Scheduling Conflict

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I will be in Las Vegas attending the annual Schwab Impact conference from Monday - Wednesday of this week.

My schedule is pretty jam packed, so I would anticipate my blogging activities to be light at best.

The market finished on a high note Friday, even though volume didn't rise from Thursday's levels, so hopefully the first half of the week will be somewhat quiet as the market digests the gains.

Moreover, the Fed meets on Wednesday with its interest rate decision. So Monday and Tuesday should be relatively light volume days ahead of that big announcement. I was surprised last time by the 50 basis point cut. So I would have to put the odds at 50/50 that they surprise the market again.

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Weekly Wrap

Here is a copy of the weekly recap from Briefing.com:

Trading in erratic fashion, the major averages finished the week higher, as relatively upbeat earnings for the third quarter overshadowed ongoing concerns about credit-related problems and the overall economy.

Stocks rose on Monday, after last week’s sharp sell-off, with bargain hunters picking up shares on the cheap, particularly in hard-hit areas such as homebuilders, banks, and retailers. Stronger than expected earnings from Dow component Merck & Co. (MRK) also helped fuel a recovery in the Dow Jones Industrials and the broader market.

With upbeat earnings from Apple (AAPL) and blue chip companies DuPont (DD) and American Express (AXP), stocks rallied to close higher on Tuesday. The market struggled early in the session on fresh concerns about the consumer outlook, after discount retailer Target Corp. (TGT) lowered its October same store sales guidance and Wal-Mart Stores (WMT) cut its capital spending forecast for the year. However, led by enthusiasm for technology companies, stocks managed to end the session higher.

On Wednesday, the market plunged due to more disappointing news on the housing front and a sharp third quarter loss posted by banking industry bellwether Merrill Lynch (MER), before rebounding late in the day.

With the housing market still in a sharp downturn, the National Association of Realtors reported that existing home sales fell 8% in September to a low 5.04 million annual rate and median home price slipped 4.2% from a year ago. Expectations were for a 5.25 million annual rate.

On the earnings front, Merrill Lynch reported a $2.3 billion loss in the third quarter and said it was taking a larger than expected write-down of $7.9 billion on its collateralized debt obligations and U.S. subprime mortgages.

In other corporate news, Amazon.com (AMZN) reported higher earnings and revenue, but still failed to impress investors, who were concerned about shrinking margins. They pushed shares nearly 14% lower on the news. Dow component Boeing Co. (BA), meanwhile, surprised investors when it reported stronger than expected results and raised its outlook for the year.

Despite a late-day rally, the market edged slightly lower on Thursday as reports on new home sales and durable goods orders, as well as a batch of mixed earnings, weighed on investor sentiment.

The Commerce Department reported new home sales rose 4.8% in September from the August level. However, the latest figure showed an increased only because the last month's level of sales was revised sharply lower to a 735,000 annual rate from an originally reported 795,000.

Meanwhile, it was reported that durable goods orders fell 1.7% in September, after a 5.2% decline in August, raising concerns about business spending.

Finishing the week on a strong note, stocks traded higher on Friday as investors found solace from strong earnings from Microsoft (MSFT) and an optimistic outlook from Countrywide Financial (CFC), which sent its stock 32% higher.

Microsoft for its part recorded a 23% increase in third quarter earnings, boosted by strong sales of Windows, Office, and the new Halo 3 video game. Shares of the software giant climbed more than 9% on the news and provided support for the overall market.

Hurt by escalating mortgage defaults and recent credit market problems, Countrywide reported a $1.2 billion loss in the quarter. However, the nation's largest mortgage lender said it would turn a profit in the fourth quarter despite continued weakness in the housing market and elevated credit costs in near term. The outlook was reassuring for investors and prompted a short-covering rally in the stock.

long AAPL, MSFT

Microsoft Carries The Day

The market is getting a big boost at the open from strong earnings out of Microsoft (MSFT). The tech behemoth blew out earnings and raised guidance for next quarter as well. I was suprised at how strong their numbers were, but I don't want to look a gift horse in the mouth.

Also, Countrywide (CFC) reported a larger than expected loss this morning, but it raised guidance for next quarter and said it expects to return to profitability. The financial sector breathed a huge sigh of relief on this news, and it helped lift the overall market.

One of our holdings, MEMC Electronics (WFR) also reported strong earnings and the stock has been up as much as +18% today. This is helping the semi index a bit, but this sector has really been lagging lately. If it reverses and gets stronger, that should really help the tech sector into year end.

Asian markets were up across the board overnight, on rumors of another interest rate cut in the U.S. Bond yields are up slightly, with the 10-year at 4.38%.

Oil is hitting more record highs, topping $91 today. So far, it is not hurting the overall market too much, but it is a headwind nonetheless. Last night on CNBC, top management from Tesoro (TSO) said that he thinks there is plenty of oil supply, and that it is really speculation that is keeping oil prices as high as they are. fwiw.

long MSFT, WFR

Trade Update - Akamai Tech (AKAM)

My trade of the day is Akamai Tech (AKAM). The company reported solid earnings last night, and the stock gapped higher this morning, and remains up on very solid volume.

If you look at the chart above, you can see a large gap lower back in July, the last time the company reported earnings. This time around, I chose to sit on the sidelines until after the company reported earnings to avoid another big disappointment.

But the earnings were solid, beating estimates slightly. And full-year guidance was bumped up a bit. Though not as high as previous quarters, revenue and earnings growth easilty topped +40%. Free cash flow grew +56% yr/yr. And gross margins remain above 80% (wow).

The company remains a leader in the content delivery space, and its services will remain in high demand as more bandwidth-intensive applications migrate on the web (software downloads, video streaming, movie downloads, etc.)

