Ohhh, Mexico

The title of this post was a reference to the James Taylor song. How many of you picked up on that?

Anyway, I am on vacation in Mexico this week. It's the first full week of vacation I've taken since 2002. So my posts this week will be sporadic at best.

Hold down the fort (and Go Buckeyes!!)

Geopolitical Worries Not Weighing Heavily On The Market

The market opened fairly flat, despite some news on the geopolitical front. The British Ministry of Defense reported that 15 Naval personnel were seized by Iran. I don't know about you, but this doesn't sound very pleasant.

Existing home sales just came in better than expected (6.69M vs. 6.30M), rising +3.9% in February. This really improved sentiment in the market, and the indexes have spiked higher for the moment.

Asian markets were up again overnight, for the 5th straight session. European markets were mixed. Oil is rising, mostly on geopolitical concerns, and is now up to $62.50. Bond yields are stable with the 10-year yield at 4.58%.

Yesterday was a quiet day, just what you would like to see after the big rally we had on Wednesday. I suspect today could be a similar session. But that would set us up nicely for more gains in the near future, once the markets have worked off their overbought condition.

And last but not least, did you see that Ohio State game last night? What a nail biter! Of course, if you turned on the game when Ohio St. was down 20 points, you probably just wrote them off. Wrong! They pulled out an amazing win. Go Buckeyes!!

Early Weakness After Motorola Slashes Guidance

The market is opening a bit soft, but not that much considering yesterday's surprising strength. I doubt there was anyone who thought the market could rally that much yesterday, let along had the conviction to get materially long ahead of it.

Motorola slashed its earnings forecast last night, blaming weakness on its handset business. This is taking a handful of tech related stocks down with it, but helping RIMM.

Asian markets were up nicely overnight, for a fourth straight session. European bourses also saw strong gains. And the Yen is lower again today versus the dollar, which helps.

Oil is rising though, now up over $61, which could be a big headwind. Also, the 10-year yield is up 4 basis points to 4.56%, but this is still below yesterday's highs.

I would like to see the market digest yesterday's gains. A couple of quiet sessions, with light volume pullbacks would be just the ticket for more gains into quarter-end.

I will be in meetings all morning, so have a good session--

On The Sixth Day, Follow Through

So the Fed threw us a bone by removing their tightening bias from their policy directive. Reading between the lines, they are saying that they see the weakness in the housing market, and they are not going to raise rates to make it worse.

Moreover, if things continue to deteriorate, they stand ready to provide liquidity and even lower rates to help prevent a financial crisis.

This was the green light to buy stocks, and investors wasted little time putting money to work. I also think it sparked a big wave of short covering, which could continue.

The SPX rose +1.7%, while the NDX gained an impressive +2.2%. Volume expanded nicely today, making for a solid accumulation day. If you follow William O'Neil's philosophy on follow through days, then this was a textbook follow through on last Wednesday's high volume reversal. Today was day 6 from that initial rally attempt, and the market gave its stamp of approval.

The brokers led the way (+3.6%), followed by homebuilders and biotechs (+2.7%). Consumer staples lagged (+0.95%), but all major sectors and indexes were up nicely on the day.

I don't expect the bears to rollover quietly, but they certainly lost the battle today, and in a big way.

FOMC Announcement Causes Spike In The Market

The FOMC came out with their accouncement, and for the most part, their accompanying statement looked like it did the last time. But there may have been one phrase that was left out, and that was the phrase that hinted at the need for 'additional firming' (read: higher rates).

The market keyed in on this as soon as the headline was posted on Bloomberg, and the market took off. Stocks raced higher, while bond yields quickly plummeted.

Here are some of the highlights from the announcement:

• FOMC keeps Fed Funds at 5.25% as expected
• Fed says future 'policy adjustments' depend on evolution of outlook for inflation, growth
• Fed says recent core inflation readings 'somewhat elevated'
• Fed says inflation pressures likely to moderate but high resource use levels could sustain pressures
• Fed says recent indicators have been 'mixed', adjustment in housing sector 'ongoing'
• Fed says economy seems nevertheless likely to continue to expand at moderate pace in coming qtrs
• Odds of June Fed easing hits 48% against 24%

Hurry Up And Wait

The market is mixed in early trading. But don't expect any big moves either way until after the FOMC announcement at 2:15 ET. That's when the Fed wraps up its 2-day meeting and let's the world in on its policy directive.

It is nearly a done deal that the Fed will hold rates at 5.25%, but the question on investors' minds is will they make any comments hinting at a more dovish stance. Will they say the risk is still balanced between economic weakness and inflation? And will they make any comments hinting at the weakness in the subprime mortgage market?

Asian markets were higher overnight, for a third straight session, And the Yen is down again, easing pressures or worries about the yen carry trade.

The tech sector got some good news in the form of strong earnings reports from both Oracle (ORCL) and Adobe (ADBE). Both stocks gapped higher at the open. The subprime sector is also getting some relief on news that Fremont General (FMT) agreed to sell $4 of its subprime residential loans.

