Wednesday, April 30, 2008

Sentiment Check

The market is giving back much of its gains since the Fed announcement. Here is a rundown of the sentiment indicators:
  • The ARMS Index remains high at 1.28
  • The CBOE put/call has been low all day, at 0.79
  • The ISEE is elevated, near 160
  • The VIX is up slightly to 20.43

Sentiment has started to get a little more bullish, and the put/call readings have started to reflect more optimism. Combined with an overbought market, this makes me think that we are likely due for a little breather from the rally. This could start today, tomorrow, or even the next week or so. But I would be careful putting new money to work here.

That said, here are some stocks showing up on my screen of high-volume gainers:


Fed Cuts Rates 25 Basis Points

The FOMC decided today to lower its target for the federal funds rate 25 basis points to 2.00% today. Here are some of the highlights from the accompanying statement:
  • Recent information indicates that economic activity remains weak.
  • Household and business spending has been subdued and labor markets have softened further.
  • Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
  • Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months.
  • The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.
  • Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
  • The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity.
  • The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

So it looks like the signal is that they are done for awhile at 2.0%, which isn't bad. They have already lowered rates a ton (from 5.25%), and all of those cuts will continue to work their way into the economy since there is a lag.

Further cuts would pressure the dollar more and exacerbate the spike in commodities. The stock market seems to like the moves so far, but it will be interesting to see how the dollar fares in the coming days and weeks.

Hurry Up And Wait

(this post should have been up earlier, but didn't publish. so I am re-posting it)

Today is normally a 'hurry up and wait' day as the market moves at a snail's pace until the FOMC announces their change in interest rates, and then trading picks up in a flurry. But this morning there were several pieces of data that got things going at an above average pace.

Q1 GDP (advance) came in at +0.6%, above estimates and well above the whisper numbers of all those who thought the figures would show an outright contraction in economic activity. The bears will say that all of the strength was due to inventory building, and doesn't reflect real demand. But the consumer spending and net export component of the report was solid.

This report basically takes the official recession call off the table. Just another example of why you simply can't make any money listening to the media, who were convinced a recession was a foregone conclusion.

Also, the ADP Employment report, a measure of private payrolls, showed an increase of 10,000 jobs vs. estimates of -60,000 decline. While this report doesn't correlate very well to the official jobs report, it is still worth noting.

Asian markets were mixed overnight on commodity pressure, but China surged +4.8% higher; oil is lower again today on a report that showed a build in crude inventories; and the 10-year yield is near 3.80%, after rebounding from yesterday's lows. The bond market does not appear worried with today's GDP report, which also showed a lower inflation reading than forecast.

Growth stocks are leading the way again, led by tech and solar, as well as a bounceback in the hard hit ag stocks.

Tuesday, April 29, 2008

Happy Anniversary To 'In The Money'

Today is the 2-year anniv. of this blog. Over that time, I have probably made over 1,000 posts. Hopefully, those of you out there reading find them helpful. Sometimes my posts are to educate of explain things, while some of the time they are just to help me flush out my ideas more and improve the thought process.

But I always try to respond to comments, so please keep them coming.

The market today again held up well in the face of what looked like could turn into a little selloff early on. That has kind of been the pattern for the last several days. Normally, when the market reaches an overbought level, and then just kind of hovers while working off the overbought condition, it usually has another push higher coming.

Tomorrow is Fed day, a day when anything can happen. So while I think the market wants to make another push higher, tomorrow could go either way.

The market is still pricing in another 25 basis point cut from the FOMC, but then I think the Fed will make comments implying that it doesn't see the need for more cuts in the current environment. That should be greeted well by the market longer-term, as it implies that the economy is on the mend.

The Fed also does not want to keep feeding commodity prices, which fuel inflation concerns. The dollar has started to firm lately, and that has caused commodities including oil, gold, etc. to correct. But it remains to bee seen if this is just another short-term bounce in the dollar, or something longer lasting.

Markets Sluggish In Early Trading

I was out all day yesterday and was not able to do any blogging.

This morning, the markets are opening on a weak note. There were lots of better than expected earnings reports this morning, but the reactions in the individual stocks have been mixed.

MasterCard (MA) reported blowout numbers, and that stocks is surging +10% higher. Corning (GLW) and Burlington Northern (BNI) are also higher after reporting solid results. But Visa (V), Archer-Daniels (ADM), and US Steel (X) are trading lower on their results.

The VIX is creeping back above 20 this morning, while the put/call opened at a very high level of 1.39. Maybe traders are trying to hedge recent gains in fear of more downside to come. Regardless, this spike in pessimism is preferred to a spike in optimism, from a contrarian perspective.

Asian markets were mixed overnight; oil and gold are both lower, with oil trading near $116.70; and the 10-year yield is easing back to 3.78%.

long MA

Friday, April 25, 2008

Glad To Be Out of WFR

MEMC Electronics (WFR) reported earnings last night and gave guidance that was disappointing at best. Management continues to talk about production problems at its Texas poly plant, but then they also said that demand "is a bit weaker than typical".