Current EPS estimates for 2008 are $1.66, which puts the stock at a P/E of 22x. That is cheap for a fast growing stock like AKAM, and I think the stock will continue to recover. For what its worth, here are some analyst price targets I saw today:

• $42 - Thomas Weisel
• $45 - Pacific Crest
• $50 - Friedman, Billings
• $58 - Citigroup

If I had to put a price target on it, I would say that the stock can likely get back to a multiple of 35x, which would put my in-line with the Citi analyst ($58). That's a lot of upside, although it will likely take time to get there.

But I remain bullish on the market, and bullish on growth stocks in general (over value). So AKAM fits well into my playbook and goes into the portfolio.

long AKAM

Shaking Off The Financial Woes

While most of the day yesterday was focused on the big Merrill write-down, the market came back a lot by the end of the day, closing near its highs. This morning, the market is bouncing around on mixed data.

The durable goods report was weak, and took the market lower, but the new home sales report looked pretty good, and the market bounced. There was also good earnings reports from the likes of MOT, AET, EMC, and AKAM, to name a few.

Asian markets were mostly higher overnight, with Hong Kong hitting new record highs. Bond yields are steady, with the 10-year yield at 4.35%. But oil is higher again, with crude near $88.43.

Earnings season came make for a minefield in taking new positions. I am trying to find companies that have already reported solid earnings, whose stocks haven't taken off yet. Those should do well in the weeks ahead. If you have any good candidates, please share.

Hump Day Blues

I live just outside of Beverly Hills, so the fires are not down in my neck of the woods. While I know people who have been evacuated, for the most part I get my updates from TV. But this morning when I went out to my car, it was covered in ashes. Very sad. My thoughts and prayers go out to those who have experienced losses.

Speaking of losses, this morning's tape is a sea of red in the early going. This is somewhat surprising given that the Nasdaq 100 made a new high yesterday on strong volume. But sometimes new highs bring out a violent and opposite reaction, especially when you have companies reporting earnings.

Stocks like AMZN, BRCM, and RVBD are down a ton (-15% to -30%). This is surprising given that their earnings reports weren't that bad. But that is why earnings season is a game of expectations.

Semis are down the most, followed by the brokers. Merrill (MER) said that it was writing down $7.9 billion in CDOs and subprimes, significantly more than the initial $4.5 billion estimate. This is weighing on the financials.

The above, combined with more weak housing data, is also weighing on bond yields. CNBC just reported that the feds funds are now predicting a 100% chance of another rate cut next week.

Volatility is spiking, with the VIX +18% already, and the ARMS Index above 1.85. The market looks ugly right now, but there is a ton of time left in this trading session. So let's see how the market fares into the close before jumping to any conclusions.

Apple Reports Blowout Quarter, Helps Lift Nasdaq

The market is strong in early trading, led by the Nasdaq, which is more than +1.0% higher. The big catalyst was Apple's earnings report last night, in which the company trounced estimates and raised guidance for next quarter. Mac sales were surprisingly strong, and though they get the least amount of attention, AAPL is really a Mac story.

There were several other strong earnings reports, including AXP, DD, LMT, BNI, and UPS. The only real stinker was Texas Instruments (TXN). Actually, their quarter was okay, but the guidance was bad and the stock is -8% lower. This is weighing on the semi index.

Asian markets soared overnight, with Hong Kong up +3.5% and India up +5.1%. The Yen is moving lower, after a big day yesterday. I would like to see this one continue to slide.

Oil is down again today, trading near $85.60. I think oil has seen its highs for the year, but even at these lofty levels, the energy complex should make good money. I am looking at the oil service stocks, which have been weak lately.

Bond yields are steady, and the fed funds futures are pointing to an increasing likelihodd of another interest rate cut at the end of the month.

long AAPL, QQQQ

A Technimental Update

After five consecutive up weeks in the market, it shouldn't have been all that surprising that we had a down week last week. Although the S&P 500 did fall more than I would have guessed. But the Nasdaq outperformed on a relative basis, and continues to do so today.

I believed the market was due for a pullback as sentiment had become too complacent. But after last week's decline, we are starting to see sentiment move back in the right direction (if you are a bull).

The CBOE put/call ratio finally got back above 1.0 on Friday, and is above that level again today. Ditto for the ISE Sentiment index. Also, the VIX spiked 24% on Friday, which is a huge move. If the VIX is the "fear" indicator, its hard to argue that fear didn't creep into the market last week. While short interest on the NYSE edged slightly lower, the short interest ratio is still near a 5-year high (IBD).

Looking at breadth, the NYSE saw 94% downside volume on Friday. That is often a level associated with a washout of sellers. And the only readings in the last year where we have seen the oscillators lower than today were during the March and August corrections.

Am I calling a bottom? No. I use the price/volume action as my primary indicator. But I do take notice these sort of things I am seeing under the hood. And I did start putting a little money back to work late on Friday.

Markets Rebound As Nasdaq Bounces

The futures were lower before the open, but the market has begun to bounce, led by the Nasdaq. The market was sharply lower last week, after 5 straight up weeks, but the Nasdaq was a relative outperformer, and that trend continues this morning.

AAPL reports earnings tonight, and the stock is currently approaching $175 going into the call. iMacs have supposedly been selling well, as have iPhones, but the question is how high are expectations and how will the stock react?

Asian markets were sharply lower overnight, between -2% to -4%, and that weighed on our futures before the open.

But oil is down by over $2 right now, and that is a slight positive. Bond yields are steady at 4.41%, and valuations remain reasonable.