Oil rolled over to a new contract, so it is now back around $59.75, but still below the psychological $60 level. And bond yields are up a bit to 4.58%.

With the markets already up nicely this week, and nearing overbought levels, I would not be surprised to see some profit taking this afternoon.

Standout Stocks

My Stock of the Day is MEMC Electronic Materials (WFR)

The stock is getting a boost today on rumors that some of its Asian competitors are experiencing production disruptions, and thus this would help WFR.

The stock is breaking out of a short, 4-week cup and handle. The stock hit new highs today, and is rising on very strong volume.

I was on the last conference call from the company, and I believe fundamentals are very strong for their business. Today's breakout should lead to further gains over the intermediate-term.

Other stocks making notable, high-volume moves today include:

• GEO
• SIMO
• WFR
• NVEC
• RS
• SSYS
• CMG
• TSL
• ICI
• PONR
• BWP
• HAL
• CYH
• MCS
• WFT
• PKX
• LXK

long WFR

Morning News Roundup

Here are some of the highlights on this morning's tape:

• Piper starts ELOS with Outperform ($31 tgt)
• Accredited Home Lenders announces $200 mln term loan commitment
• Recommend aggressive accumulation of PAY - Suntrust
• Affiliated Computer founder & Cerberus offer to buy ACS for ~59.25/share
• Progress Software beats by $0.02
• Silicon Motion raises revenue guidance for Q1
• Boeing 787 sales book filled until late 2013 - Chicagotribune.com
• Housing Starts 1525K vs 1445K consensus
• Allegheny Tech tgt raised to $116 from $104 at BofA
• PeopleSupport added to Focus List at Amtech
• Global semiconductor equipment sales up 23% in 2006
• ISIS Pharm reinitiated with a Buy at Fortis- tgt $13

long ELOS

Opening Look: Housing Starts Bounce Back In February

The market is getting a small bounce in early trading, after yesterday's surprisingly strong day. Yesterday had all the makings of a solid follow through day, but volume came in far too light. I would prefer to see higher volume on the up days.

Asian markets were up again in overnight trading. The Bank of Japan did not raise rates at its meeting. And ACS is being taken private, boosting the stock +18% this morning.

The big piece of data this morning was housing starts, which showed a big tumble in January (-14%). But housing starts bounced back +9% in February, slightly above estimates. This should help ease housing fears a bit.

Of course, the Fed kicks off its 2-day meeting today. Investors are hoping for some softer language from the FOMC in its announcement tomorrow. If the Fed wants to help the housing market, it needs to keep liquidity high. But don't expect them to act immediately or make overt comments about housing.

Oil is down again, and today is testing the $56.50 level. The USO is at its 50-day support, so this area bears watching. The 10-year yield is down a few basis points to 4.54%.

Standout Stocks

My Stock of the Day is Buffalo Wild Wings (BWLD)

And this isn't just because I am hungry and craving wings. The stock has acted very well of late. On 2/16, the stock gapped higher out of its correction, and back above its 50-day.

Since then, the stock has continued to act well, and found good support along its short-term moving averages.

Today, it is breaking out to a new 52-week high on pretty good volume. I think the action looks good, and that the stock should continue to run here.

Here are some other stocks making notable, high-volume moves today:

• JSDA
• DXPE
• VIP
• ROCM
• WCG
• TZOO
• CYNO
• BWLD
• HERO
• NGPS
• CYH
• ITY
• TSL
• FDS
• RBN

Monday Morning Musings

The market is getting a very strong boost in the first hour of trading. The lack of any negative news over the weekend, combined with some exciting M&A action this morning is setting the tone.

A potential merger between Barclays (BCS) and ABN Amro (ABN) would create a$150 billion financial behemoth. CYH is also eyeing a takeover of TRI in the hospital space. Also, ServiceMaster (SVM) has agreed to be taken private for $5.5 billion, a +16% premium to Friday's close.

Asian markets were up strongly overnight, and the European markets were higher also.

Bond yields are up slightly, with the 10-year at 4.57%. Oil is flat at $57. Nonetheless, the energy sector is leading the way, up roughly +1.4%. Semis are lagging so far.

Investors may be anticipating some more dovish language from the Fed when they meet this week. The market is still hoping that we will see a rate cut from the Fed this year.

Let's see if this morning's strength can last--

Investor Sentiment Update

Amazingly, the put/call ratios are again in extreme territory.

The CBOE put/call is running at 1.25, above the 1.0 level for a record 18th straight day. The ISEE is at 91, another below average level. And the ARMS Index hit 1.46 today. It has been registering high readings all week.

Last year, we saw extreme readings in the put/call ratios, setting records. At the time, the bears were calling for an end to the bull market; oil was hitting $80; there was a British terrorist plot; Israel was on the brink of war; and the U.S. was threatening sanctions vs. Iran.