Well, which is it? Is it a supply problem, or demand? I had owned this stock for a couple years, but sold it last month after becoming frustrated with what I felt was poor execution on the part of management.

Spot poly prices are high, and they signed some good contracts, but I began to hear more about buyers balking at signing additional long-term contracts at high prices. Also, for most of the time I owned the shares, the company would regulary raise guidance. But that game looks to have ended. Either mgt. is slipping, or the supply/demand imbalance has caught up.

The stocks is breaking below its 200-day today on rising volume, and I am glad to be out of the position. Maybe the pendulum is swinging to the poly buyers?

Mister Softee (MSFT) Doesn't Live Up To Expectations

I have been a Microsoft (MSFT) skeptic for several years, because everytime the stocks starts to rally, it fades. There was a lot of hype coming into this quarter, and the stock started to pop this week. But alas, last night's earnings were nothing to write home about, and the stock is down -6% today, dragging down the Nasdaq with it.

Financials are up again, after Amex (AXP) beat analysts' forecast. The brokers are also higher, led by Goldman Sachs (GS). Although the big pop yesterda was in Merrill (MER).

Oil is spiking again today after news of shots being fired on an Iranian ship. Who knows if this stuff is true, but it is what it is. Gold is up slightly also.

Asian markets were mixed overnight, and China only gave back less than -1% of the previous day's 10% spike; Bond yields are higher again, with the 10-year yield up to 3.85%. Looks like the recession fears are fading. And the VIX is below 20, a level that is more often than not supportive for the markets.

long GOOG

Thursday, April 24, 2008

Ag and Energy Themes Taking A Much Needed Breather

Big rollovers going on in the ag/energy/materials complex. Yesterday, we sold half of our steel etf (SLX) just to take some profits. Today, we are joining Doug is initiating a position in the short oil etf (DUG), just to hedge some of our energy exposure.

As for ag, we sold most of our ag etf (MOO) last week, as things looked to be getting too frothy. I think the reaction in POT to the outstanding earnings speaks to a near-term top.

Many I speak with think ag is a bubble, and a major top is in place. But I am less certain. I think that after an overdue shakeout, these names will likely rally again. Depending on if they can ever make new highs will tell us more about a potential top.

long DUG, SLX

Stocks Lower in Early Trading, Dollar Up

Stocks are trading lower in early trading on some mixed economic news. Jobless claims were lower than expected, but durable goods were a bit weak and new home sales also came in below expectations.

AAPL and QCOM both reported solid earnings last night, and their stocks are mixed this morning. I think AAPL will likely be higher by the end of the day.

The dollar is firm this morning, and the Yen and Euro are both lower. Oil and gold are also lower, with oil down near $117 and gold below the $900 level.

The weakness in commodities is causing all of the energy/materials stocks to get hit. The ag stocks are down the most after Potash (POT) reported earnings and sold off. But the oil stocks, solar stocks, and steel stocks are all lower as well.

Financials are the standout, with both the bank and broker index trading higher. This is hopefully a good tell that the market could firm as the day goes one.

Asian markets were mixed overnight, but Hong Kong was up and China surged +9.3% on a move by the government to cut a "stamp duty" on stocks. Could it be that the govt. in China doesn't want the stock bubble to pop before the world comes to visit at this year's Olympics?

The 10-year yield is higher again, at 3.80%, reflecting renewed economic strength down the road.

long AAPL

Wednesday, April 23, 2008

Making A Big Bet On Housing

This morning, a report from housing industry group Dataquick said that foreclosures in California soared +39% in Q1 to 113,676. That's more than 1200 per day, and the highest since they began keeping records in 1992. Ouch.

While many are looking to call the bottom in housing, data like this make me think they are still early. I beleive the rate of declines has and will slow materially, but any bounceback will take considerable time.

I am in the process of selling an option on my house to a large company. It's basically akin to selling a call option on the appreciation of my home over the next 5 years. In return, I get a large upfront premium that I plan to invest. So the bet I am making is that stocks will outperform my house over the next 5 years. I like my odds.

Earnings Reports Boosting The Market

There were some solid earnings reports last night and this morning, that seem to be boosting the market after yesterday's selloff. Of course, it's still very early, so it remains to be seen if we can hold onto these gains into the close.

Broadcom (BRCM) beat estimates and raised guidance, and the stock is spiking +16% right now. That's a big move, and helping the semi index bounce back +4.4%. Other positive reactions to earnings include Boeing (BA), EMC, GENZ, and Ryder (R).

We also got some M&A activity today, with Liberty Mutual announcing it will acquire Safeco (SAF) for $68.25. The stock is up +44% on the news.

Oil and gold are both lower today as the dollar is rallying. Crude inventories rose more than expected today, helping push oil down to a still high $116.50. Gold is down to the $900 level. And the 10-year yield is up a bit to 3.74%.