I am more focused on the Yen, which spiked higher on Thursday and Friday last week, and is up again this morning. Our markets have been unable to rally, for the most part, when the Yen is moving higher so I am watching for signs of the Yen running out of steam. Wishful thinking?

long AAPL

Stock of the Day: Google (GOOG)

My Stock of the Day is Google (GOOG).

Given how far the stock had rallied from its August lows, as well as the high $600 price tag, I think most investors were skeptical that it could continue higher after reporting earnings. After all, expectations had to be sky high, right?

But actually, the pu/call ratio on GOOG had hits its highest level in over a year. So there were plenty who were hedging their best. Anyway, the company reported a very solid quarter, and beat both top and bottom line estimates.

Expenses were a touch lower, despite monster hiring, and margins were up. The company said 3Q sites revenue grew +60%, and paid clicks grew +45%.

I wrote a summary of the conference call for TheStreet.com, and said that earnings estimates would be moving higher and price targets raised. I usually don't do price targets, but I said I could easily see $750, which might be conservative. I though I might be ridiculed for suggesting anything with an 8-handle on it.

But leave it to the analysts to beat me to the punch. Here is a roundup of the new price targets on Wall Street:

• $850 - Pacific Crest
• $815 - AmTech Securities
• $800 - CreditSuisse
• $800 - Goldman Sachs
• $785 - BofA
• $775 - Citigroup
• $750 - Cantor Fitzgerald

If we get the sort of melt up that often comes in the latter stages of a bull market, and if large growth stocks get more multiple expansion, then I think Pac Crest could be right.

long GOOG, GS

Markets Lower on 20th Anniversary of Black Monday

The markets are lower this morning, with downside volume trumping the upside. There were a lot of companies reporting earnings last night and this morning, but even most of the ones that beat estimates are still trading lower today.

The two standouts, that really reported solid quarters, were Google (GOOG) and Intuitive Surgical (ISRG). Those stocks got multiple upgrades this morning, and both stocks are up, ISRG by quite a bit.

Then there was a handful of companies that beat estimates, but the stocks are still down. They include AMD, SNDK, MMM, GILD, and SLB. The fact that they are all lower shows how sentiment has become too bullish, and the market still needs to correct more.

There were also several companies that missed earnings estimates, and those stocks are obviously weak. The culprits are CAT, HON, and WB.

Asian markets were lower across the board overnight, as record oil prices sparked profit taking. And the Yen is up for a 2nd day. Don't discount the effect this is having on our markets.

The Dow is down -225 right now. I bet the bears are trying to play on the 20th anniv. of the crash of 1987 and pressing their shorts today. Good luck.

long GOOG

Go Tribe!!

I want to wish good luck to my Indians tonight. Let's close this one out and get ready for Colorado--

Probably wishful thining. The Red Sox aren't going to go down without a fight. But CC is due for a big game tonight. I would be betting the "under"

Stock of the Day

My stock of the day is SunPower (SPWR).

The company reported earnings this morning that were solid. EPS beat consensus, and the company issued basically in-line guidance.

The stock sold off in early trading, likely on some initial disappointment that the company didn't raise guidance more. But I think that management was simply being conservative, as they have a short history of doing, which makes it more likely that they will beat the estimates again next quarter.

But that type of thinking slowly crept back into the market, and the shares began to recover. Then the company held its conference call, and a full blown upside reversal was in the works.

A look at the chart above shows how the stock reversed higher from its lows, and has carved out a large upside reversal. Additionally, volume has surged on the move.

Management indicated several positive factors, and forecasted continued growth in 2008 and beyond. They highlighted several large projects, and some foreign markets poised for significant growth.

They also commented that gross margins should approach 30% in 2008. I think this is well above where most analysts were modeling, which was more like 25%.

BIA is long SPWR

Financials Continue To Pressure The Market

The market is trading lower in early trading, after some very weak results were reported in the financial sector.

Bank of America (BAC) said profits plunged -32%, while ETrade (ETFC) and Wamu (WM) both reported weak results as well. All three of those stocks are trading lower, and weighing on the financial sector overall.

Considering financials are the biggest component of the S&P 500, this is acting as a drag on the overall market as well. It also doesn't help that oil is up again, trading near $88.50.

Also, the dollar is making fresh lows versus the Euro, and the Yen has spiked back above its 50-day. You know how much attention I have been paying to the Yen, and I think it will be hard for our market to rally at the same time the Yen is.

Asian markets were mixed overnight, with most higher, but China was sharply lower after the government made comments about arbitrage opportunities between Shanghai and Hong Kong listed shares. Also, I heard that all Internet searches in China are being directed to BIDU, and away from GOOG. Can this be true? Nice place to do biz.

If the market stays lower into the close, I will likely begin to dip my toe in the water with some of the cash I raised. Nothing aggressive, but I would like to start legging back in.

Market Wrap

I have been having problems posting any type of chart or image today on Blogger. So first I want to give a big shout to my beloved Tribe for a great game last night vs. the Red Sox, and moving 1 game closer to the World Series.

Still too early to celebrate, but not to get excited.

Now back to our regularly scheduled program. If you saw the market open this morning, and then didn't tune in again until the close, you probably thought it was a fairly uneventful day. But nothing could be further from the truth.

The market did rally big early on, but then it began to fade. Bonds started to get a bid, the Yen began to rally a bit, and stocks started to sell off. That selloff only picked up steam, such that it began to look terrible for the bulls.

It was looking like another big negative reversal for the market. And those types of nasty reversals usually mean more selling pressure is in store for investors. But before the end of the day, the market rallied again in a big way.

