Tuesday, July 31, 2007

Fear Spikes On Today's Market Decline

The news today that mortage lender AHM could not meet its margin calls and may have to liquidate weighed heavily on the financial markets.

The early strength we saw this morning quickly subsided, and the markets staged large reversals. This news may not have had the same magnitude when the markets were at their highs, but when the market is in a correction, this type of news always spooks investors.

But is important to remember that we have seen a 6-8% selloff in each of the last 4 years. Currently, the S&P 500 is down -6% from its highs. In each of those prior selloffs, the market went on to recover and make new highs. I don't think this time will be any different.

In each of those selloffs, the fear indicators we follow showed dramatic spikes higher. From a contrarian perspective, this is good as it helps the market bottom. Today, we saw many of these indicators spike again. To wit:
  • The volatility indexes spiked +13%, above March levels
  • The ARMS Index surged to 2.50
  • The CBOE put/call ratio hit 1.26, a very high level
  • The ISEE fell to 105

The S&P 500 is also extremely oversold, though it remains above its long-term 200-day moving average. So while it is difficult to pinpoint exact bottoms, my game plan has not changed as a result of today.

I still think it is likely that the market will bounce from these oversold levels. After a bounce, it will likely have some sort of retest of the lows, and from there a more solid bottom will be in place and the market will go on to make new highs. Valuations are still very reasonable, the job market is strong, and the global economy is solid.

There is no reward without risk. But we should all be used to it by now. The wall of worry we continually talk about is still firmly in place.

Credit Concerns In The Mortgage Market Take Down AHM

The liquidity problems eminating from the mortgage market appear to have taken another victim today.

American Home Mortgage (AHM) said that the liquidity crunch it is experiencing has made it so that it can no longer fund home loans, and it may have to liquidate assets. That is basically like saying that they don't know how much longer they can stay in business.

Take a look at that chart above. The stock was halted on Friday, and when it opened today, it was soon trading below $1. That's right, $1. The stock was above $20 a month ago.

This is an example of the extreme stupidity that these lenders went to in order to fund any and every loan they could during the real estate boom. But no party ends without a hangover. Unfortunately, the debacle is weighing on the entire financial sector, which in turn is dragging the whole market lower.

The financial crisis that is hitting the mortgage market has to be first and foremost on the Fed's radar. I'm not sure how long they can sit by and watch companies go under without throwing the industry a lifeline in the form of a rate cut.

And it doesn't help that oil prices are making new highs today. Are you listening, Ben?

Strong Earnings, Subdued Inflation Report Boost Market In Early Trading

The market staged a big rally in the first hour of trading, but it is already started to give most of it back. Now you know why I dislike strong opens.

Sun Micro (SUNW) and GM both posted strong earnings, but it was the inflation news that really sparked the rally. The Fed's favorite inflation indicator, the core PCE, came in at +0.1% (consensus +0.2%). This leaves the year/year rate at 1.9%, well withing the Fed's "comfort zone". This could make it more palatable for the Fed to cut rates, if and when.

Asian markets rose sharply overnight, save for Japan which was hurt by investigations in its steel industry. Bond yields are steady at 4.80%, and oil is inching higher again, trading near $77.50. Rising crude prices could be weighing on sentiment.

The financials were strong out of the gate, but have since faded. We need the brokers to stay strong today to help this rally. Let's hope we see the buying power return late in the day, as month-end influences could play a factor.

Monday, July 30, 2007

Not A Bad Little Bounce

The market enjoyed a nice little bounce today. It wasn't huge, but it was a solid reversal from the early selling pressure. Moreover, volume was pretty solid on the NYSE. And as I have said, I think the market can build on this rally over the course of the week.

It was also nice to see the financials participate. The semis led the way (+1.7%), which is a good barometer for growth stocks. But the bank index gained +1.6%, and the brokers bounced +1.3%. Actually, it was the upgrade of Morgan Stanley's (MS) credit rating midday that really lit a fire under this rally.
My game plan is to stay long for this bounce, and lighten up a little if and when the markets run into resistance. The fact of the matter is that the technical damage that we have seen in the charts doesn't mend itself overnight.
Market bottoms are a process. We have seen the first leg of the decline. Now, the normal pattern is for the market to bounce, and then come back down for some sort of retest of the recent lows. That action will need to be closely monitored to do more buying for what will hopefully be another strong second half rally.

Looking For Relative Strength

Last week, I posted that the market was getting heavily oversold, and that it should experience a nice bounce this week.

I think that we are seeing the start of that today, as the market is rallying. I put a lot of cash to work last week, and this morning I added a few extra trading longs to my personal account.

These are just short-term trades, to take advantage of what I think will be a tradeable bounce. I was looking for strong stocks that held up well during the recent market selloff. Some of the stocks that came up on my screen were:

Here is a quick link to the CandleGlance charts for these stocks. Happy trading-


Monday Morning Musings

The markets are getting a small bounce in early trading, after closing at their lows on Friday. There should be some sense that stocks are heavily oversold, after one of the worst weekly declines in the last 5 years. I still believe the markets will bounce this week.

Investors may have been disappointed that there were no blockbuster M&A deals announced this morning, like there has been on many Mondays. But the pace of M&A was due for a breather, credit concerns notwithstanding.

Bond yields are slightly lower this morning, with the 10-year around 4.77%. And oil is also trading down, around $76.50. Also, Asian markets were almost all higher overnight, which bodes well for our markets.

Other than that, there is not a ton of news. We get some big economic reports this week, like the core PCE (inflation) tomorrow, and the payroll report on Friday.

Friday, July 27, 2007

Under The Radar: Don't Forget About The Yen

Remember that nasty selloff in late February. One of the causes for that selloff was the concern over the unwinding of the "yen-carry trade".

If you look at the chart above, you can see the big spike in the Yen back then, which exacerbated the declines in the markets.

While everyone was solely focused on the subprime credit markets here in the U.S. this week, don't discount the sleepy move higher in the Yen as well. More than a few market participants are involved in this trade, and when the Yen starts rallying, they start sweating.

I don't think it becomes a big problem, but it is worth keeping on your radar.

GDP Report A Bit Better Than Expected

The market opened lower again this morning, but has since rallied back to positive territory. An advance Q2 GDP report today showed the economy bounced back to a +3.4% pace (vs. +3.2% consensus). Additionally, the inflation component of the report ticked in at +2.7% vs. consensus estimates of +3.4%. So there were some positive datapoints there.

There is some talk that KKR could pull their expected IPO, due to the market jitters. While some will say its entirely due to what's going on in the bond market, don't discount how Blackstone (BX) has fared since coming public. The stock hit $38 the day it opened, and today trades at $24. Not a very good showing.