Asian markets were mostly higher overnight, led by a +4.1% surge in China.

All eyes will be on Apple (AAPL) tonight as the company reports earnings, and expectations are for a very strong report with good Mac sales.

long AAPL

Tuesday, April 22, 2008

Tough To Rally In The Face of Oil

Stocks just could not gain any traction today as oil continued its endless ascent, and nearly hit $120. Even energy stocks took a breather, and you would think that with $120 oil, the drilling stocks would be screaming.

Given that last week was such a huge up week for the market, today's selloff really wasn't all that bad. The put/call ratios were low this morning, so I knew we might have a day like this. By the end of the day, the put/call climbed back to 1.06, so there is still anxiety.

Short-interest on the NYSE came out and showed another uptick as of mid-April. Short interest rose +0.3% on the NYSE to a record 15.63 billion shares. This is a lingering sign of the negativity bubble, as well as the huge number of alternative and long/short funds that have been minted in the last several years. This trend looks like it is getting long in the tooth from my perch.

Tomorrow we will get earnings reports from Apple (AAPL) and Amazon (AMZN), which should have a big impact on how the Nasdaq trades for the rest of the week.

long AAPL

Oil Beginning To Overwhelm Sentiment

Oil is continuing to surge today, touching $120. I mentioned that the low put/call ratios this morning worried me a bit, and I think that is helping to foster a day where the indexes could be down mroe than -1.0%.

The semis have widened their losses, currently down -3.82%; retailers are lower by -2.81%, and brokers are down -1.75%.

Volatility is on the rise, with the VIX +4.7% and the VXN +7.1%.

I just looked at a screen of this year's biggest winning stocks. Most of them are names that I am not familiar with. Here is the screen.

Considering the indexes are still down -6% to -10% this year, its a bit surprising to see all of these stocks up 75-250%. I would be willing to bet that if we revisit this list at year-end, many of these stocks will be much higher still. I am going to tuck this list away and check out my thesis at the end of the year.

Texan Weighs On The Semi Index

The good news surrounding earnings reports could not continue at last week's pace. Last night, Texas Instruments (TXN) issued a disappointing outlook and its stock sank. Today, that news is weighing on the semis, which are down -2.7%.

Other earnings reports whose stocks are trading lower today include UnitedHealth (UNH), DuPont (DD), Coach (COH), and McDonald's (MCD).

There is also a new IPO in the ag field today. Intrepid Potash (IPI) went public today at $32, and is now up +50%. I have never seen sentiment this bullish in the ag space in my lifetime.

Asian markets were mixed overnight; the 10-year yield is higher at 3.72%; oil is higher, above $118 as the dollar is lower today; and the ARMS Index and put/call ratios are low for a change. Hopefully this won't mean that sellers get the upper hand today.

Monday, April 21, 2008

Monday Morning Musings

The markets are lower in early trading, which is no surprise given Friday's outsized rally. I would expect some profit taking this week, but hopefully it will be minor.

The big drag today is the financials. BofA (BAC) missed its estimates and the stocks is lower. But National City (NCC) missed its estimates by a wider margin, and announced it is raising $7 billion which looks to be dilutive to existing shareholders. The stock is down -25% as a result.

In the energy patch, oil is trading slightly lower, hovering around $116.50. It briefly hit another record this morning, and is up +22% this year alone. I filled up this weekend and paid $4/gallon. Ouch.

Halliburton (HAL) and Weatherford (WFT) both topped estimates, though their stocks are down. The oil service stocks had quite a run last week, and should continue to work back towards their 52-week highs.

Asian markets were up across the board overnight. And the dollar is lower today vs. both the Yen and Euro. After spiking to nearly 3.85% on Friday, bond yields have settled down. The 10-year yield is now around 3.73%.

The ARMS Index is high this morning, at 1.21, indicating selling pressure. The put/call is less elevated, at 0.95.

Saturday, April 19, 2008

Weekly Wrap

Here is a copy of's Weekly Recap:

What a difference a week makes.

Last Friday the market was bemoaning a very disappointing earnings report from General Electric (GE) and fearing the worst in front of this week's busy earnings reporting period. This Friday it exits the week in an upbeat mood, basking in a sense of relief that this week's earnings reports and economic data were better than feared.

The S&P 500 tacked on a cool 4.3%, which is a bigger gain than it registered for all of 2007! It was the Nasdaq, though, that led the action. With a gain of nearly 5.0%, it registered its best one-week showing since August 2006.

Google (GOOG) played a large role in the Nasdaq's outperformance as it soared 20% on Friday after eclipsing the first quarter consensus EPS estimate by $0.32 and reporting 20% growth in paid clicks. Growth in the latter metric shocked investors as third-party data suggested paid click growth would be in the single-digit range.