The Nasdaq went from being up +1.0% to going all the way into negative territory, and then rallied all the way back to +1.0% again. That is some serious volatility. I'm not sure what it means, as it could be exacerbated by options expiration, but I'm glad it ended on the upside.

I still think there is more consolidation in store for the market, at least some more chopping around. But action like today does make you wonder if the downside is limited.

Strong Earnings Reports Lift The Market

The market is getting a nice boost in early trading after several companies reported stronger than expected earnings last night and this morning.

Big companies like Intel (INTC), Yahoo (YHOO), Coca-Cola (KO), Abbot Labs (ABT), CSX, UTX, etc. all beat consensus expectations for earnings. This has given the market a boost, and helped the Nasdaq pop more than +1.0% so far.

Earnings estimates have been continually trimmed in recent weeks, such that expectations were running very low as companies began to report. Hopefully, today's action is a foreshadowing of more good things to come.

Actual earnings don't have to be all that good to beat subdued expectations, which means that more days of reporting like we have just seen could result in additional upside for stocks.

Asian markets were mostly lower overnight, led by a -1.8% plunge in India after the government moved to limit foreign investment. Japan and S. Korea were also lower.

Bond yields are lower this morning, on more benign inflation data, with the 10-year at 4.59%. And oil is roughly flat at $87.60 after several days of hitting record levels. The run in oil has been breathtaking, and while most people are asking how high is high, I think it is unsustainable in the near-term.

long INTC, UTX

Market Wrap

The markets were lower for a 2nd day in a row, on the heels of some weak reports from the financial sector. Volume was about even with yesterday, maybe a little higher.

Breadth deteriorated also, with the A/D line on the NYSE at -1444, and the Hi/Lo Indexes slipping back into negative territory.

Bearish sentiment rose slightly, as the put/call ratio bounced back to 0.94, while the ISEE was fairly low at 121. But we need to see bearish sentiment build even more, coupled with the market moving back to oversold, in order to set up for another good buying opportunity.

Bernanke spoke today and said that the Fed will continue to watch the economic situation closely and act as needed. Later in the day, the Catepillar (CAT) CEO said that the housing market in the U.S. is the worst since WWII. Additionally, Dataquick released a figure that said home sales in So. California were down -48% yr/yr.

So while the odds of another rate cut at the end of October have been going down, datapoints like the ones above would lend themselves to another cut sooner rather than later.

After hours, INTC and YHOO reported solid earnings and their stocks are higher. This could improve sentiment tomorrow, and help the markets bounce. But I am still sitting on the cash I recently raised.

long INTC

Trade Update - New Oriental Education (EDU)

New Oriental Educations (EDU) is up again today, after spiking higher yesterday on a surge in volume.

I wrote about the stock a couple of weeks ago when I was highlighting a group of Chinese ADRs that were all breaking out. I even took a trading long position in the stock to participate in the momentum.

But last Thursday, when the stock made a new high and reversed lower on the day, I took profits. As Homer Simpson would say, "Doh!"

So I left a nice chunck of change on the table. It is what it is. I can't tell you how many times this happens to active traders. It stings, but second guessing does little to improve your trading successes going forward.

Better to simply review your trades, write down your reasons for buying and selling a particular stocks, and make sure you are adhering to your own trading principles and rules.

no position

Financials Under Pressure, Weigh On The Market

The market is trading lower in early trading after Wells Fargo (WFC) and KeyCorp (KEY) both missed consensus estimates. Key also issued an earnings warning for Q4, while WFC said that softness in residential real estate hurt results, and would continue to be a drag into 2008.

The financial sector has the biggest weighting in the S&P 500, so when this group is down, it usually pulls down the averages with it. Oil is surging again this morning, topping $87, which is another headwind for the overall market.

GOOG got another price target bump up, this time by Needham to $690. A handful of big tech stocks are trading higher, which has pulled up the NDX from its lows.

Asian markets were mostly lower overnight, but Shanghai and Taiwan bucked the downward trend. And bond yields are down a bit, with the 10-year yield at 4.65%. It has been consolidating recently underneath its 200-day moving average.

I expect the market to remain mixed today, and choppy overall this week as it is options expiration week. I have not put any cash to work yet, despite the 2-day pullback.

long GOOG, WFC

Investor Sentiment Check Reveals Too Much Complacency

In my opening post, I alluded to the fact that investor sentiment seems to have become a bit complacent. Given how much the markets have rallied, this isn't surprising. Investors always become complacent toward the later stages of a given move.

But the indicators I track are flashing a caution signal right now, and this is why I have raised cash and moved to a more defensive position.

This morning, the volatility indexes (VIX/VXN) are spiking +13% higher, but the put/call ratios are still too low. This is not a good signal, and confirms what the moving averages of the put/call ratios are saying.

To wit, the 10-day average of the CBOE put/call ratio hit 0.84 Friday, one of its lowest levels this year. And the 10-day ISE Sentiment Index moved above 150, which also is a level that normally signals too much complacency among investors.

Looking at the investor surveys, we see a similar trend. The bull/bear spread in the Investor's Intelligence survey hit +39, its highest level this year. And bulls in the Market Vane survey reached 69%, also a lofty level.

I still think the markets will move higher into year-end. But this sudden spike in bullishness/complacency makes me a bit cautious in the near-term. I think the market needs to correct a bit, and could remain choppy for the first part of earnings season.

But if we rally strong later in the year, I would not be surprised to see these same indicators move further into bullish territory after a pause here.

Monday Morning Musings

The markets are lower in early trading, despite strong gains in Asia overnight and some minor news of more deals this morning.