Those record readings in the fear guages ultimately turned out to be an excellent buying opportunity. So let's look at the current readings compared to what we saw last summer:

• The 10-day CBOE put/call hit 1.32 this week, a record (my data goes back to 1995). The record from last May was 1.22.
• The 10-day ISEE hit a record low 88 yesterday, the lowest reading since its inception. The previous record low from last September was 94.
• And the VIX, on a weekly basis, rose 75% back on the week ending 3/2/05. This is higher than any weekly readings for the past several years.

I don't know if we've seen the ultimate low in the market already. And most stocks usually take a few months to form solid bases before they blast out of their corrections. But I am confident that we will look back on this phase as another very good buying opportunity. I just don't think this is how bull markets end, and I have history on my side.

Strong Industrial Production, Benign Inflation Boost Market

The market is getting a little boost at the open. It looked like we might open down, but the core CPI came in within expectations, and industrial production posted its largest rise since November 2005.

Asian and European markets were down slightly overnight, and the Yen is up today vs. the dollar. But they do not seem to be hurting the market so far.

Oil is up a little to $58, and the 10-year yield is also up only slightly to 4.55%.

Banks are the strongest group so far (+0.57%), while utilities and materials are lower after yesterday's stong showing.

If the week ended right now, the NDX would be up slightly for the week, while the SPX would be down on the week. But Wednesday's strong high-volume reversal is still intact, and if we see some follow-thru next week it could spur some short-covering. But I don't expect the bears to go away quietly. Now back to today's action...

Market Wrap

Sorry for the lack of posts today. I attended a credit derivatives luncheon sponsored by Bloomberg. For the most part, it was very esoteric stuff, but the one thing that was noteworthy was the most of the panelists felt that the worst of the subprime debacle was behind us.

The indexes finished higher on the day, for a 2nd straight day. Despite the positive action, bearish options players were out in full force. The CBOE ran above 1.0 for a record 17th consecutive session. Unbelievable. The ISEE was also quite subdued, closing at 102.

Small caps really led the way today, with the RUT +1.0%. Big caps lagged, and the Nasdaq COMP rose only +0.3%. Among the sector ETFs, materials shined (+1.9%), followed by utilities (+1.3%). Tech and energy lagged, with tech ending up roughly flat and the energy complex slightly lower on the session.

Oil prices weighed on the energy stocks, with crude falling for another day, and closing at $57.55. For its part, the 10-year was steady, closing at 4.54%.

I will try to post a sentiment roundup tomorrow. Suffice it to say, this week saw the put/call ratios move to new record levels. There is a lot of fear, as there always is when the market is probing for a bottom. I suspect we will look back at this time period as another good buying opportunity. The question is when to go 'all in'.

Yesterday's Positive Reversal Carries Over To Today's Open

The markets are getting a bounce in early trading, despite a higher than expected inflation report. The PPI rose +1.3% (+0.5% consensus), which looks like a pretty big rise, but this data can be very volatile from month to month.

I would have thought that bond yields would be much higher on the news, but they seem to be taking it in stride. I think the bond market may be waiting for tomorrow's more important CPI report. And the fact that there was some weak manufacturing data this morning could be providing a bit of an offset. The 10-year yield is up a little to 4.54%.

CSCO announced it is buying WEBX, pushing the latter's stock up +24%. Have you seen CSCO's videoconferencing gear? It's pretty impressive. I would expect them to use this acquisition to make a big push into rolling out additional videoconferencing services to corporations.

Also, ICE made a competing offer to acquire BOT, valued at nearly $10 billion. This bid is higher than the current bid on the table from CME. BOT's stock is up +14% on the news, while CME is taking a hit.

And BEAV raised guidance yet again, reiterating the strong business trends they see and the good visibility the cycle is providing.

Asian and European markets both rose overnight, with the Nikkei bouncing back +1.1%. The Yen is also down a bit vs. the dollar, so no headwind there (so far). Oil is also trading down a touch, hovering around $58. Oil pretty much seems to be stuck in a trading range.

long BEAV

Big Turnaround Day For The Markets

If you would have looked at the markets midday, you would have concluded that this was one ugly day. The major indexes were plunging to new lows, and taking out the levels hit last Monday (3/5).

But then, seemingly out of nowhere, the markets put in a bottom and starting moving higher. It likely started with short covering. Rumors that Goldman and Bear were looking to buy a subprime lender got that group moving much higher. And then it start to turn into a full fledged rally.

From its low to high, the DOW put in a roughly 200 point intraday swing. Volume rose on both exchanges, making for a nice accumulation day. If past is prologue, usually these key reversal days have some legs to them. I covered my shorts to see how high this bounce can take us.

The CBOE put/call ratio hit 1.88 today, as high a reading as I can remember in recent years. That pushed the 10-day moving average to a new record high (going back to 1995). And the VIX topped out after reaching 21.25, a full 50% spike in just 2 days. But it closed much lower at 17.27. So maybe we've seen a near-term spike in bearishness.

Today certainly was exciting. But we're only past hump day, so rest up, and let's hit it hard in the morning.