Google's good news came on the heels of a battery of better than expected earnings reports and outlooks from other tech bellwethers, namely Intel (INTC) and IBM (IBM). All three companies provided reassuring comments on the demand for their products and services and acknowledged the continued strength in international markets.

The takeaway from these reports, and others from the likes of Caterpillar (CAT), CSX Corp. (CSX), Coca-Cola (KO), and WW Grainger (GWW), was that the earnings picture isn't as dour as one might think when viewed from something other than the financial sector prism.

To the latter point, Thomson Financial estimated at the start of the week that first quarter earnings would decline 14.1%; however, when the financial sector is excluded, the growth rate for the remaining nine sectors would be 6.4%.

With respect to the financial sector, we got a reminder this week that business conditions are far from good.

Earnings reports from Wachovia (WB), JPMorgan Chase (JPM), Merrill Lynch (MER) and Citigroup (C) to name a few all showed sharp downturns versus the prior-year period and in each case, with the exception of JPMorgan Chase, losses for the first quarter.

These reports, though, weren't as bad as expected and that realization unleashed a wave of pent-up buying interest that sent the financial sector up 5.2% for the week.

Strikingly, the financial sector wasn't even the second best-performing sector for the week. That distinction belonged to the technology sector, which rallied 6.3%.

The biggest mover on the week was the energy sector, which advanced 7.7%, moving in near lockstep with oil prices, which shot up 6.1% and finished at a new all-time closing high of $116.90 per barrel.

The big move in oil was evident in a wholesale inflation report that showed producer prices rose 1.1% in March. Rising food prices also played a big part in that uptick, but when both food and energy were excluded, the increase in producer prices was a more palatable 0.2%.

Inflation at the consumer level was better contained, as seen in the Consumer Price Index, which increased 0.3% in March and just 0.2% excluding food and energy. That news and a report of a surprising 0.3% increase in March industrial production contributed to a big rally in the market on Wednesday.

It would be remiss not to add that housing starts and building permits both fell to a 17-year low in March, yet that news had little impact on the market which has grown accustomed to the negative reports on the housing front. Similarly, the market didn't pay much attention to a positive retail sales report for March on Monday knowing that rising gas prices were an influential factor behind the 0.2% increase.

This week the emphasis was on the good news or, in many situations, the better-than-feared news. That disposition led to some robust gains for the major indices.

Readers should remain cognizant, though, that there is a distinct difference between rallying on better-than-feared news and rallying on truly good news. Rallies based on the former can swing sentiment for a short period of time and produce some outsized gains, but it is truly good news that makes for longer-lasting upturns.

Friday, April 18, 2008


I admit that I was nervous about Google (GOOG) going into the conf call. I had sold most of my shares much higher, and then recently added back to the positions around $450. So when I saw that the company beat earnings estimates by a whopping 32 cents, I breathed a big sigh of relief.

The fact that the stock is rocketing $80 higher today, or +18%, is just proof of how low expectations had gotten for the company. That is a huge move for a company with as big a market cap as GOOG.

While GOOG was certain to get the juices flowing on the Nazz today, the strong earnings reports this morning from Honeywell (HON) and Catepillar (CAT) are really helping things. Those stocks are also reacting very nicely.

And let's not leave out Citi (C). While they did report more losses, they were less than many investors feared, and as a result the stock is surging +6.8% and lifting the financial sector big time. The brokers are up across the board, and actually are the leading sector so far.

I also want to bring to your attention two very positive developments that I have been commenting on lately. The first is the action in the Yen. The Yen ETF (FXY) is finally breaking below its 50-day average for the first time this year. This is extremely positive.

The other is the volatility index (VIX). This one recently broke below its 200-day average, and today is moving below the key psychological 20 level. This also should provide a positive backdrop for stocks.

long CAT, GOOG

Thursday, April 17, 2008

More Help For The Housing Market

I think the news from Freddie Mac (FRE) today was pretty significant, although it received little attention.

In the press release, Freddie said it will buy jumbo mortgages in high-cost regions from Wells Fargo (WFC), JPMorgan Chase (JPM), Citigroup (C) and Washington Mutual (WM). The government-sponsored enterprise expects to finance between $10 billion and $15 billion in new jumbo mortgages in 2008.

The move is meant to increase liquidity in the housing markets, and today's announcement marks the first large-scale effort to jump-start the stalled jumbo mortgage market under the Economic Stimulus Act.

I think this is big news and should help the housing market get closer to the eventual bottom. The old cap on jumbo loans was absolute ridiculous for high-cost markets such as Los Angeles, San Francisco, etc.

I have always thought that there should be some sort of regional adjustment to these caps. And with many of the former big jumbo lenders -- Thornburg Mortgage (TMA), for instance -- licking their wounds, an injection of fresh liquidity should help.

Charts of the Day

These charts are as of yesterday's close, and my first chart is of the S&P 500 Index (SPX). Yesterday's rally was very constructive. The price action vaulted the index back above its 50-day average, and volume rose nicely, making for a second straight accumultion day.