Asian got walloped overnight, taking its cue from our markets. S. Korea and Tawain were hit the hardest, both down over -4%. I suspect this will likely be another good opportunity to add exposure to some of these Asian markets.

Oil is trading higher this morning, back up over $76. And the 10-year yield fell all the way to its 200-day moving average before bouncing. It is trading near 4.80%.

I suspect today will be a mixed day, as most won't want to get aggressively long ahead of the weekend. But next week I believe we should see a nice bounce from oversold levels. It will also be month end, which sometimes favors money being put to work.

Thursday, July 26, 2007

Sizing Up Today's Selloff

The selloff today was meaningful, but it was hardly as bad as the plunge on Feb. 27th. On that day, the SPX fell -3.5%; today it declined -2.3%. On that day, the NDX fell -4.0%; today it fell -1.2%. (The relative outperformance of big-cap tech and growth stocks is noticeable, and has been going on for nearly 3 months now.)

But as I mentioned earlier, there were some notable spikes in the fear indicators I follow, and that bodes well for a bottom sooner rather than later. Let's take a look at some:
  • The VIX spiked +27% to 23, exceeding February's levels (see earlier post)

  • The new lows on the NYSE surged to 777 (see graph below); I believe this is the highest number of new lows since the bear market in 2002 (I will confirm tomorrow)

  • The CBOE put/call surged to 1.52 today, pushing the 10-day average well above 1.0

  • The market is now the most oversold since March (see chart below); only 24% of stocks on the NYSE remain above their 50-day moving average

Market Feels Like It Is In A Free Fall

The markets have been selling off all day, and feel like they are in a bit of a freefall.
It's hard to watch the market on days like today, as panic ensues and the selling intensifies. But my years in the market have taught me that days like today often represent better buying opportunities than selling ones. It may not be "the" bottom today, but we are likely close.
The chart above shows the volatility index (VIX), which is commonly known as the "fear" index. You can see that today it has spiked above the levels we saw in March. Usually the VIX experiences its biggest spike toward the latter stages of a selloff, when the most market participants throw in the towel. I think that is what we are seeing today.
Again, to be successful, sometimes you have to do some buying when it simply feels the worst. That is how I feel today. So I have put some money to work, and now I will wait for the market to bounce. Remember, market bottoms are often a process, but I think a bottom is well underway.

Continued Angst Over Credit Crunch Weighs On Market

The market is down significantly this morning on the same fears that were around yesterday. Go figure. There was no real specific news, just lingering fears that a credit crunch is developing, and that it could signal an end to the LBO boom that has supported the strong M&A activity recently.

I think these fears are overblown, but as we said, perception is reality. M&A activity was running at an unsustainable pace, and was due for a breather. Late summer heading into August is a natural time for this slowdown to occur.

Sure, the pressures in the subprime and high-yield credit markets are exerting pressure, but I don't think it signals an end to the LBO game. Corporations still have a ton of cash on their balance sheets, and private equity is still flush with cash also. I think yield spreads will narrow again, once this mini panic subsides.

On the earnings front, strong earnings from AAPL and QCOM don't seem to be enough to offset the surprising weak numbers from Exxon (XOM). And oil is up today, near $77.

But bond yields are falling again, with the 10-year down all the way to 4.84%. This should help support the markets, and improve liquidity. The VIX hit 20 this morning, the same level it reached back in March.

With that, I am going to start making my first leg of purchases with the cash I had earmarked for a correction. Since it is difficult to time the exact bottom, it makes more sense to make your buys in stages. Get to work.

long AAPL, XOM

Wednesday, July 25, 2007

Apple (AAPL) reports earnings after the close today, and will definitely be the most watched and talked about stock in the market.

As for how the stock will react to earnings, that is a toss-up. On the one hand, given the run it has had, a strong case could be made for the stock pulling back after earnings.

On the other hand, the company has a habit of giving conservative guidance, so if they beat the numbers by a material amount, the stock could rally. I don't mean to sound wish-washy, but it is a tough call to guage such a short-term move in the stocks.

Given how low short-interest is in the stock, I would put higher odds on a selloff. But any weakness is probably a better buying opportunity than selling longer-term.

Aside from AAPL, the market is getting heavily oversold now, moreso than it has been in months. So traders may want to look at some stocks that are holding up well right now, and that could rally further if the market gets a bounce that lasts more than a few hours.

Here are some stocks that are moving on above-average volume today:


long AAPL

Is This Just An Oversold Bounce?

The market is getting a sizeable bounce at the open, but is it just an oversold bounce? Most likely, but let's see how the day unfolds before we jump to any conclusions.

AMZN reported strong numbers, but not this strong. The stock is up +25% likely on a flurry of short-covering, as short interest in the stock remains high. Boeing (BA) also reported strong results, boosting its stock.

Asian markets were lower overnight, led by declines in oil companies in Japan, Australia, etc. Bond yields continue to slide on the weakness in the housing and credit markets. The 10-year is down to 4.91%. And oil is trading up a bit, near $73.85.

If you wished you had more cash on the sidelines during yesterday's schmeissing, then use bounces like this to do some selling. I believe the concerns in the credit market, in addition to the all out assault by the bearish macro funds, will result in more downside in the weeks to come. I am still bullish, but believe a better buying opportunity awaits.

Tuesday, July 24, 2007

Chalk Up A Nice Day For The Bears

The selloff that started at the opening bell accelerated into the close today, with the Dow shedding more than 200 points, and the SPX experiencing its biggest one-day selloff since March.

The breadth in the market was horrible today. There were nearly 3000 decliners on the NYSE, more than 93% of the volume was to the downside, and there were also 352 new lows. That is one lopsided day.

Of course, when I went back and looked at the statistics from March, a day like today was very close to the bottom. I suspect that today is probably getting us close to another bottom, and I will likely look to use further weakness to cover my short exposure.

Perception is reality in the market. And today, with rumors spreading about the subprime market, scary comments from CFC, and bears like Bill Gross trotting out on CNBC spreading more fear, it doesn't really matter what's behind the comments. The market is in the grips of a selloff.

You can see the rise in fear in the +10% spike in the VIX (back to March levels), the rise in the ARMS Index (1.60), or the surge in the put/call ratio (1.42). These are good signs from a contrarian perspective, as they should help the market bottom sooner, and lead to another rally down the road.

The market is also getting deep into oversold territory, so I would expect a near-term bounce as well. But then we will likely come back down to test today's lows. Remember, market bottoms are a process, so you don't need to be a hero. But you should have your buy list ready.

Subprime Rears Its Ugly Head Again

The market opened under heavy selling pressure this morning, after Countrywide (CFC) badly missed earnings and said that delinquencies rose across all mortgage products, causing the company to slash earnings forecasts.

