s landmark Filene’s building, with a key meeting expected today at City Hall. Representatives of Vornado Realty Trust, which is buying the building, along with seller Federated Department Stores, will meet with city officials to discuss a proposal to grant historic landmark status to the turn-of-the-century building and the Downtown Crossing block it sits on, city officials confirmed. (Full Story) Boston Herald
  • Price at the Pump: Next Stop: $3 Gasoline The best advice for the summer driving season might be: "Walk." Memorial Day is more than a month away, and already gasoline prices are on the march. Yesterday on the New York Mercantile Exchange, gasoline for delivery in May closed at $2.0092 a gallon, the highest price for wholesale gasoline since October of last year. (Full Story) WSJ
  • JNPR ALA LU: Heard on the Street... Will Alcatel-Lucent Deal Put Juniper in Play? The merger agreement between Alcatel SA and Lucent Technologies Inc. may push another company onto the auction block: Juniper Networks Inc. Following word of the Alcatel and Lucent talks to establish a trans-Atlantic telecommunications-equipment giant, Juniper's stock jumped amid speculation that it could be the next company snapped up in the rapidly consolidating telecom-equipment sector. (Full Story) WSJ
  • GOOG: Google reportedly wins rights to new search technology-FT: Google (GOOG) is reported to have won, against rival bids from Yahoo (YHOO) and Microsoft (MSFT), the rights to a new search technology. The technology offers instant answers to queries without having to go to another website. While Google has not made a formal announcement, the University of New South Wales in Australia said last year in a press release that the new technology "could revolutionise search engines
  • Mad Money Summary: Cramer opened his show recommending National Oilwell Varco (NOV), a company which designs, constructs and manufactures oil rigs for companies like Exxon Mobil (XOM). National Oilwell is not levered to the price of oil, but to the shortage of in oil rigs. Then Cramer reintroduced the stock of the week. His pick for this week was NuVasive (NUVA), a medical device maker. He reminded his viewers that the "Stock of the Week" does not mean "if you buy NuVasive today that you'll have made money by Friday." It is to "highlight something that could be really big." Then Cramer discussed Avaya (AV), which, to his surprise, he believes is now worth buying. He says the company is one of the best corporate VoIP plays and the stock is dirt cheap. Ron Duncan, the president and CEO of General Communication (GNCMA), then joined Cramer on the show. General Communication is an Alaskan telecom company, and the CEO said he sees accelerated growth mirroring Alaska's booming economy. In the Lightning Round, Cramer was bullish on Best Buy (BBY), UnitedHealth Group (UNH), NightHawk Radiology (NHWK), Brocade Communications Systems (BRCD), Marvell Tech (MRVL), Juniper Networks (JNPR), Cisco (CSCO), Finisar (FNSR), Companhia Vale do Rio Doce (RIO) and Corning (GLW), and was bearish on Circuit City (CC), SanDisk (SNDK), NL Industries (NL) and National Beverage (FIZ).

Market Comments: The market reversed most of yesterdays gains into the close, and this morning looks like more of the same. Nearly all sectors are selling off, except energy, and the SPX is now near its 50-day support.

Breadth was negative yesterday, and the Hi/Lo index on the NYSE hit its lowest level (going negative) since last December. I think this is another indicator that this correction could have more bite to it than we have seen year-to-date.

long GOOG