If you look at the chart below, you can see the building reverse head & shoulders formation. The left side of the shoulder is the January lows, the head is the March lows, and the right side of the shoulder is the recent pullback in April.

The completion of this formation would require the index to continue to rally above the 1385 level. This would be very bullish, and likely lead to further upside. I don't expect this to occur without hiccups along the way, but it is certainly worth noting.

I'm sure you have heard about all of these agribusiness stocks, and how well they have been doing lately. The ETF below (MOO) is the ag ETF, which contains all of these leading stocks. You can see how it has spiked higher, and yesterday was a big breakout. The fundamentals continue to look strong for this group, but I would be more comfortable waiting for a pullback as opposed to chasing this strength.

As for individual stocks, my Stock of the Day yesterday was Quanta Services (PWR). The stock had a big spike on a surge in volume, always a good sign. This company is involved with upgrading power grids, transmission lines, etc. I think it is in a very good position, and will likely continue to benefit as the Presidential debates heat up and we hear more about the need to upgrade out infrastructure here in the U.S.

long MOO, PWR

Earnings Reports Starting To Take A Better Tone

The market is off a bit, but nothing major.

IBM's (IBM) earnings were pretty solid, but the poor reports from Merrill Lynch (MER) and Pfizer (PFE) seemed to have dragged things down so far.

Only the energy sector is bucking the early weakness. Go figure. The brokers actually look like they are starting to turn around.

Asian markets were up across the board overnight, and the U.S. dollar is up vs. the Japanese yen for a second day.

The put/call ratio opened at an elevated 0.93. The 10-year yield is steady at 3.69% after a big pop yesterday. I don't mind a little spike in the 10-year yield, as I think it reflects stronger economic growth and lessens the recession case.

Let's see if the bulls can color the tape for a second day.

Wednesday, April 16, 2008

Intel Ignites The Bulls

The market is getting a huge boost in early trading on the heels of several better than expected earnings reports. After GE stunk things up, I think expectations got extremely low for the rest of the companies reports. I am a little guilty of that myself. But such is not the case today.

Intel (INTC) started it off last night by topping estimates and giving solid guidance. Then this morning we got another handful of good reports, from the likes of Wells Fargo (WFC), JPMorgan (JPM), Coca-Cola (KO), and CSX.

So all of the sectors are up, but semis are up the most, +4.5% so far. Energy stocks are also higher, as oil is nearing the $115 level. Unbelievable. Gold is also surging as the dollar is weak today vs. the Euro mostly, and the Yen a little.

Ag stocks are also on fire. Monsanto (MON) had its estimates raised and price target lifted to $140 at Goldman Sachs (GS).

The CPI matched expectations this morning, and the bond market is breathing a sigh of relief it wasn't higher. The 10-year yield is up to 3.61%, just above its 50-day. And the VIX is plunging -8% to its lowest level this year (21.08).

The S&P 500 is now back above its 50-day average. Yesterday, the markets rallied on increasing volume, a sign of accumulation. These are both bullish signs. I would like to see the markets hang on to these gains today, and for volume to rise again.

But the strong reports from INTC, JPM, WFC, etc. are a nice shot in the arm. And the plunging VIX has bullish implications as well. I feel more constructive on the market this morning.

long GS, MON

Tuesday, April 15, 2008

Earnings A Mixed Bag So Far

The market was up a bit near the open, despite some higher than expected inflation readings.

There were a handful of companies reporting earnings this morning, and most reported okay results. These included STT, USB, NTRS, and JNJ. The stocks all reacted positively as well, expect for STT which was up for a bit but then fell hard during the conference call.

But the big story today is oil, which continues to surge to new highs. I just saw $4 gas on my way to work. Ugh. It is surprising that oil can continue to make new highs in the face of a weakening economy.

The reasons cited for this morning's spike are terminal closings in Mexico and disruptions in Nigeria. But it still feels like a lot of speculation among traders that continue to proft from new highs in oil. When this trend reverses, I think oil could come back down in a hurry.

Asian markets were up across the board overnight, bucking yesterday's weakness in the U.S. The Yen is also a touch lower today. The 10-year yield is higher at 3.54%. I think yields above 3.50% are a good sign for strength in the economy, and I would like to see yields get over their 50-day at 3.59%.

Tonight after the bell, we will hear from Intel (INTC) and some other semi companies, which should give us more info. about whether the semis have bottomed or not.

Monday, April 14, 2008

Chart of the Day: IEO

The market finished lower today, but given the big rise in oil again and the selling pressure in the financials, I suppose it could have been worse.

My Chart of the Day is the oil & gas ETF (IEO). This etf has been performing very nicely of late, as the natural gas stocks have been in a solid uptrend.

The price of natural gas continues to appear too low relative to the price of crude oil. That should keep upward pressure on nat gas prices, and help support the shares of the stocks in this sector.