Also, American Express (AXP) missed earnings, Texas Instruments (TXN) offered weak guidance, AT&T said iPhone activations were weaker than expcted, and a proposed LBO deal for a GM unit has been postponed.

All of the above were enough to cause investors to hit the sell button first, and ask questions later. The subprime news is nothing new, but anytime you have a shock to the financial system, it weighs on the overall market.

Asian markets were up across the board last night. Bond yields are lower today, with the 10-year near 4.94%. And oil is plunging again more than a buck and a half, to $73.25. So there are some positives.

Also, sentiment is beginning to get jumpy again. The volatility indexes are spiking nearly +8%, and the put/call ratios are high. The backdrop today is very reminiscent of last summer, and I would not be suprised to see it unfold in a similar fashion. Angst will rise, the shorts will press their bets, the market will experience some pressure, and it will prove another good buying opportunity into year-end.

Monday, July 23, 2007

Another Update on SIRF

SiRF Tech. (SIRF) got another boost today after TomTom reported strong Q2 results.

TomTom raised its 2007 personal navigation device (PND) unit forecast, implying a positive trend for SIRF. TomTom said the outlook is strong both in Europe as well as the U.S.

I have said that in addition to the PND market, I thought 2007 would be a good year for SIRF as its location-based services (LBS) rolled out at wireless operators. The analyst note out this morning from Jeffries maintains the same thesis.

The analyst has a $34 price target on the stock. I have been looking for a run back to $30, where I would look to take profits on my recently added shares.

Today, the stock got up to $25, and has risen more than +20% from its June bottom. I actually hedge my long position a bit on this morning's strength. I am still holding out for higher prices, but the company reports earnings next Tuesday, and that has been a significant source of volatility in the past.

Monday Morning Musings

After last week's drubbing, stocks are getting a nice bounce in early trading. A lack of any bad economic news coupled with more M&A activity is luring buyers back into the market.

On the earnings front, both Merck (MRK) and Schering-Plough (SGP) reported strong results. That is lifting the drug sector. In M&A news, the big merger in the oil patch is Transocean (RIG) and GlobalSantaFe (GSF). Also, URI is being taken private for $6.6 billion, and there is a rumor that Tellabls (TLAB) could be taken out.

Oil prices are plunging more than a buck, pushing crude prices back down below $75. Bond yields are also steady, witht the 10-year around 4.95%. These two factors should help support equities.

Asian markets were mixed overnight, with China and India up, but Japan and Australia lower.

The pressure on the financial sector is not going to go away overnight, even though it has temporarily been forgotten by investors this morning. I still have cash on the sidelines, and will wait for some futher weakness to deploy some of it.

Sunday, July 22, 2007

Weekly Recap

Here is a copy of Briefing.com's Weekly Wrap:

The major averages finished the week lower, as investors digested some disappointing earnings results and ongoing concerns about the economy and the health of the sub-prime mortgage lending, following the market's recent strong gains.

Corporate financials took center stage in the past week, with second quarter earnings season now in full swing.

Overall, the reports have been moderately good, but not outstanding, with large multinational companies faring the best because of foreign exposure as well as substantial share buybacks.

Twelve Dow components highlighted the lengthy earnings calendar, which also included reports from other luminaries such as Yahoo! (YHOO), eBay (EBAY), Google (GOOG), Abbott Laboratories (ABT), Harley-Davidson (HOG), and Southwest Airlines (LUV).

Also reporting during the week were a host of financial companies, including KeyCorp (KEY), Merrill Lynch (MER), JPMorgan Chase (JPM), Washington Mutual (WM), Citigroup (C), Bank of America (BAC), and Wachovia (WB). Despite some better than expected results, however, lingering concerns about sub-prime lending held the sector back.

Both the Dow Jones Industrial average and the broader S&P 500 index closed at record levels on Thursday, led by strong gains in the Technology sector. Strength in the semiconductor sub-group, in particular, was weakened by a disappointing report from Intel (INTC) mid week, but reinvigorated by IBM (IBM), which posted better than expected results, to lead the sector.

The markets reversed course on Friday, however, as lackluster results from blue chips Caterpillar (CAT) and Google unnerved investors. An inline report from Microsoft (MSFT), following several strong quarters that exceeded analysts' estimates, also weighed on sentiment and prompted shares to retrace their gains.

The flurry of earnings news during the week was also accompanied by Fed Chairman Ben Bernake's semiannual report to Congress, in which he warned that weakness in the housing market could hurt economic growth. Ongoing concerns about the housing market and the health of sub-prime loans has been a major concern in recent weeks, and continues to act as a headwind for the market.

In terms of economic data, the June core PPI rose 3%, according to a report from the Labor Department. That was slightly higher than the 0.2% gain economists were expecting, and raised some inflationary concerns. The core CPI was up 0.2% last month, in line with expectations.

Meanwhile, Housing Starts rose last month, but Building Permits tumbled. June Housing Starts were reported at a 1.467 million annual rate, just above the 1.450 million rate that was expected. Housing permits plunged 7.5% in June to just a 1.406 million annual rate, versus the consensus estimate of a 1.490 million rate, reflecting the bleak outlook for the housing market.

Friday, July 20, 2007

Pressure On Financial Sector Weighs On Market

The market is opening under a lot of selling pressure today. There were some high profile earnings reports that certainly didn't help, but dont' discount the pounding that the financial sector is taking.

Google (GOOG) missed earnings by a bit, and the stock is down over -5% today. I am not worried longer-term, as most of the miss was due to high spending at the company associated with massive hiring. I think if they slow hiring, they can beat estimates again going forward.

Microsoft (MSFT) reported in-line results, but that was not enough to keep the stock from selling off. And CAT missed its earnings which is really hurting its stock today. So all of these earnings reports are not helping the market today.

But beyond that, there is a concerted effort by the bears to knock down the financials. The brokers are under the most pressure, because the bears know that many investors look for the financials as a sign of strength in the overall market. So if they can knock that group down, they can shake the faith of the bulls and maybe get the whole market going lower.