Friday after the close, Biogen (BIIB) said management is exploring a possible sale. This has the stock up more than +20% this morning. And Danaher (DHR) said it is buying Tektronic (TEK) for $2.8 billion, a +33% premium to Friday's close.

The culprit for today's weakness is likely oil, which is surging to $85. That's quite a price, and while the energy stocks are mostly higher, the rest of the market is fading. One of the rumors cited for the spike in crude prices are the tensions between Turkey and Norther Iraq.

Asian markets were up strongly overnight, with more record highs. Bond yields are up a bit in the U.S., on some stronger economic data (NY Empire Index), with the 10-year yield at 4.69%.

I raised some more cash on Friday, as I think the market has gotten overbought and sentiment has become a bit complacent. Given the sizeable bounce we have seen from the August lows, it makes some sense that the market needs to consolidate some of its gains in the short-term.

Weekly Wrap

Here is the weekly recap from Briefing.com:

It was a modest up week for the major indices. That is a pretty good performance considering the very strong gains the prior week. The underlying tone remains moderately bullish with a dash of speculative excess.

The major news item this week was the release of the September 18 FOMC minutes on Tuesday. The minutes stated that in "their discussion of the economic situation and outlook, meeting participants focused on the potential for recent credit market developments to restrain aggregate demand in coming quarters." Furthermore, due to the "unusual nature of the current financial shock, participants regarded the outlook for economic activity as characterized by particularly high uncertainty, with the risks skewed to the downside."

In short, the Fed felt a need to reduce rates significantly because of downside risks to the economy resulting from financial market turmoil.

This does not imply future rate cuts are certain by any means. If the financial market turmoil has calmed, and the risks to the downside reduced, the rationale for rate cuts is greatly reduced.

Nevertheless, the stock market rallied after the release of the minutes. The market rallied after almost every Fed statement the past year, so the reaction may have been relief as much as anything, but the idea that the minutes note economic weakness as a factor likely to lead to more rate cuts was hard to substantiate.

The minutes certainly did make note of lower inflation rates, which appear sustainable and provide the room for further rate cuts should the Fed chose such action.

It was a light week for economic releases. What releases there were supported forecasts of moderate economic growth.

New claims for unemployment for the week ended October 6 dipped to 308,000 from 320,000 the prior week. Layoffs remain at low levels. The August trade balance dropped to $57.6 billion from $59.0 billion in July. That will help boost the third quarter GDP calculation a bit.

September retail sales rose a slightly stronger than expected 0.6%. And the September core PPI rose a modest 0.1%, bringing the year-over-year increase down to just 2.0%.

There was nothing in this week's data to suggest economic growth is weakening. The inflation news was bullish.

It was also a light week for earnings reports. Alcoa got third quarter reports off to a poor start, as profits were below expectations. Costco and PepsiCo beat Wall Street forecasts, however, and General Electric reported in line with expectations. Chevron, Target, and International Paper lowered profit forecasts. Wal-Mart and McDonald's provided upbeat outlooks.

The earnings reports this week were mixed and provide few clues as to the outlook for the flood of earnings reports that will start next week.

The Nasdaq outpaced the other indices this past week as high-cap tech stocks remain the investment vehicle of choice. This went to the extreme in the case of Google stock, which has been on a rampage. It closed at $637, up from just under $600 a week ago and under $500 in mid-August.

Oil was noteworthy as it closed the week at $83.69 a barrel after reaching a record high above $84. The yield on the 10-year note rose to 4.68% from 4.64% the previous week.

The underlying tone of the market remains moderately bullish entering the heavy period of earnings the next two weeks. The market is still sensitive to all economic releases, but the focus could well be on fourth quarter earnings guidance. There are still doubts that the economy has made it through the credit market turmoil in good enough shape to keep earnings rising in the fourth quarter and beyond.

Big Bounce For The Nasdaq

After yesterday's heavy selling, I think most thought the market would be weak again at the open. Asian markets were lower across the board overnight, as profit taking there set in following our selloff.

But the core PPI came out below consensus this morning (+2.0% yr/yr), and the retails sales report was above expectations. This coupled with a buyout rumor of ORCL for BEAS brought out the buyers.

The NDX is up over +1.1% in early trading, quite a surprise. I know its still very early in the day, so we'll have to see if selling pressure shows up again in the afternoon session. But its a nice bounce, if for no other reason than an opportunity to lighten up if you need to.

Bond yields are steady, with the 10-year yield around 4.66%. And oil is pretty flat also, hugging the $83 level.

Semis and biotechs are up the most so far, as a group. While homebuilders are again lagging.

Nasty Reversal In Techland

The tech market has a nasty reversal today. The chart above of the Nasdaq shows what is called a negative reversal. The market was higher early, and then reversed negative into the close.

What is more, volume really picked up today. So this makes for a distribution day as well. The selloffs were particularly nasty in the big tech stocks that have led recently. Check out the charts of AAPL, GOOG, RIMM, BIDU, etc. to see what I am talking about.

A big brokerage firm downgraded BIDU midday, and that started the profit taking. Then the ECB came out and said that the European central bank may need to raise rates more and become more restrictive.

This exacerbated the selling, given that we have been deeply overbought, and everyone rushed to take profits at once. The volatility indexes spiked higher, but the put/call ratios were fairly subdued, as was the ARMS Index.

This means that complacency has worked its way into the market for the time being, and todays action could mark a short-term top. I still think we finish the year higher, but we need to have a little overdue digestion period first.

How long will it last? Hey, now, let's just take it one day at a time and see how the landscape unfolds first.