Looking at the chart above, you can see that the fund has been in a long uptrend, and since hitting its January lows, it has began making a series of higher lows and higher highs.

Today, the fund made a new closing high. Looking at ETFs exhibiting high relative strength in this environment, IEO is near the top of the list. Energy stocks continue to be leaders in this choppy market, and as long as that continues, IEO will continue to perform nicely.

long IEO

Wachovia (WB) Weighs On Financial Sector

The market is under slight selling pressure in early trading after Wachovia (WB) reported disappointing earnings.

The 5th largest bank reported a 14 cent loss vs. expectations for a 40-cent gain. They also cut their dividend by -40% and are raising $7 billion in capital to shore up their balance sheet. This is weighing on the bank index, which is currently down -3.1%.

One I don't really get is Blockbuster (BBI) is offering between $6-8 to acquire Circuit City (CC). Huh? Are there some synergies between renting movies and selling electronics that I don't know about? Seems like a move out of desparation, but I don't see how it works.

Asian markets got whacked overnight on continued worries about U.S. economic growth. The dollar is lower this morning vs. the Yen and Euro, and oil and gold are both higher again.

The 10-year yield is up slightly to 3.47%; the put/call ratio closed Friday at the high level of 1.29, and it is currently still high at 1.20.

The winners so far today are again the energy and materials stocks. Natural gas stocks are rallying strong, and all of the agribusiness stocks are hitting fresh new highs.

I think lots of traders are gearing up for a rough earnings season after the GE report on Friday. This weeks kicks off the busy part of earnings season with many big bellwhether tech companies reporting all week.

But the market has worked off its overbought condition, and is now in a better position to rally again. I don't like that the SPX closed below its 50-day on Friday, but we'll have to see if there is any follow through.

Friday, April 11, 2008

Midday Update: GE Stinks Up The Joint; Banks Trade Dry

Boy, GE really took the wind out of the market's sail. The bellwhether conglomerate missed earnings estimates and lowere its full year outlook. Most of the shortfall seems to have come from the finance unit and related difficulties. But the stock is getting whacked for -11%, its biggest one-day drop since October 1987.

And given that GE is one of the biggest market caps in the market, it is really weighing on the overall market. The silver lining of this mornings action is that the financials trade dry, meaning that they are bucking the weakness. (see C, WFC, LEH, MER)

Fronteir Airlines (FRNT) is filing for bankruptcy after posting massive losses. Things definitely do not look good in the airline sector.

Asian markets were up overnight, led by a +2.9% spike in Japan. The Yen is also higher today, which is always a headwind for the markets.

Oil is slightly lower, breaking below $110; the 10-year yield is down again, to 3.46%; and the put/call ratio is again high at 1.32.

The S&P 500 is testing support at its 50-day average near 1342. If it holds, it should be a good place to add long exposure and expect a bounce. But with earnings season starting off with a dud, I think investors need to stay nimble.

Thursday, April 10, 2008

Monthly Market Monitor

Our Monthly Market Monitor client letter has been posted on our website. Just click on the link below and go to the 'Market Review' tab on the left to view it.

And please let us know what you think.


Biotechs Strong Out of the Gate

The market is getting a nice bounce in early trading, despite what were mostly weak retail sales reports from retailers.

The financial sector is also under pressure after Lehman (LEH) liquidated 3 funds worth $1 billion. Deutsche said it expects more write-downs, and this is weighing on the broker stocks.

Intel was upgraded to Buy at BofA, and this is helping the semis bounce. INTC is up +3% on the upgrade.

But the big news in the biotech space was the all cash buyout offer for Millennium Pharma (MLNM) from Takeda Pharma. This, along with some other positive datapoints in the biotech sector, has the index spiking higher by more than +5.4%. Not bad. This is also helping the Nasdaq outperform this morning.

Jobless claims came in a little below expectations, at 357,000 vs. 383,000 consensus. The 10-year yield is up slightly to 3.50%. The Bank of England cut rates 25 bps to 5.00%, while the ECB held steady at 4.00%.

Asian markets were mixed overnight, while the Yen is higher again today. Oil is roughly flat, trading just under $111 still. The put/call ratios were high at the open, with the ISEE opening at the incredible level of 3.125. That means there was almost no bullish call buying near the open. This should help support stocks today, imo.

Wednesday, April 09, 2008

Charting The Day's Action

The market pulled back today, but remains in constructive shape for another push higher. Merrill's technical analyst is looking for the SPX to find support in the 1340-1350 area, which coincides with my view of watching for support at the 50-day average (see chart above).

The market had become overbought, so it is normal for it to move sideways to down to alleviate this condition. But most of the pullbacks have come on light volume, which is also constructive.

The big move today was in oil (see chart 2). The oil ETF (USO) broke out to a new high on strong volume, as crude oil topped $110. I don't think this is so much fundamental as it is speculative money chasing new highs.