We've seen this whole campaign at work in each of the last few summers. How did those play out? The bears' put up a good fight, and each time a selloff ensued. But after pressing their bets, the market eventually bottomed and went on to reach new highs again. I would not be surprised to see this episode unfold in similar fashion.

long GOOG

Thursday, July 19, 2007

FOMC Minutes Yield No Big Surprises

The minutes from the last FOMC meeting were released today, and here are some of the highlights of the comments:
  • FOMC judged risk of prices not easing was 'predominant' worry, FOMC saw some risk of 'deterioration' in price expectations
  • FOMC agreed sustained price 'moderation' not yet convincing
  • Fed says housing activity likely to contract for several quarters, new home inventories "quite elevated"
  • Fed says participants judged labor market remained "rather tight", especially for skilled workers
  • Fed says inflation pressures may be sustained by resource use, energy and commodity prices, dollar drop
  • FOMC saw housing as 'key source of uncertainty'
  • FED says participants saw sustained moderation in core inflation not yet "convincingly demonstrated"
  • FOMC anticipated core inflation to be 'relatively subdued'
  • Fed says housing sector biggest downside growth risk, likely to remain drag on growth for some time
  • Fed says rising mortgage delinquencies, subprime problems could crimp credit availability, housing demand
  • Fed minutes say that downside risks to growth "more balanced" than at time of May FOMC meeting

Basically, they are repeating the same mantra, that inflation pressures are poised to ease though they have not yet done so in any meaningfully way. Also, that the downturn in the housing market remains the key risk to subpar economic growth. But as long as jobs are plentiful, consumer spending should be steady.

Starbucks Is Perking Up

I have been holding on to my positions in Starbucks (SBUX), patiently waiting for a bottom in the stock.

Recently, the stock has started to find some support, and began bouncing around the $26 level, give or take.

Yesterday, the stock started moving higher, and volume really picked up. Today, that move has accelerated, and the stock gapped higher this morning and never looked back.

Volume is accelerating today, and the stock has now broken above its overhead 50-day average. This is a good sign, and an important first step in reversing the downtrend in which the stock has been mired for most of the year.

long SBUX

Strong Tech Earnings Provide A Boost For The Market

The market is getting a boost in early trading on the heels of some strong earnings reports in the tech sector. Both Juniper Networks (JNPR) and IBM raised guidance and their stocks gapped higher at the open. This is helping the tech sector outperform the other parts of the market.

It is important to see the market reward companies that post strong earnings. It will be interesting to see how some of the big tech stocks that report this evening will fare. On tap are MSFT, GOOG, BRCM, GILD, and ISRG, to name a few.

Asian markets were higher almost across the board overnight, save for China where fears spread that the government may have to tighten more to cool things down.

Bond yields are slightly higher, with the 10-year at 5.04%, after coming down and touching its 50-day average yesterday at 4.99%.

And oil is higher again, hovering just below the $75.50 level. I believe oil is setting up for a similar pattern to last summer, when it peaked around July and then declined for the rest of the summer.


Wednesday, July 18, 2007

Bond Market Likes Bernanke Comments, Yields Drop

The market is selling off in early trading, which is not surprising given the news that Bear Stearns (BSC) is saying that its two trouble hedge funds are nearly worthless. This raised the already elevated fears about the subprime market. Not to mention that in his speech, Bernanke said the subprime sector is likely to get worse before it gets better.

But Bernanke also made dovish comments about inflation, and the market is taking those comments to heart by pushing bond yields lower again. The yield on the 10-year note is now back down to 5.0%. This should be a big positive for stocks.

The CPI news was also pretty benign, showing the smallest rise since January. In M&A news, KKR is said to be mulling a $24 billion bid for Macy's (M).

But I would be remiss if I did not point out that the reaction to earnings reports so far has not been positive. Look at all the stocks that reported last night and this morning, and they are all lower. The reaction to YHOO, INTC, PFE, UTX, etc. have all been negative.

Now it is true that some of these stocks were extended, and due for a pullback. But if this trend continues, it does not bode well for the next few weeks.

long INTC, UTX

Tuesday, July 17, 2007

Personal Finance: How To Save Mortgage Interest

Here is an article that I liked from personal finance author David Bach:

Like some of my fellow Yahoo! Finance columnists, I'm often asked if it makes more sense to prepay a mortgage or invest the money in stocks and bonds. Rather than ponder which asset will get you a higher return, I think the better question is which investment decision will free you financially and allow you to retire earlier.

In my 9 years of experience as a financial advisor for Morgan Stanley, the clients who paid their debts off early -- specifically their mortgages -- retired 5 to 10 years before those who didn't.

If your goal is to retire sooner than your friends, sleep well at night, and save a lot of money over time, here's the best approach I know of prepaying your mortgage.

Going Biweekly
When you set up a biweekly mortgage payment plan, instead of making your monthly mortgage payment the way you normally do you split it down the middle and pay half every two weeks.

The result is that you end up making one extra full payment every year. (Twenty-six half payments is the equivalent of 13 full payments.) The best part is that the extra payment is made gradually over the course of the year, so you don't feel the pinch. And since most people are paid every two weeks, a biweekly payment plan turns out to be a phenomenal budgeting tool.

Anyone can do this. You don't need a special mortgage, and you can set it up anytime.
Pay More, Save More

Say your mortgage payment is $2,000 a month. With a biweekly plan, instead of sending a $2,000 check to your mortgage lender each month, you would send them $1,000 every two weeks.

By doing this, the miracle of compound interest reduces your debt. You actually end up paying off your mortgage early -- somewhere between 5 and 10 years early, depending on the duration of your loan and your interest rate.

On average, a U.S. homeowner with a $300,000 mortgage can save upwards of $100,000 over the life of his or her mortgage just by following this simple program. And if that's not enough incentive, think about being debt-free and potentially ready to retire years sooner than you'd planned.

Let's compare the difference between a monthly and a biweekly payment plan for a $300,000, 30-year mortgage with an interest rate of 7 percent. The monthly payoff schedule winds up incurring a total of $418,026.69 with interest charges over the life of the loan.

The biweekly schedule, on the other hand, runs up just $311,876.19 with interest. So switching to the biweekly plan will save you more than $106,000. Your mortgage may be smaller or larger, so run the numbers for your mortgage to see how much you can save.

Automate It, Of Course
The great thing about switching to a biweekly payment plan is that it allows you to save money over the long run without refinancing or otherwise changing your mortgage. All it takes is one call.

Most mortgage lenders offer programs designed to totally automate your biweekly mortgage plan. At Wells Fargo, for example, it's called the Accelerated Ownership Plan. Citibank calls it the BiWeekly Advantage Plan. To enroll, all you need to do is phone your lender or go online. Many banks even offer this service for free to customers who do their banking with them.

Banks that don't offer this service will usually refer you to an outside company that runs the program for them. These companies generally charge a setup fee between $200 and $400. In addition, there's a transfer charge of $2.50 to $6.95 each time your money is moved from your checking account to your mortgage account.

To be sure you're dealing with a reputable firm, I recommend using one that's referred to you by your mortgage company. One of the biggest such firms is a company called Paymap Inc. It currently provides this service through its Equity Accelerator program, which is powered by Western Union. To find out more, visit their web site or call (800) 209-9700.