Have a good night. And if you didn't take any profits today, think about raising a little cash in the morning.

long AAPL, GOOG, RIMM

GOOG Getting Extended On Analysts Love Affair

A look at the chart above shows the big run Google (GOOG) has had. The green shading on the RIS Indicator at the top shows that the stock has moved into overbought territory. This makes the stock vulnerable to a pullback.

One of the reasons that GOOG has been running so hard is that the analysts are finally waking up and realized that the stock should be more highly valued than it has been. This is one of the great growth stocks out there, and it deserves a premium multiple. This is one of the main reasons that the stock has remained my largest position, and I have resisted taking profits.

So it makes sense that as the stock finally started to breakout, the analysts who have been lukewarm on the stock would react by raising their price targets.

Here is a look at some of the price target upgrades we have seen just this week:

• $740 - Merrill Lynch
• $735 - Stifel Nicolaus
• $714 - Lehman Bros.
• $710 - Stanford Research
• $690 - RBC
• $670 - Banc of America

And Cramer jumped on the bandwagon last night and said he sees the stock going to $750. If GOOG earns $20 next year, then a $750 PT would imply a P/E of 37x. This sounds reasonable to me. I wouldn't be surprised to see the stock get a 40x multiple at some point. That would not be out of line for one of the best growth stocks out there.

And GOOG has a pretty good history of beating the earnings estimates. I just read an article about the next wave of growth coming from serving up ads on video. And I don't think any of these revenues are "in" the estimates.

So if we go out on a limb, and say that maybe GOOG earns more than $20, and at some point trades at 40x earnings, then it is not unfathomable that the stock could see an 8-handle at some point next year.

For all of its hype and attention, the stock is only up +35% this year. That's not bad, but there are many growth stocks out there that are up much more. So let the stock come in, that's just normal profit taking. But I certainly don't think the run for GOOG is over.

long GOOG

Retail Sales Update

The same-store sales figures for September came out this morning, and they were pretty lackluster. But is important to note that expectations were already farely low, so the stocks aren't down much on the news. The RLX is actually higher today.

Here is a rundown of some of the highs and lows:

• ARO: +1.3% (vs. -0.5% consensus)
• COST: +6.0% (+5.3%)
• KSS: -3.2% (-3.8%)
• PSUN: +2.7% (+1.1%)
• ZUMZ: +13.9% (+6.3%)
• ANF: -4.0% (-1.9%)
• AEO: -2.0% (+1.2%)
• CHS: -8.3% (-7.1%)
• DDS: -7.0% (-3.5%)
• GPS: -7.0% (-4.9%)
• JWN: +3.2% (+5.0%)
• SHRP -21% (-13.3%)

The only one that really stands out is Zumies (ZUMZ). That +14% sales number is very strong, and the stock is reacting in kind. The stock gapped higher at the open, and is up +11% to a new high.

Is This Market 'The Little Engine That Could'?

I was out most of yesterday afternoon, which is why I only posted once yesterday. But the market hung in very well, especially the Nazz which was up on the day again.

This morning we are getting another strong rally, led by the financials as well as energy. And let's not forget tech, which has really been the stalwart of this recent uptrend.

Goldman upgraded AAPL this morning in terms of raising its price target to $190. And GOOG received 3 price target revisions, ranging from $690 to $735. The stock is up another $13 this morning. Nice.

PEP beat earnings estimates, and WMT raised its EPS guidance, so there are positive datapoints in just about every industry. Oil is back up above $82, and this is helping most of the stocks in the energy complex. Pretty much a bear's nightmare.

Asian markets were higher overnight. The Bank of Japan held rates steady at 0.5%, and the Yen is lower again. Remember, this is my favorite "tell" right now.

Bond yields are a touch higher, likely on easing worries about weak economic growth. The 10-year yield is at 4.69%.

long AAPL, GOOG, GS

N's Over S's - Nasdaq Outperforming

The markets opened in negative territory, but the Nasdaq has pulled into the green in early trading.

Costco (COST) reported a strong quarter, beating consensus estimates. The stock spiked higher by $5 to a new high.

GOOG is getting more broker upgrades. Today, Merrill (MER) raised its price target to $740 from $590. They're even more bullish than me!

Alcoa (AA) reported earnings yesterday that were nothing to write home about. But the buyback was breathtaking. AA increased its buyback from 10% of shares outstanding to a whopping 25%. They are going to buy back a quarter of all its shares. Wow, that should keep a floor under the stock.

I think this is notable, and that we are likely to see a lot more buyback announced and increased when companies report their earnings over the next several weeks.

Asian markets were up again overnight, with more new highs in China. Bond yields are steady, with the 10-year around 4.65%. And oil is steady, with crude prices just above $80.

long GOOG

Midday Update: Release of FOMC Minutes

The markets have been vascillating between flat and up a touch most of the day. The FOMC minutes were just released, and after a brief dip the markets are again in positive territory.

Here is a summary of the comments from the last FOMC meeting:

• Fed says without cut, tighter credit, housing slump could weaken output, employment
• Half-point cut appropriate to help offset effects of tighter financial conditions
• Fed says given financial shock, outlook for economic activity highly uncertain,risks skewed to downside
• Fed sought to avoid balance of risks' statement on Sept 18
• Fed says more confident decline in inflation would be sustained
• Fed cited 'some concern' about effectiveness of Aug. 17 action

Rally In Google Helping Bullish Sentiment

My alarm goes off everyday at 5am, and despite doing so for the last 15 years, I still hate getting out of bed. So today I decided to celebrate my own birthday by sleeping until 7am. Wow, almost like being back in college, huh?

I also want to give a big shout-out to my beloved Indians who took care of the Yankees last night to win the ALDS. Next up, the Red Sox. Bring it.