Be that as it may, I still think that these high oil prices bode well for the oil service stocks, and I am happy to be long the oil service ETF (IEZ) in our accounts.

Gold is also rebounding, but has not yet broken above its overhead 50-day. As such, I am still a tad concerned that it might face resistance at these levels. But on a break above that resistance, I would be looking to add to my gold positions.

The put/call ratio was again high all day, as was the ARMS Index. Taking a look at the volatility index (VIX) in chart 3 above, it has moved higher in the last couple of days, but has not convincingly broke above its overhead 200-day resistance.

If the VIX advance is halted and it turns lower, this could coincide nicely with another rally in the overall market. Let's just hope we don't get hit with anymore glaring negative headlines to spook investors just as they are starting to feel a little better.

long IEZ

Oil Nearing Record Levels

The markets are weak in early trading on an earnings warning from UPS and rising oil prices.

Crude oil inventories declined 3.1 million barrels vs. expectations for a build of 2.3M barrels. This helped crude prices spike higher, currently nearing the $111 level.

Gold prices are also higher on dollar weakness vs. both the Yen and the Euro.

Asian markets were lower across the board overnight, led by a -5.5% plunge in China. China certainly hasn't had the type of bounce lately that many of the bulls were hoping for. It is starting to look like the bubble over there has burst.

UPS lowered is 1Q EPS outlook due to the challenging macro environment. This helped push bond yields lower, with the 10-year yield down to 3.52%.

Semis are bucking the early weakness and moving higher in early trading. SNDK looks like it may have finally bottomed. But it is energy stocks that are again leading the action.

Tuesday, April 08, 2008

FOMC Minutes Show More Concern About Recession

The minutes from the last Fed meeting are out, and they show that the Fed recently became even more concerned about economic growth contracting. Here are the highlights:
  • Most Fed officials see inflation moderating later in '08,'09
  • Fed says judge recent inflation data 'disappointing
  • Fed recognized rate policy alone could not solve problems
  • Many Fed officials judged a contraction in GDP 'likely'
  • Fed says greater uncertainty about inflation outlook
  • FOMC Minutes: Some members foresee 'severe' economic slump
  • FOMC Minutes: 'Little indication' housing has begun to stabilize
  • Fed says econ activity may shrink in 1st half of '08

The market has been hovering in the red all day, and just ticked lower after these comments were released. All sectors are down today, led by homebuilders, semis, and brokers. The only group that is bucking the weakness is the ag/material stocks, and a handful of energy names.

Earnings Season Kicks Off With Some Duds

Earnings season began last night with Alcoa's disappointing numbers. Fortunately, Alcoa isn't a big market mover. AMD also warned its revenues would be light, and that is hitting the semis and also hurt Asian markets overnight.

February pending home sales fell -1.9%, more than exepcted. This is weighing on bond yields for the moment, with the 10-year yield near 3.55%.

Oil is still hovering just below the $109 level, and gas here in LA is approaching $4 in some parts. I wonder how this will affect the summer driving season?

The big news is that Wamu (WM) got its capital infusion, and it was bigger than reported yesterday. WM is raising $7 billion and cutting its quarterly dividend to 1 cent from $0.15. So if WM isn't going to fail, it looks like the worst for the bank sector could be behind us as well.

The markets are overbought, so I expect some consolidation. But I want to see the indexes stay above their 50-day averages. The put/call ratio has remained high, indicating there are still few believers in the recent rally.

Monday, April 07, 2008

Sentiment Update

Despite last week's outsized rally in the markets, and the notion that the market looks to have put in a fairly solid bottom, investor sentiment remains highly skeptical.

Here are a few examples:
  • The Investor's Intelligence survey showed more bulls than bears for the 4th consecutive week; a rare occurrence
  • The AAII survey also showed more bears than bulls, for the 15th out of the last 16 weeks
  • The 10-day CBOE put/call ratio is still above the 1.0 level
  • Short interest on the NYSE rose 0.8% last week, to a new all-time high

So the market looks like it is climbing the proverbial 'wall of worry'. The volatility index (VIX) has now fallen below its 200-day moving average, a good sign. Also, the Yen looks like it has topped for a while. And despite the market coming into the week at very overbought levels, there has been consistent buying today.

On the negative side of the ledger is the fact that oil is testing all-time highs above $109, and gas prices are on the rise also. This has negative implications for consumer sentiment, as well as being an impedence for the economy.

Let's see if the market can hold on to its gains into the close, which would further frustrate the bears.

Monday Morning Musings

The markets are bouncing in early trading on some positive financial news. The WSJ reported that Wamu (WM) is close to getting a $5 billion capital infusion from private-equity firm TPG. This would be great news for that company, and banks and brokers are rallying on the news.

Also, Microsoft (MSFT) said Yahoo (YHOO) has 3 weeks to accept its offer. With no other bidders around, I think YHOO mgt. should suck it up and accept that it is likely the best offer they are going to see.