(By the way, I'm not affiliated with Paymap or Western Union in any way, and I don't make money by recommending them. Whenever I mention a specific service or product in my column, it's simply to offer a resource for readers -- not to get a commission.)

What to Ask Before Signing Up
When dealing with a service company, be sure to ask the following critical questions:

• When exactly do they fund the extra payments toward your mortgage?

The answer should be "immediately." You're making extra payments to pay down your mortgage faster. That won't happen if the service company is holding onto your payments for any reason.

• What happens if you refinance?

Determine whether the service is transferable to a new mortgage company, or if you'll have to go through the setup process again -- including paying another fee.

• How much will it cost to use the program?

Get a clear understanding of how the costs involved compare to the savings you'll realize, so you can make an informed decision (see the next section).

Cost vs. Savings
Let's do the math. If you're paying $2.50 per transfer every two weeks, that comes to roughly $65 a year. Over 22 years, it totals just over $1,430, not including the setup fee. Figure that the transfer fee will probably go up a little over time, and there's no question that a biweekly mortgage system will cost you a few thousand dollars.

So why do it? The answer is that the few thousand dollars you're spending will save you tens of thousands of dollars, if not more.

In the example above, you would've saved more than $106,000 over the life of the mortgage. Assuming that you signed up with the most expensive program out there to handle your biweekly payments, and spent $5,000 over 22 years, you're still ahead over $100,000.

Going It Alone
Are there other, no-cost mortgage prepayment options? Sure. You could pay an additional 10 percent of your mortgage each month and have it applied directly toward the principal. Or you could make one extra payment at the end of the year and again have it go toward your principal.

But note that word "could" -- some things are much easier said than done. Just as most people won't save if they don't make it automatic, most of us won't make extra mortgage payments unless it's automated.

If you decide to do it yourself, my suggestion is that you pay an extra 10 percent a month and send it as a separate payment -- automatically, of course. Make a point of telling your lender to apply any extra payments toward your principal, and then check your monthly statements to make sure they've applied it correctly.

Investors Pleased With Falling Food And Energy Prices Report

Do you ever get the feeling that this market never goes down? If you have cash you are waiting to put to work, and hoping for a dip to do so, this can be frustrating.

The market opened higher again this morning, on the heels of the PPI report that showed food and energy prices fell. We also got solid earnings reports from JNJ, Coca-Cola (KO), and Merrill Lynch (MER). Last, there was more M&A activity, as Dutch chemical company Basell agreed to buy Lyondell (LYO) for $12.1 billion in cash.

Oil is pushing higher again, topping $75. Bond yields are also up slightly, to 5.08%. But neither of these seems to be weighing on the market at the moment. Let's see if this early strength is sustainable into the close.

Asian markets were mixed overnight, but Japan wasn't down that much given the earthquake that rattled the region.

Monday, July 16, 2007

Are Stocks Getting Too Extended?

The market has had a very nice run since bottoming in March. I still believe that stocks will be higher at year end, and that growth stocks will continue to lead.

But as I look at the charts of leading stocks, I can't help but come away with the concern that many stocks are simply too extended, and getting into overbought territory.

Whether or not this means we are due for a correction, investors should be careful about establishing new positions in stocks that are extended, as you could get whipsawed fairly quickly.

Here are some examples of some stocks I was looking at that support my thesis:

long GOOG, UTX

Monday Morning Musings

No real big news this morning. There was an earthquake in Japan, though those markets are closed. The rest of the Asian markets closed lower overnight.

In M&A land, there is a rumor that Vodafone (VOD) may bit $160 billion for Verizon (VZ), and that is pushing the latter's stock higher this morning.

Oil is flat near $74, and bond yields are steady at 5.09%.

Earnings season kicks into high gear this week, with many of the big tech bellweather's reporting. Last week, the Nasdaq outperformed the SPX for the 10th consecutive week. This bodes well for growth stocks, and big-cap tech, but I believe the trend could take a breather in the short term.

The DOW is nearing the 14,000 level. These big, round numbers don't really mean that much, but they sure are reported endlessly in the media. I think the S&P 500 reaching a new all-time high is much more significant.

Sunday, July 15, 2007

Weekly Recap

Here is a Briefing.com's Weekly Wrap:

Stocks finished higher for the week, leaving the Dow Jones Industrials and broader S&P 500 at record levels, despite lingering concerns about the subprime mortgage market and the health of the economy.

The aforementioned concerns were based primarily on the lowered outlooks from Home Depot (HD) and Sears Holdings (SHLD), as well as a warning by Standard & Poor's and Moody's Investors Service credit rating agencies that they are downgrading ratings on several hundred securities involving sub-prime debt.

Those factors combined led to a very weak market on Tuesday that saw the Dow suffer a triple-digit point loss. The subprime concerns served as the main source of selling inetrest, which we felt was overdone relative to the amount of debt that was going to be affected by the downgrades.

The market managed a modest recovery on Wednesday, but it was on Thursday that the doors were blown off as the major indices soared in response to news that metals giant Rio Tinto Group (RTP) made a white knight bid of $38.1 billion, or $101 per share, in cash for
Alcan (AL) batch of better than feared same-store sales reports also aided in the rally effort.

Most notably, Wal-Mart (WMT), the world's largest retailer, beat analysts' expectations with a 2.4% rise in same store sales.

Just as Tuesday's selloff was overdone, however, so too was Thursday's rally.

The Rio Tinto bid for Alcan was indeed a bullish catalyst, but the same-store sales data weren't nearly as strong as the market reaction suggested. Nonetheless, bulls ran with the news given the negativity ahead of the reports and prompted a wave of short-covering activity that boosted the Dow and S&P into record territory and encouraged an asset shift out of Treasuries and into stocks.

Friday brought a mixed session of sorts as weaker than expected retail sales data for June were offset by a stronger than expected consumer confidence report for July and a reassuring earnings report, and outlook, from General Electric (GE).

All in all, the week ended on an encouraging note for the bulls as the market remained resilient to profit taking efforts following Thursday's rally that saw the Dow record its biggest percentage gain in nearly four years.

long GE in client accounts

Friday, July 13, 2007

After The Surge, A Day Of Rest

I suspect that after yesterday's big surge, the markets will likely rest today. Volume expanded noticeably during yesterday's rally, an aspect of accumulation that has been missing from previous rallies lately.

Today, we got some more M&A news in that Energizer (ENR) is bidding $1.2 billion for Playtex (PYX). Also, GE reported solid earnings and upped its buyback program to $14 billion. The news pushed its stock to a new 5-year high.

This buyback announcement, coulped with JNJ's and COP's before it, amount to many more billions of dollars than the subprime downgrades we have been hearing about. Just some figures to keep in mind in order to put things in perspective.