Morning News Roundup

Here are some highlights from this morning's news and notes:

• Lowe's says mortgage woes could affect some markets
• J. Crew profiled in New America section of IBD
• Mortgage Applications +2.8% for the week ended 3/9
• Commscope upgraded to Buy at Oppenheimer- tgt $47
• Time Warner Cable initiated with a Neutral at Goldman
• Google China opens website navigation service
• BofA makes positive comments on AAPL
• Current Account Deficit -$195.8 bln vs -$203.5 bln consensus
• Home Depot's Blake remains 'on the cautious side' for 2007
• FDA orders sleep disorder drugs to carry stronger language about risks

long AAPL

Stocks Open Higher, But Can It Hold?

The markets got a bounce at the open, but you know I am skeptical of up opens. They ususally just set the stage for sellers to surface later in the day. How the market closes is always the most important thing.

Asian markets took a drubbing overnight, with Japan down -2.9%. European bourses were lower as well. The Yen weakened a bit, which could have helped give our market an early boost.

Oil is basically flat at $58, having broken its recent uptrend. And bond yields are still at 4.50%, after a big 2-day plunge.

You would think with a 4.5% 10-year Note, that those mortgage borrowers that got into risky, adjustable loans could refinance into a relatively low fixed rate without too much pain. I would like to hear any anecdotal stories if you have them--

The subprime plays are getting a big bounce this morning, after a WSJ story that Goldman Sachs is looking to maybe buy something at fire sale prices, and that other big firms are extending credit again in anticipation of a rebound.

This week is also options expiration week, which often brings additional volatility, and also usually at least one big down day. Maybe yesterday was that day.

long GS

Chalk Up A Nice One For The Bears

The bears really had their way with the market today. Spread the rumors that subprime is worse than most people think, and that it will tank the economy. Then sell the futures down hard to knock the market. And voila, a well executed bear raid.

The SPX fell roughly -2.0%, while the small-cap RUT fell -2.6%. Brokers were hit the hardest, falling -4.5% as a group, followed by homebuilders (-3.6%), banks (-3.2%), retailers (-2.4%), and industrials (-2.1%).

The market was so weak, that even oil reversed its gains and fell on the day. It closed below $58. The 10-year yield also fell below 4.50%, which should help liquidity, but not so much today.

So this is the retest. And it feels awful, just like they always do. If you have ever looked back at a good buying opportunity in hindsight and wondered why you didn't buy everything in sight, it's because on days like today, who feels like buying? Answer: No one.

Selloff Picks Up Steam

The selloff is accelerating over the last 20 minutes. All of the major indexes are now down more than 1%, with small-caps being hit the hardest.

Brokers have turned sharply lower also (-2.5%), despite the good earnings from Goldman Sachs (GS). Retailers are also down -1.7%, while energy stocks are among the few that are higher on the day.

As you would expect, the fear indicators are spiking once again:

• The ARMS Index hit 1.73
• The VIX is surging +18% higher
• The ISEE Index is low at 93
• The CBOE put/call is above 1.0 for the 15th straight day; currently 1.36

It looks like we may be headed for a retest of the lows, a scenario I mentioned and have prepared for by raising cash. Of course, a lot of people are looking for this same scenario, which made me a bit nervous. I don't like being part of the consensus. So this could mean that the pullback won't go as far as many think. Too early to say.

long GS

Market Poised For A Day of Rest

The market has opened under selling pressure on the heels of a weak retail sales report, and ongoing woes in the subprime market. NEW said the SEC has subpoenaed documents, and LEND said it needs to raise new funds to cover the risk of default.

The Asian markets fell overnight, while the Yen rose in value. These are also pressuring the U.S. markets at the margin.

The weak economic data is pushing bond yields lower, with the 10-year completely erasing Friday's big spike higher, and trading down to 4.50%. The odds for a Fed rate cut also rose on today's news.

Oil is up this morning, yet another headwind, to $59.50. But it is still below $60, and it looks like the recent uptrend is broken.

Nearly all of the major sectors are lower so far today. Biotechs are higher, but homebuilders are down a lot, and banks are weak also. Turnaround Tuesday? Maybe.

Investor Sentiment Check

Last week, we saw some record readings in the put/call ratios. And so far today, there does not seem to be any letup in the bearish put buying.

The CBOE put/call has been above 1.0 all day. And the ISEE has been equally as bearish, trading below the 100 level throughout the day.

Also, the ARMS Index has been elevated, hovering above 1.15.

I continue to believe that while this buildup in bearish put buying may not immediately lead to a rally to new highs, it will help build a foundation underneath the market. And when this correction does finally run its course, the reversal in sentiment will help drive another powerful rally.

Tech is leading the way today, with the semis up +1.2%. Brokers have also reversed their early weakness, and are now up for the day. Only the homebuilder group is still negative for this session.

Oil has broken below the $59 level, although you wouldn't know this if you were going by the prices at the pumps in LA. I saw $3.30 this morning. Dag.