The market is up slighly in early trading. YUM beat consensus estimates this morning and raised its outlook. The stock gapped higher at the open.

Google (GOOG) is rallying again, topping $620 this morning, and analysts are now starting to raise their price targets. Better late than never. BofA raised its price target to $670. My price target is $700.

MSFT is also nicely higher this morning after Goldman Sachs (GS) raised its earnings estimates for 2008-2010 on the positive outlook for Halo3 and aQuantive business.

Asian markets were up strongly overnight, led by India which soared. Bond yields are steady this morning (the bond market was closed yesterday). And oil is back above $80, which is pushing all of the energy stocks higher.

long GOOG, GS, MSFT

Midday Check

Is complacency creeping into this market?

While the volatility indexes and ARMS Index are higher today, the ISE Sentiment Index is showing readings that we have not seen in awhile. The ISEE is above 200 right now, flashing signs of complacency among investors.

Now, one day does not make a trend, but if this keeps up, it will be a sign to take some profits off the table.

AAPL is ramping over $165 today, while GOOG has topped the $600 level. Both are in record territory, and enjoying big runs since the August lows.

The weakness in the overall market today can squarely be attributed to oil, which is down over $2. This is causing a selloff in the energy stocks, which is weighing on the market.

But I am more interested in the action in the Yen. The above chart of the Yen ETF shows that the Yen has broken its recent uptrend, and that bodes well for our markets. This has to do with the carry trade that I've written about. And with the Yen moving lower, fears of an unwinding of this trade have subsided.

long AAPL, GOOG

Monday Morning Musings

The market put in another very solid week last week, with the SPX gaining +2.0% and the NDX surging +2.8%.

The tech sector is higher again this morning, following a merger in the software space with SAP acquiring Business Objects (BOBJ) for $6.8B in cash.

And GOOG is hitting $600 this morning, reaching my price target a little faster than I had expected. I still think the stock has good momentum, and could reach maybe $650 in the near-term if their earnings report looks good.

There was also a merger in the industrial space, with Textron (TXT) buying United Industrial (UIC) for $1.1 billion. So deals are still being done.

Asian markets were mostly higher, with China reaching new highs. Oil is down this morning, falling below $80. This is weighing on the energy complex. And bond yields are steady at 4.64%.

After 4 consecutive weeks of gains for the major indexes, I would not be surprised at all to see the markets take a breather this week, or at least see some choppy trading.

Jobs Report Comes In Just Right

The market is taking a liking to this morning's jobs report. The economy added 110,000 jobs in September, slightly higher than the 100k consensus. More importantly, last month's decline of -4000 jobs was revised to a gain of +89,000.

This type of job growth is still below trend for a growing economy, but it is much better than the bears had feared, and not indicative of an economy on the brink of recession.

The bond market agrees, and yields on the 10-year are up this morning to 4.61%. But this is still below the fed funds rate of 4.75%.

RIMM reported a great quarter last night, and the stock is +10% higher this morning. I was prudent and took a little of the table before they reported. Oh well, I'm still pleased.

Asian markets were mixed overnight, with Japan down slightly but Hong Kong surging. And the Yen is lower again this morning.

Oil is also lower this morning, which is weighing on the energy complex. But it remains above $80. Has oil put in a near-term top?

The SPX rose above 1550 this morning, and is very near making a new yearly high. It would join the Dow and the Nasdaq which have already made new highs earlier this week.

long RIMM

Uneventful Day

The market is sauntering into the close, little changed from my opening post.

Most sectors were mixed, with industrials looking strong and financials somewhat weak, especially the brokers.

Gold and oil reversed higher on the day, which may have weighed on things a bit. But for the most part, the market is simply waiting until tomorrow's jobs report before investors make any big moves.

The put/call ratios were subdued today, and volume ran light all day. Better to just gear up for tomorrow.

I am heading out a little early to go catch my beloved Indians in the playoffs. With that, I just want to say GO TRIBE!! (yes, that's the old school logo from the last time the Tribe won the World Series).

Market In Holding Pattern Until Tomorrow's Jobs Report

The market is up slightly in early trading, but I don't expect any big moves until tomorrow's payrolls report. The maginot line is 100,000 jobs added, so any number that is materially higher or lower will bring out a lot of volatility in the market.

If you are trading tomorrow, my advice is to sit out the morning, as the economic data tends to make is too whippy. Better to wait until cooler heads prevail later in the day and put on your positions then.

NTRI is getting whacked this morning (35%) after warning that 3Q earnings and revenues would be lower.

Asian markets were lower last night, most likely due to profit taking after a big run. Bond yields are steady, with the 10-year yield at 4.54%. And oil is down slightly, trading just below $80.

Healthcare stocks are the strongest so far (+1.1%), while homebuilders are the weakest (-1.8%).

After the close, RIMM reports earnings. This will be a closely watched report as it is the first big growth stock to report earnings. The stock has had a big run, so expectations are high, and it will be interesting to see how the stock reacts.

long RIMM

Sears Holdings (SHLD) Breaks Recent Downtrend

Sears Holdings (SHLD) has been mired in a downtrend since it first gapped lower in early May. Granted, the earnings reports since that have not been stellar, but the stock has lost fully -30% of its value.

Recently, the stock has been groping to find a bottom, and today's looks like the first solid step. The stock rose sharply over the last two days, and today it gapped above its downtrending 50-day average. And volume surged higher, indicating conviction behind the move.

The stock now looks like it has broken that downtrend line. What you want to watch for now, is if the stock can turn that former resistance into support, and bounce off of its 50-day on any pullback.

This stock also has considerable short interest. As of the most recent figures, short interest as a percent of float rose to 18%, a hefty figure. This could mean if the stock stays strong, any moves higher could be exacerbated by short covering.