Asian markets followed our lead and surged overnight. Hong Kong made new record highs, gaining +1.27%, while South Korea soared +2.8%.

Bond yields are up a bit this morning, with the 10-year at 5.11%. Oil is also up again, trading near $73.40. At some point, these could be small headwinds, but yesterday they were of little consequence to the bears that were covering their shorts.

long GE in client accounts

Thursday, July 12, 2007

Market Stages An Impressive Rally; Catches Most Traders Off Balance

If you didn't watch the market today, you are likely tuning in at the end of the day and asking yourself, "What happened? Did we have some huge buyouts? Did oil plunge? Did we catch Bin Laden?". But the answer is no, to all of the above. The news wasn't even that exciting.

What counts is what I have been harping on, that sentiment in the market is terrible, short interest has surged lately, and investors remain underinvested and poorly positioned for an ongoing rally. The market loves to catch the majority leaning the wrong way, and that is exactly what happened today. How else can you explain a nearly +300-point day in the Dow?

The strength in today's market was palpable. The semis led the way, gaining +2.90% on the day. Banks and brokers were also strong, rallying +2.53% and +2.30%, respectively. I think every sector I follow was higher today.

I really thought that the SPX was due for a bit more of a correction. But as one of my former colleagues used to say, follow through is key. Although the SPX broke its 50-day on Tuesday, it failed to follow through on the downside, and today's surge makes for new highs on what was looking like a triple top formation.

While that may sound like a lot of industry jargon, the takeaway is that today's action is significant, and should be respected. I plan on using any weakness to put more cash to work, as the risk in this market remains being underinvested.

Retail Sales Reports Come In Stronger Than Feared; Market Spikes Higher

The market got a surprisingly strong boost at the open after the June retail sales reports came in stronger than initially feared. With all of the bearish talk in the media about the high prices of gasoline, and the debacle in the subprime market, I think many had concluded that retails sales would be punk.

But the world's biggest retailer Wal-Mart (WMT) posted sales that grew +2.8% vs. estimates of +0.5%. Several other retailers also reported strong same-store sales. I will try to have a roundup later this morning.

In M&A news, Rio Tinto (RTP) bid $38.1 billion, or $101 per share, for Alcan (AL), which easily tops Alcoa's (AA) bid of $76/share.

What is surprising is that oil is also surging, up to $73.50. And bond yields have moved higher as well, with the 10-year yield up to 5.10%. Normally, these would weigh on the market. Given how we have seen early rallies fade recently, I want to wait to see if the market can hang on to these gains into the close before getting more bullish.

I was beginning to think the SPX was setting up for a bit of a correction, but every time it dips below its 50-day, it seems to immediately rally and recapture this important level.

Wednesday, July 11, 2007

A New Swell Could Be Brewing

For the unitiated, that's surfer lingo in my title. Just kidding. Anyway, today SiRF Tech (SIRF) is getting a big pop as it breaks out of its recent consolidation.

I have traded this stock many times over the last couple of years, and it is now back at attractive levels. The stock has been mired in a downtrend since reporting earnings last quarter. They also made an acquisition recently. But regardless of whether they merely match current estimates, I feel the protracted decline in the stock more than prices in such an outcome.

This company still has strong fundamentals and a rosy growth outlook, imo. I believe the wireless opportunity for them will be big. I hope to hear more about how it is progressing on their next earnings call. Nonetheless, I think the action today could be the end of the recent decline, and the start of a new uptrend for the stock.

long SIRF

Market Gets A Bounce After Yesterday's Selloff

The market is getting a lift in early trading, although it remains to be seen if it can last until the closing bell. Remember, it wasn't that long ago that we saw repeated up opens in the market get sold into the close.

Asian markets were down across the board overnight, carrying over the weakness that the U.S. markets experienced yesterday. There has been some question as to whether the downgrade of $12 billion in subprime debt was enough to cause yesterday's selloff.

Let me repeat, that I believe the news breaks with the cycle. The market had gotten overbought, and was due for a selloff. So yesterday's news merely provided a convenient catalyst for everyone to take profits at the same time. That is why the breadth was so negative yesterday.

The bears are pressing their hand, and trying to knock the market lower still. The SPX is struggling to stay above its 50-day average, and hasn't made a new high since June 1st. As such, it is likely that this correction could last a bit longer, though I don't think it will be too severe in terms of how low we go.

Bond yields are coming closer to testing the key 5.00% level, with the 10-year yield currently near 5.05%. If you look at the chart of the 10-year yield like you would a stock, you would likely conclude that the trend is down right now.

Tuesday, July 10, 2007

Subprime Downgrades Sink Market

The markets really took it on the chin, especially in the last hour of trading. The SPX fell -1.4%, while the NDX fared a little better, losing -0.87%.

Breadth was negative, with significant deterioration in the net new highs index. On the plus side, the VIX spiked +16% and the ARMS Index finished at 1.90. Both of these represent a dramatic increse in investor anxiety, which has helped the market bottom quickly during the last several pullbacks.

The media will likely say that it was Bernanke's speech that gave investors pause, but it wasn't. It was all about the subprime market and the downgrades we got from the credit agencies. That is why the broker index (XBD) declined -2.88% on the day. LEH fell -5.0%. But again, I think the declines will be shortlived.

The earnings warnings in the retail sector didn't help, as many fear that the consumer may be in dire straights. But as earnings season plays out, I think we will see that this is not the case.

I don't want to sound pollyannish, but I still believe that the market will bounce back and finish well higher from today's levels. To wit, many leading growth stocks bucked today's weakness and finished higher. Take a look at AAPL, AKAM, GOOG, INTC, BIDU, CROX, etc.


Subprime Concerns Weigh on Financials, and Market

The market is under pressure this morning, on the heels of a disappointing start to earnings season. Alcoa (AA) reported lackluster earnings last night, while this morning we got earnings warnings from HD, SHLD, and DHI.

The HD and SHLD warnings indicate that things are weaker than expected in the retail sector. The 40% drop in new orders reported by DR Horton (DHI) is another indicator that the housing market has yet to reach a bottom.

Also, S&P is rumored to be on the cusp of downgrading $12 billion in subprime mortgages. This is putting more pressure on the financial sectors and brokers, while causing bond yields to drop further. The 10-year yield is now at 5.07%.

Oil was down at the open, but has since reversed higher. Asian markets were mixed overnight. Last, Bernanke is set to give a speech this morning on inflation. I expect more jawboning, even as the inflation indicators I follow are pointing to an easing of inflation pressures.

Monday, July 09, 2007

Deja Vu: Are We Back To Buying on Stock Splits?

Are we back in the 1999 era when stocks spike higher on stock split announcements?