Morning News Roundup

Here are some highlights from this morning's news roundup:

• Medtronic mentioned positively in Follow Up - Barron's
• Halliburton (HAL) looks to Dubai for Mideast expansion
• Ford nears sale of Aston Martin
• Boeing and Alafco sign deal for 787s and next-generation 737s
• Cynosure profiled in New America section of IBD
• Trump Entertainment is exploring possible sale
• Countrywide ends no down-payment lending
• Yahoo!, AT&T downplay report partnership at risk
• Amdocs upgraded to Buy from Neutral at Goldman
• SanDisk upgraded to Buy from Neutral at Oppenheimer
• Dollar General agrees to be acquired by KKR for $22/share
• Sierra Health Srvs to be acquired by UNH for $43.50 per share
• Four Seasons beats by $0.04, ex items
• MicroStrategy target raised to $155 at Roth
• Vail Resorts beats by $0.22, revs above consensus
• TOM Online shares jump on buyout news - FT
• ESRX won't raise bid for CMX without due diligence

Monday Morning Musings

The market opened down a bit this morning, though the Nasdaq has recovered and moved slightly into positive territory. There was some M&A action of note. Dollar General (DG) received an offer, and the stock gapped +27%. Also, SGP bought Akzo's drug unit.

The Asian markets were up overnight, and the Yen rose also. But the focus of the news this morning is really on the subprime market, the potential bankruptcy of NEW, and the comments by CFC that they could take an earnings hit.

Oil is trading lower this morning, which is weighing on the energy complex. Gold is also trading down, and looking like its going lower. For its part, the 10-year yield is a few basis points lower after Friday's big spike, hovering around 4.55%.

On the economic news front:

• Tuesday brings retail sales
• Wednesday we get the current account defecit
• Producer prices come out on Thursday
• And CPI and industrial production come out on Friday

Jobs Report Quells Recession Fears

The market got a nice bounce in early trading, after the nonfarm payrolls report showed an increase of 97,000 jobs (100,000 consensus). And the January payroll figures were revised higher, continuing a series of positive revisions that makes it likely that February's figures will also be revised higher next month.

This data was stronger than the whisper numbers on the Street, and should quell some of the recession fears that have surfaced lately since Greenspan started spouting his opinions in the media. Doesn't he have better things to do now?

Since this morning's initial bounce, the market has given back all of its early gains. And you wonder why I am distrustful of up opens in the market? We still have a long way to go, so the market could come back. But Friday's aren't known as being big up days in the market.

The strong employment data caused a big spike in bond yields, with the 10-year jumping to 4.57%. This could keep a lid on stocks. The Yen is lower for a 2nd day vs. the dollar, so this shouldn't be a big factor. And oil is also slightly lower, hovering around $61.50.

Semis were strongest out of the gate this morning, so maybe tech can outperform today.

Think You're A Tough Guy?

My apologies for no posts this morning. There are a few things that can keep me from the market, and my kids are two of them. I forgot to mention that I would be out of the office, as my 7-month old son was scheduled for (minor) surgery. Boy, it's not easy seeing the doctors put your baby under. They put that gas mask on and his eyes roll back, and all you can do is bite your lip. Anyway, he's doing fine now.

As for the market, there is nothing sweeter to return to my trading desk and see the Dow up a cool hundo. The Yen gapped lower last night, so we aren't hearing any yen carry trade worries today. Oil is trading lower, so there goes another headwind. And bond yields are stable. Nice.

Unbelievably, the CBOE put/call ratio is almost at 1.0 again today, after setting a new record over the last 10-day. And the ISEE is also in record low territory, trading at 56. Amazing.

I am still in the camp that thinks we will see some sort of retest after this mini-rally, but with sentiment spiking as high as it is, I am looking forward to doing some serious buying.

Was That A Late Day Bear Raid?

The market was doing okay, but it looked like in the last 20 minutes of trading, the bears came out with a raid and successfully knocked it down. That's how they try to keep the budding optimism of the bulls at bay. Don't think this stuff happens? Talk to some of the multi-billion dollar hedge funds with a bearish bias.

Despite the modest declines, investor pessimism in the options market soared again. The CBOE put/call ratio was above 1.0 for the eleventh day, pushing the 10-day average to a new record high. Additionally, the ISEE nearly set its own record closing at 66 (the equivalent of a put/call of 1.52). The buildup of bearish bets is now back at levels from last May - Sept.

Oil rose more than a buck on the bearish inventory data (drawdowns), and closed around $61.82. The 10-year yield drifted lower throughout the day and closed just below the 4.50% level. Rememeber, lower yields could mean more refis and ease the subprime pressures.

Mid-caps stocks outperformed handily, but they were propped up by a strong energy complex. Tech lagged today, with the Nasdaq faring the worst of the major indexes.