BIA is long SHLD

Personal Finance: Incentivizing Kids In School

I read an interesting article in Kiplinger's today. It was about whether you should pay your kids for good grades. The author said that is taking yourself down a slippery slope.

I have little kids at home, so I often wonder how they will do in school, and how I can light a fire under them to do better. I don't think its bad to use money as an incentive. I mean, this is the real world. And when they get a job, they will surely be incentivized by money to do a better job.

My initial thoughts would be something like $100 for every "A" they get. If they get straight A's, they can make some good money. But even if they only get one A, at least they get something. So if it looks like they can't get an A in a certain class, at least they won't just give up and quit.

• Here is what the Kiplinger's article had to say:

A plan by New York City's mayor Michael Bloomberg and schools chancellor Joel Klein to pay fourth- and seventh-graders for high test scores has prompted plenty of reaction.

In a tongue-in-cheek blog written by "NYC public school parents," the authors note that the kids are holding out for higher compensation. And a group of students calling themselves "Fifth- and Eighth-Graders for Fairness" are demanding retroactive pay for last year's tests.

In the Christian Science Monitor, one mother recounts a conversation between her 13-year-old son and his friends comparing rewards for their good report cards: a laptop for straight As, a cell phone, $10 per A. "What about high school and beyond?" frets Mom. "What would be left after the electric guitar, the portable DVD player and the iguana in the bedroom?"

Although these comments are meant to be humorous, they highlight a couple of serious problems with paying kids for grades. Because once you start down this slippery slope, you have to keep raising the stakes. And once kids get old enough to earn their own money, you lose leverage.

To read the rest of the article, click here

Market Hoping For Lukewarm Payroll Report

The market is slightly lower in early trading, but nothing major. This morning, ADP estimated that 58,000 jobs were added in September, which supports expectations for a payrolls report on Friday in the neighborhood of 100,000. That would be just fine for the market.

If the number is too strong, the market will likely worry that the Fed is done cutting rates. And if the number is too weak, the market will worry about recession. Tough game. Although these concerns are always most pronounced on Friday, and the subside as emotions calm down.

Asian markets were mixed overnight, with Japan higher and Hong Kong sharply lower. The Yen is also lower this morning, which is a big positive for U.S. markets.

Oil is steady near the $80 level, and bond yields are up a touch with the 10-year at 4.56%.

I think yesterday and today have been good examples of benign consolidation. We could have seen more profit taking after Monday's strong rally, but there seems to be an underlying bid below the market.

Slight Profit Taking In Early Trading

The market is seeing some profit taking after yesterday's strong rally. The media is quick to point out the weak pending home sales report that came out this morning, but the homebuilder stocks are up, so that theory doesn't hold much water.

There was some deal activity today, as TD Financial Group (TD) is buying Commerce Bancorp (CBH) for $8.5 billion. This is helping push the financials and brokers higher.

The dollar is also stronger this morning, which is accompanied by a bid drop in both oil and gold. The energy stocks are down across the board, and this is likely what is weighing on the market. When a group of leading stocks like the energy complex sells off, it often hurts the overall market in the near-term. But longer-term, a continued drop in oil prices would be cheered by investors.

Asian markets soared overnight, with some of them hitting more record highs. Greenspan commented that China looks like a bubble? Gee, thanks Al.

Mutual Fund Monthly

The markets had a strong Q3 overall, despite the severe correction in mid-July-August. The theme of growth over value was prominent, and the disparity among the investment styles grew.

To wit, here are how the various Morningstar categories are faring YTD:

• Large-cap growth: +13.8% vs. Large-cap value: +6.9%
• Mid-cap growth: +19.8% vs. Mid-cap value: +1.5%
• Small-cap growth: +13.4% vs. Small-cap value: -3.2%

I also like to take a look at how all the mutual funds are faring in the universe that we follow here. Here is my top and bottom five (returns are YTD as of 9/30):

Top 5

CGMFX: +60.6%
IGNAX: +34.9%
DRIDX: +30.0%
JAOSX: +27.6%
TGVAX: +27.5%

Bottom 5

SWHIX: +3.1%
HFCGX: +3.2%
STSCX: +4.8%
SLASX: +6.7%
SSHFX: +7.1%

And I should give a shout to our best performing bond fund (PLMDX), which was up +9.6% ytd, and beating a handful of equity funds.

The big surprise is how many funds are beating their benchmarks. Our accounts have been overweighting growth funds, and also International, which has helped. I suppose if you are still in those funds that had outperformed over the last several years, you could be experiencing some frustration.

But I still don't think it is too late to make this shift. I think the relative outperformance of growth over value is still in its early stages, and should persist for some time.

Beverly Investment Advisors has positions in all funds mentioned

Monday Morning Musings

The market is shrugging off a bevy of bad news before the open, that a few weeks ago likely would have pushed the market lower in a big way.

Citigroup issued and earnings warning, UBS said it will take a $3.4 billion write-off in its fixed income department, and the Acxiom deal is being called off.

But the market seems to be viewing these items as old news, and looking forward in time. The Dow is sitting just below the psychological 14,000 level. So it's likely we will get a new closing high on that index soon. Ditto for the Nasdaq.

Asian markets were higher overnight, and the Yen is lower this morning. Remember, the Yen is one of my most important indicators right now, as its correlation with the U.S. markets has been strong.

Bond yields are lower, with the 10-year yield at 4.55%. And oil is also lower, sitting near $81.

Some of this strength may be due to new fund flows that come in at the beginning of a new month and quarter. Let's see if the strength can last 'til the closing bell.