Green Mountain Coffee (GMCR) started moving higher last week, but then exploded after the company announced that it was effecting a 3-for-1 stock split. Do investors realize that stock splits don't add any real value?

Regardless, the stock has gone parabolic, and is now overbought and extended. I have taken a small short position on the stock, as I think it could retrace some of this recent runup.

But the float is small, and the stock seems to being bought with reckless abandon. So I plan on keeping a tight stop-loss on the position.

short GMCR

Monday Morning Musings

The market is getting a little boost after the open. There was not much M&A activity, but at least there was a little. You can't expect blockbusters every week.

Earnings season kicks off this evening, with a report by Alcoa (AA). Expectations are fairly subdued, as far as earnings growth expectations go. But I expect the most reports will again be better than expected, and that overall earnings will come in above current consensus.

Asian markets were up a lot overnight, continuing their recent run. I sold my EEB a couple of weeks ago, but it continues to surge to new highs. The EFA etf is also breaking out to new highs.

Oil is down slightly this morning, but likely not for long. Bond yields are also a little lower, with the 10-year around 5.15%.

Semis are strongest so far this morning, while retailers are lagging.

Saturday, July 07, 2007

Weekly Recap

The market had a very solid week. The S&P 500 gained +1.8% for the week, while the Nasdaq rallied +2.4%. That marked the 7th consecutive week of outperformance for the Nasdaq, a good sign for growth stocks. Moreover, the IBD 100 Index of leading stocks surged +5.2% for the week, its biggest weekly gain in over a year.

Volume wasn't great, but that is normal for a holiday-shortened week. Another encouraging sign was that the market held up well in the face of both rising oil prices as well as higher bond yields, both of which often cause trouble for the stock market.

For more on this week, here is Briefing.com's Weekly Wrap:

The major indices logged big gains in the holiday-shortened week, driven by leadership from the technology sector, some supportive economic data and another wave of big-ticket buyout activity.

The gains came despite a jump in oil prices above $72 and the yield on the benchmark 10-Year Treasury note rising from 5.03% on Monday to as high as 5.20% on Friday.

Trading volume was relatively light, however, with many fund managers and traders away on vacation. The major U.S. stock exchanges and bond market closed early on Tuesday and remain closed on Wednesday in observance of Independence Day.

The Labor Department's June employment report on Friday highlighted the flow of incoming data for the week, painting a picture of solid job growth that has been accompanied by rising wages. While the latter proved unsettling to the bond market, the stock market took some solace in the view that the combination supports a pickup in economic activity and continued strength in consumer spending.

The latest employment results were in line with analysts' expectations in just about every respect. Nonfarm payrolls rose 132,000 (consensus 125,000), the unemployment rate was 4.5% (consensus 4.5%), hourly earnings rose 0.3% (consensus +0.3%) and the average workweek was 33.9 hours (consensus 33.9). Upward revisions to payroll numbers for April and May added to the understanding that the labor market is looking solid.

In other economic news, the Institute for Supply Management's manufacturing index for June showed increased activity and added to optimism about the economy.

Unlike recent weeks, the M&A news was indeed a bullish catalyst as we saw a return of some big-money transactions. Specifically, Canada's largest phone company, BCE Inc. (BCE), received a $49 billion offer from an investor group led by the Ontario Teachers Pension Plan and Providence Equity Partners that qualifies as the largest private equity deal ever.

On a related note, the Blackstone Group (BX) made a $26 billion offer to acquire Hilton Hotels Corp. (HLT); meanwhile, the Carlyle Group plans to buy Manor Care (HCR) for $6.3 billion while Apollo Management is going to take Huntsman Corp. (HUN) private for $6.3 billion as well.

AT&T (T) for its part is going to buy Dobson Communications (DCEL) for $2.8 billion and Kraft (KFT) is going to spend $7.2 billion for Group Danone's biscuit business.

Separately, KKR & Co., the private equity firm responsible for the historic leveraged buyout of RJR Nabisco in 1988, said it plans to go public. The announcement, which was not unexpected, comes just days after rival Blackstone Group made its highly-anticipated public debut on the New York Stock Exchange.

There were only three companies on the earnings calendar. None of the reports had a bearing on the overall market. Things will pick up on the earnings front next week when Alcoa (AA) kicks off the second quarter reporting season with its results after the close on Monday.

Friday, July 06, 2007

Follow-Up On Jones Soda

Last month, I posted on Jones Soda (JSDA) and said that it looked like the stock was gettign some fizz back.

Since then, the stock briefly dipped back below its 200-day moving average, but recently recovered in a big way.

There has been no real news to account for the surge in the stock, but over the last 2 days it has spiked as much as +25% higher on a big pickup in volume.

This brought the stock back above its 200-day, but today it came close to bumping up against its overhead 50-day average. This is a natural area of resistance, and I expect the stock to pullback and digest this big move. But after that, I believe the stock will get back above this level and move back into the low $20s.

The stock got way, way ahead of itself on that outsized run to $32 back in April. I actually shorted the stock briefly, as I thought it would retraced some of that move. But I didn't think it would come all the way back down to $14. I view any level in the mid-teens as attractive longer-term.

long JSDA

Jobs Report Stronger Than Expected, Bond Yields Move Up

The payrolls report came in a little better than expected (132k vs. 125k), but there were also upward revisions to the prior two months. So the labor sector appears strong, and this is the biggest component to consumer spending. As long as people have jobs, they will continue to spend.

Of course, the strong economic report is causing bond yields to rise further, with the 10-year yield now back up to 5.17%. This is a big move from the 4.99% level we recently visited, but the market has mostly taken it in stride.

Asian markets were mostly up overnight, with China bouncing back +4.6%, but Japan declining. Oil is also higher again, with crude trading near $72.50.

There was also more M&A activity announced, which will likely lead to traders staying long stocks ahead of the weekend.

The leaders in this market have continued to shine. As we get ready for earnings season, I would expect lagging stocks to report some earnings shortfalls, but overall I expected another solid earning season.

Thursday, July 05, 2007

For All Those Who Don't Believe In Short Squezes

The short squeeze of the day has to be Under Armour (UA).
The stock started moving up on Tuesday, when it spiked above its 200-day average. But take a look at it today.
The stock is surging more than +12% intraday, on a huge spike in volume. What's the news, you ask? Pretty much nothing. There is no real news to account for the advance.
But a look at the most recent short interest figures sheds a little light. You see, the short interest in the stock was more than 43% as of June. That is a huge figure, and becomes very meaningful when you get a move like we are seeing today.
Take it from me. I've been on the other side of these short squeezes before. It is no fun. And when the pain is that bad, the reaction is often, "Get me out. Just make the pain go away."