As for the standout stocks, here is today's list:

• CNH
• SMSI
• FARO
• GFIG
• ALGT
• PLL
• POT
• VIP
• DWSN
• CPRT
• PGNX
• HLYS
• ISCA
• CPA
• AEOS
• MVSN
• ICE

Morning News Roundup

Here are some highlights from this morning's news and notes:

• Chief sees difficulties in splitting off Chrysler brands
• Sony to delay earnings due to U.S. rules
• BHI announces international rig count for Feb 2007 was 981, up 9
• U.S. Steel profiled in New America section of IBD
• Dell may offer Linux as alternative to Windows
• Koch Industries plans bid for GE Plastics
• Panera Bread reports Feb comp store sales -0.6%
• FBR notes the route to Generic Epo Competition coming faster than expected
• AMR Corp initiated with a Hold at Soleil- tgt $36
• Brinker upgraded to Neutral from Sell at Goldman
• Google ventures into mobile search
• UBS ups GOOG to Buy ($560 tgt)
• Toll Brothers says impact of subprime market not "too great" for luxury builder
• Medtronic upgraded to Buy at Lazard- tgt $58
• Starbucks added to McAdams Wright Ragen Focus List
• Exxon Mobil sees 7 major project startups in 2007
• IBM surpasses Hewlett-Packard in storage hardware sales
• Cheesecake Factory added to Top Picks list at Friedman Billings

long GOOG, SBUX, XOM

Stocks Off To A Modest Start

The markets are mixed in early trading. Asia was down slightly overnight, while Europe was mixed. The Yen rose slightly versus the dollar, which is making news again due to the worries about the yen carry trade.

Our 10-year yield is stable at 4.28%. Oil is up slightly, trading below the $61 level.

Treasury Sec. Paulson is still in China, and has made constructive comments on the market. I also think his trip will be successful in improving our relations with China's govt. in terms of their policies on currencies, etc.

The markets had a nice bounce yesterday, posting their best 1-day performances so far this year. I would like to see the indexes build on their gains today, but even a sideways consolidation day wouldn't be all that bad.

Better Late Than Never

So my inclination this morning was a good one-- to let the market rally and watch to see if it built on its early gains and closed strong. This is a change in character from the last week of selling.

Small-caps led the way (+2.5%), followed by the COMP (+1.9%). Among the sub-sectors, brokers bounced back in a big way (+2.6%), followed by banks (+1.9%) and energy (+1.9%). All major indexes and ETFs were higher. The international ETFs also bounced sharply.

Volume ran a little below yesterdays levels. But breadth was solid, and the Hi/Lo index on the NYSE moved back into positive territory.

Oil closed around $60.60, and the 10-year was steady at 4.52%.

I think this bounce could last a little while longer, and then I would look for some sort of retest of the lows. It doesn't have to be a lower low, but we won't know that until we see it.

Record Readings in the Put/Call Ratio

The CBOE put/call ratio is running at a very high level of 1.33 right now. This is the 10th day in a row that this indicator has exceeded the 1.0 level. That has pushed the 10-day moving average to a new record of 1.27, eclipsing the record high of 1.22 from last May. (my data goes back to 1995)

Also, the ARMS Index hit an all-time high of 15.98 last week, the highest level since its inception in 1967 (according to Dick Arms). And the NYSE showed 99% down volume during last Tuesday's decline. I don't have data on that, but I would bet it is some sort of multi-decade record.

So what does it all mean? First, looking back to last summer's correction, the spike in the put/call ratio was a signal that the bottom was near, but the market still took a couple more weeks before hitting its final low. I think it's a good roadmap for this time around also, and that the market will probably probe a little further to find a low, but that the majority of the damage is behind us.

Longer-term, I think it's a classic example of bull market volatility. Richard Russell used to say that the bull will try its best to buck off the majority of investors during its run. I also don't think this is how bull markets end, with huge spikes in the fear indicators. I would be more worried if all of the downside volatility was met with complacency. But this is clearly not the case.

So I will let the bottoming process take shape, and then start to look for the early winners out of the correction that will likely lead us back to new highs.

Morning News Roundup

Here are some highlights of this morning's news and notes:

• Citigroup bids for control of Japan's Nikko Cordial
• Microsoft attacks Google on copyright - Financial Times
• Greenspan sees 'one-third probability' of recession this year
• Estee Lauder reaffirms Q3 & FY07 guidance
• Merck: Judge upholds jury's Vioxx verdict
• Amgen drug loses some medicare payments
• Japan's ANA says to buy $1 bln worth of Boeing jets
• Congressional panel to study off-label use of stents, drugs
• InterMune tgt cut to $16 at Jefferies
• BofA ups ISE to Buy from Neutral ($58 tgt)
• Leap Wireless tgt upped to $77 at BofA
• Boyd Gaming upgraded to Buy at Morgan Joseph- tgt $56
• Iconix Brand to acquire Rocawear Brand
• General Dynamics added to Focus List at Cowen
• Travelzoo says surpasses 11 mln subscribers worldwide

long AMGN, ISE, GOOG

Do We Trust It?

The market is getting a strong bounce at the open, with the Dow up as much as 100 points. This comes on the heels of strong overnight markets in both Asia and Europe. Also, the Yen is experiencing its biggest dip in 3 months versus the dollar, which is easing fears about the yen carry trade liquidation.

Sec. Treasury Paulson made some soothing comments about the markets, saying, "The global economy is more than sound... it's as strong in the last couple of years as I've seen in a lifetime." He also said that sub-prime lending fears are overblown and won't impair the capital markets.

Oil is trading slightly higher, boucing around 40 cents above the $60 level, and natural gas is bouncing also on cold weather in the east. The 10-year yield is barely higher, trading at 4.52%.

You know how distrustful I am of strong opens in the market. But after so many down days in a row, I am going to suspend my notion of disbelief and give the market the benefit of the doubt here. I would like to see the strength build into the close, which seems light years away right now.

Engine room...more steam!

A Disappointing Day

I really thought the markets had bottomed this morning, at least short-term. But the bears had other ideas, and easily swamped the market.

Large-caps fared a bit better, with the SPX down -0.9%, while the mid-caps fell -1.8% and the small-caps fell -2.0%. By sector, the housing index fell -3.0% followed by the brokers (-2.6%). Just about all the sectors were lower on the day.

Volume rose on the NYSE (distribution), but eased slightly on the Nasdaq. Oil almost closed below $60, and has basically broken its uptrend that started in mid-January.

The volatility indexes rose again, and have now eclipsed last week's highs. The put/call ratio also soared, and the 10-day moving average hit a new record (my data goes back to 1995). That's quite a number of puts being bought.

While this is bearish short-term, I would be more worried longer-term if these declines were merely met with complacency and shrugged off. But when everyone runs for the exits at the same time, and at any price, I feel better that this is not the way bull markets end. They end when everyone is as bullish as all get out.

Make a note in your trading journal, as we will look back at this period as another good buying opportunity.

Standout Stocks

Measures of investor anxiety are spiking again today. The CBOE put/call ratio was running at 1.73 earlier, and the ISEE at the equivalent of 1.23. These are extremely high levels, indicative of investors fear and the bears pressing their bets.

The markets are now oversold, and due for a bounce. But the character of the market will be revealed on any retest of the lows, not necessarily on the strength of the bounce.

Here are some stocks making notable moves today on high-volume:

• ICE
• MAN
• CME
• SHLD
• WEBX
• WFR
• BKS
• AIRM
• FED
• AHS
• AINV
• SF
• ACAS
• NDE
• EDU

Trade Updates

I sold my QID hedge into this morning's weakness. That's the ETF that provides you with 2x the downside in the Nasdaq 100. I am not bidding on some QLD, which is the 2x upside in the Nasdaq 100, as I think we should see a bounce in the market this week.

long QLD

Monday Morning Musings

Markets across the spectrum are down this morning, following on the heels of Friday's late weakness. Europe and Asian markets were down significantly overnight, the first sign that our markets might open weak.

And it isn't just stocks. Oil is trading lower, below $61. Gold is down $8. And the yield on the 10-year is falling below 4.50% today. Lower bond yields could help the subprime market a bit if they go low enough to kick in another round of refis.

There was no big M&A news this morning to get investors excited, like we have had over the last several weekends. The big news has been what is happening to the sub-prime lenders. Check out the stocks of NEW (-50%), FMT (-25%), and LEND (-18%), which continue to get absolutely crushed.

I am seeing a few positive stocks this morning, mostly in tech, which could be a positive tell. The markets had a huge pullback last week, so some stabilization this morning could be the first step towards a rebound.

Surprising Stats on Vitamins

A group of 47 studies by Copenhagen University, that included over 180,000 people, found no health benefits from taking vitamins. And it actually noted a higher death risk in those taking vitamins.

Some scientists say that anti-oxidant vitamins only work when they are found in food.

Hmmm.....

Mutual Fund Monthly

Here are how some of the mutual funds are faring that are part of our stable of recommended funds. Note that these returns are as of the end of February, which includes the first big down day last week (Tuesday), but ends as of last Wednesday.

Top 5

• MERDX: +4.43%
• RAISX: +4.17%
• BPTRX: +3.58%
• PRNHX: +2.82%
• HDPMX: +2.12%

Bottom 5

• QUAGX: -0.81%
• SLASX: -0.54%
• SSHFX: -0.43%
• DREGX: -0.36%
• TGVAX: -0.28%

The big winners so far this year have been the mid-cap funds, while large-cap value are finally starting to lag. I continue to think large-cap and mid-cap growth will be the leading areas for the year.

As an aside, I also took a look at the international ETFs for the year. Countries like Australia (+4.68%) and Japan (+3.87%) were strong for the first two months of the year, while previously hot areas like China (-11.08%) and Taiwan (-4.00%) pulled back in a big way.

One For The Recordbooks

Well, at least that nasty week is over. It was certainly one for the recordbooks. Maybe not in terms of point declines, etc., but it was a record for the ARMS Index, and I believe the 99% down volume on the NYSE on Tuesday was a record also.