Flight-to-Safety Bid Leaves Treasuries, Pushes Yields Higher

As I suspected, there wasn't a hint of terrorist activity over the July 4th holiday. So the bid that had been in the Treasury market is waning, and that is helping push bond yields higher. The 10-year is currently near 5.10%.

Oil is also trading higher, pushing above $72. On the plus side, earnings for the energy complex should be strong again. On the negative side, the combination of higher oil and higher bond yields will likely take some of the wind out of the sail of the stock market.

There was more M&A activity, with Blackstone (BX) making a $26 billion bid for Hilton Hotels (HLT). The stock is up +27%. HUN also got a higher bid ($6.3 billion) from Apollo. And KKR has decided to follow in Blackstone's footsteps and file for an IPO.

Asian markets were mostly higher, with S. Korea and Hong Kong reaching new all-time highs. But China went the other direction, in a big way, falling -5.25% overnight, on top of a -2.15% drop the day before. That's a big 2-day plunge, and I am surprised it didn't cause more of a spillover into other markets.

AAPL and GOOG are both surging to new highs this morning, while higher rates are weighing on the financial complex.


Tuesday, July 03, 2007

Leading Stocks Remain Strong on Shortened Trading Session

The market closed early, with the major indexes hanging on to their early gains. Large-cap growth outperformed again, with the NDX gaining +0.57% while the DOW gained +0.31%.

Brokers rallied +1.23% on the day, with stocks like Goldman Sachs (GS) up over five bucks.

But other leading stocks fared equally as well. Apple (AAPL) was the standout, gaining nearly $6 on strong volume. Many investors feared the stock would selloff after the iPhone release, but AAPL closed a new all-time high instead. Not bad.

Google (GOOG) also reversed its early declines to close $4 higher. And check out stocks like SNCR, WBD, FSLR, BTJ, FTK, UA to see where the real action was.

Have a safe and happy 4th of July everyone!!


Asian Markets Strong Overnight, U.S. Markets Follow

The market is getting a boost in early trading, after day 2 of M&A news hitting the wires. Asian markets were strong overnight, with S. Korea +1.9% and Hong Kong +1.7%. Those are very healthy gains.

Our markets close early today (1pm EST), in advance of the July 4th holiday.

Bond yields are slightly lower, trading just below the 5.0% level. And oil is also down today, thought still above $70. But those should help improve sentiment for stock traders.

In the housing market, a report on pending home sales came in below expectations, showing continued weakness in housing. But yesterday, Treasury Secretary Paulson said that he thinks the housing market is at or near a bottom.

Financials are also getting a nice bounce, with the brokers leading the way. More importantly, if you look at an index of leading stocks (like the IBD 100), they have really been outpacing the major indexes recently. This is the best sign of the health of this market.

Monday, July 02, 2007

Not Much Of A Bid For Nymex Lately

The euphoria for potential takeover plays can come and go in a heartbeat. That said, I am a little surprised at how weak Nymex (NMX) has been given that so many believe it is "in play".
I would have thought that the stock would have seen more of an underlying bid since spiking higher last month, when the stock hit 145.
But the stock has fallen all the way back to 124, and now looks like it is getting a bit oversold. I think the shares should bounce again soon, and I also think that the stock will eventually get taken out. I am just not sure how soon.
Other stocks making notable, high-volume moves today include:
  • OPTN
  • RRST
  • LPHI
  • RIMM
  • RBN
  • NVEC
  • SSW
  • CAE
  • HCR
  • FMCN
  • POOL
  • LEN
  • OMTR
  • GD
  • KBH
  • TYC

long NMX

Renewed M&A Activity And Fund Flows Lift Market

There was a flurry of M&A news hitting the wires this morning. That, coupled with the usual new fund flows that often come in on the first day of a new month/quarter, are helping to really boost the market in early trading. But you know how I feel about strong opens...

BCE (the parent of Bell Canada) agreed to be taken private for $48.5 billion, AT&T bid for Dobson (DCEL), Manor Care (HCR) is going private for $6.3 billion, and talks are swirling that Virgin Media (VMED) is in discussions.

Bond yields are lower again this morning, testing the psychological 5.0% level. Oil is also trading down, to just below $70. As for Asian markets, they closed mixed overnight. The Yen is getting another bounce, testing last week's highs.

For the first half of 2007, the Nasdaq outperformed (+7.8%) vs. the S&P 500 (+6.0%). The Nazz played catchup, outperforming the SPX in each of the last 5 weeks. This bodes well for growth stocks as we get into the second half of the year.

As for today, it will be interesting to see if the market fades again as we get into the afternoon portion of the session.

Sunday, July 01, 2007

Weekly Recap

Here is the weekly wrap from Briefing.com:

Investors' anxiety levels remained high in the past week, as the indices finished only slightly higher despite falling bond yields. Ongoing concerns about the potential spillover effect of a struggling subprime mortgage market and a lack of concerted leadership were the main limiting factors.

Problems at two hedge funds managed by Bear Stearns (BSC), which suffered substantial losses from their exposure to the sub-prime mortgage market, provided the fuel that fed the subprime concerns.

Disappointing new and existing home sales data, and a decline in durable goods orders, which were reported on Wednesday, also kept investors on edge ahead of the Federal Reserve's policy statement onThursday.

Crude oil prices rose, climbing above $70/bbl, after a government report showed an unexpected drop in distillate and gasoline stockpiles. The report exacerbated supply concerns during the peak summer driving season, and contributed to ongoing inflationary pressures.

As expected, the FOMC left the fed funds rate at 5.25% for an eighth straight meeting, despite lingering concerns about weakness in the economy as problems in subprime lending have weighed on a housing recovery and have created unease in the financial markets.

The accompanying policy statement was little changed, except for a mention that core rates of inflation have eased in recent months but that a sustained moderation in inflation pressures has yet to be convincingly demonstrated. The central bank retained the statement that the predominant policy concern is inflation.

Accordingly, there was nothing in the statement to suggest that the Fed is inclined to change the fed funds rate anytime soon - either up or down.

Stocks ended little changed on Thursday following the decision.

On Friday the Commerce Department reported that consumer spending rose 0.5% in May, with the core PCE deflator up just 0.1%. The year/year increase of 1.9% in the core rate is below the Fed's 2007 forecast of 2.00% to 2.25%.

The core-PCE number provided some initial support, but separate reports that car bombs had been discovered (and defused) in London added to current geo-polical risks and contributed to a reversal in stocks that had been precipitated by a pullback in the financial sector.

Merger activity continued in the past week, but true to recent form, there weren't any blockbuster deals to get the broader market running.

In other developments, Apple (AAPL) launched its highly-anticipated iPhone Friday. That launch gave Apple's stock a modest boost, but it did little for the overall market other than to serve as a major talking point going into the weekend.

long AAPL