Here is how the major indexes fared this week:

• SPX: -4.41%
• DOW: -4.22%
• NDX: -6.18%
• MID: -5.05%
• RUT: -6.19%

The market is quickly moving to an oversold position, and will likely bounce soon. But the normal pattern is for it to then come back down, in some sort of retest of the lows. And it is via this pattern that the market makes a more solid bottom.

I will try to post an update on the sentiment indicators later. Also, check back for the Mutual Fund Monthly rankings.

Bears Getting The Upper Hand Today

The bears are having their way with the market, and furthering pressuring the major indexes. The SPX is off -1.05%, while the small-cap RUT is down -1.70%.

But as we saw earlier in the week, investor sentiment gauges of fear are spiking again:

• The volatility indexes are rising back to Tuesdays high levels
• The ARMS Index is at a very high level 2.59
• The CBOE put/call ratio is high at 1.36
• The ISEE is also high at the equivalent of 0.94

Moreover, the 10-day moving average of the put/call ratio is hitting its second highest reading ever. The only reading higher was last May.

But as we saw back then, the huge spike in fear didn't immediately cause the market to bottom. It did a good job of stemming the decline, but then the market sort of bounced around for awhile, before forming a solid consolidation pattern from which it could launch back to new highs.

Morning News Roundup

Here are some news and notes from this morning's headlines:

• Can you say 'TGIF'?
• Asian markets mixed overnight
• Getty Images mentioned negatively in Heard on the Street
• Boeing plane orders surge in February
• Hurco Companies profiled in New America section of IBD
• Accredited Home Lenders files to delay its 10-K
• Gamestop started with a Buy at Nollenberger
• Xilinx upgraded to Buy from Neutral at Merrill
• UN powers agree on framework for more Iran sanctions
• Poole says sees U.S. Econ growth of around 3% over 2007
• Walgreen Feb same store sales increase 8.6%
• Business Objects initiated with a Buy at Amtech
• Michigan Sentiment revised 91.3 vs 93.3 consensus
• Regulators concerned lenders may be providing inadequate data on loan features

Another Open Market By Selling Pressure

The market really plunged yesterday in the opening hour, but quickly regained its footing and closed with just modest declines by the end of the session.

Today, the market again looked weak before the open. I think it probably would have opened lower, but some of the comments from Fed Governor Poole may have calmed the market. Here are some of his comments:

• Stock market valuation "does not seem to be elevated" at this time
• 'No pressing need' for action after stock sell off
• Does not see evidence to justify ongoing stock market declines
• Sees nothing in carry trades that is disruptive at this stage
• U.S. recession always possible but probability not very high
• Probability of U.S. recession "a little higher" now than it was two years ago

Inverstors are probably a little shaken from this week's volatility, as evidenced by the heightened readings in the VIX. And with the media going on and on about the unwinding of the yen carry trade and the pressures in the sub prime mortgage market, it isn't surprising that investors are growing more rise averse.

But the 10-year yield hangs in at 4.53%. If things were really bad, it would probably be trending lower. Gold is down a lot over the last week, which should quiet the inflation bears. And oil continues to hover in the $60-64 range.

I think the market needs to spend some more time consolidating. Big gaps down in the charts don't heal themselves overnight. But stocks will recover and go on to new highs, and investors will once again look back at another solid buying opportunity with regret.

Investor Sentiment Check

During this mornings opening plunge, some of the fear indicators really spiked again. And even has the markets have recovered, the put/call ratios remain elevated.

The ARMS Index hit 7.99 this morning, higher than at any time during the recent bear market. Moreover, Tuesdays high of 15.98 was the highest reading in the history of the indicator.

The volatility index (VXN) hit a new 7-month high this morning, reaching 19.40. It has since settled down.

The CBOE put/call ratio is at 1.50, a hugely bearish level, and it has been above 1.0 all week.

The ISEE is also at a high level of 0.95, indicating high levels of pessimism.

Although the correction may have more time before it runs its course, I think the extreme bearish sentiment will likely limit the extent of the pullback in percentage terms.

Enough Excitement For The Day Already

The market has shown enough excitement in the first half hour of trading that we might as well call it a day already. The DOW plunged more than 200 points after the open, as investors worried about the unwinding of the yen carry trade.

After that initial plunge, the market quickly bottomed and came flying back-- and I mean flying. Just go to your favorite charting service and take a look at the intraday volatility, in just the first hour!

There are trillions of dollars of borrowed yen that speculators have shorted to invest in higher yielding assets around the globe. But as Japan's fiscal year end is near, there is a lot of window dressing being done to shore up positions before the reporting period.

This, in combination with the rise in the Yen, has exacerbated the pressure on the carry trade players to sell stocks around the world and buy back borrowed yen. But as we saw last year, this trend is a short-term phenomenon, and won't likely affect the markets for much longer.

There was also some inflation data (core PCE) that came in a little higher than expected. But despite the negative inflation data, bond yields continued to fall (they should have risen), with the 10-year falling to 4.50%.

Oil is also trading lower ($61.15), which is good as we don't need any additional pressure on the market. The volatility indexes also spiked this morning, indicating another peak in fear. Time to start buying a little.