The dollar is rallying mostly against the Yen, and a little vs. the Euro. Surprisingly, despite the strong dollar, oil and gold are both rallying also. The 10-year yield is up a bit to 3.54%. And Asian markets were higher across the board overnight.

The strongest groups this morning are the energy stocks, including oil services stocks, agriculture and chemical stocks. Retail stocks are lagging.

Saturday, April 05, 2008

Weekly Wrap

Here is the weekly recap from

Once again, there were a host of market-moving headlines in the week that just concluded. Once again, too, there was a glut of headlines pertaining to the financial sector. The stock market's overall take on things was nothing short of exuberant.

The S&P 500 rallied just over 4.0% for the week. It was a striking move on a number of levels, not the least of which was the understanding that it came on the heels of the worst quarterly performance since 2002.

The financial sector led the charge, gaining 6.6% in a news rush that was triangulated between Europe, Washington and Wall Street.

Treasury Secretary Paulson got things going Monday with an announcement of a plan to enact a sweeping overhaul of the U.S. financial regulatory system. The intent of the plan is to streamline the bureaucracy in the regulatory system and to modernize the system so that the U.S. financial sector can be more competitive in the global marketplace. Those are laudable designs, yet no one expects the proposals, or even parts of them, to be implemented any time soon given (a) the higher priority of getting the current market and economic situation worked out first and (b) that this is a presidential election year.

Paulson's plan provided plenty of talking points throughout the week, but the real buzz surrounded the market's reaction to the news from a cadre of investment banks that included Swiss bank UBS (UBS), German bank Deutsche Bank (DB), and the Wall Street firms Lehman Bros. (LEH) and Merrill Lynch (MER).

Tuesday proved to be the market's turning point on the week as it rallied sharply in the face of otherwise bad news from UBS and Deutsche Bank. The former warned that it expected to report a first quarter loss on the order of $12 billion after taking a $19 billion write-down. Deutsche Bank for its part said it would be taking a write-down of approximately $3.9 billion and acknowledged that conditions had become significantly more challenging during the last few weeks.

The spin on these updates was that they were so bad that they stood out as indicators the financial sector must be nearing a bottom. Aiding in that assumption was the added disclosure from UBS that it was planning to raise $15 billion of new capital and word from Lehman Bros. that it was successful in raising $4 billion in new capital in an oversubscribed offering. On a related note, it was reported Thursday by a Japanese paper that Merrill Lynch CEO John Thain said his firm doesn't need to raise fresh capital.

The bulk of this week's gains were achieved on Tuesday, which also happened to be the first day of the second quarter (and April Fool's Day for good measure). Led by a 7.5% surge in the financial sector, and gains in all ten economic sectors, the S&P 500 jumped 3.5%.

In the grand scheme of things, what transpired in the financial sector Tuesday wasn't so much a function of something truly positive as it was an elimination of something truly negative. The capital raising efforts helped squelch liquidity concerns, which were truly a negative as far as sentiment is concerned. However, it's one thing to raise capital to be able to withstand future storms and quite another to raise new capital to deploy for growth initiatives.
The financial sector is still in a mode of weathering storms.

The market has been down this road before in thinking the financial sector is at a bottom, only to get lost in another wave of write-downs, so we won't be so bold as to suggest the bottom is in for the financial sector. This week's action, though, was certainly a welcome development for market bulls.

Equally as welcome was the market's resilience to selling efforts following the Tuesday rally. In fact, over the remaining three sessions the S&P 500 was basically flat, which was comforting for many to see given the tendency for some time now to sell into rallies.

In turn, it wasn't as if the market didn't have any excuses to sell the rally.

On Wednesday Fed Chairman Bernanke told the Joint Economic Committee in his testimony on the economic outlook that he thought real GDP wouldn't grow much, if at all, and could even contract slightly in the first half of 2008. That headline caused a stir, but the market took it in stride, cognizant that Bernanke wasn't telling it anything it hadn't already feared.

On Thursday it was reported that weekly initial claims rose 38K to 407K, well above the market's expectation of 365K. Meanwhile, the Dept. of Labor revealed on Friday that nonfarm payrolls declined 80K in March (consensus -50K) and that the unemployment rate jumped to 5.1% from 4.8%.

The market took a requisite dip following both of the aforementioned reports, but soon rebounded in keeping with the week's bullish bias.

With respect to the closely-followed employment report, it wasn't a good number from an economic standpoint, yet it needs to be stated that it isn't a number either that fits the recession label. Moreover, on a 138 million base of total employed, an 80K decline is fairly insignificant as it amounts to a mere 0.06% decline.

Admittedly, the direction of the payrolls numbers of late isn't great. Payroll employment has declined by 232,000 over the past three months, or an average of 77K per month.

In recessions payrolls decline 150K to 200K per month. We're still well off that mark. Today's report is consistent with's view that the data are bad, but not recession bad. The same can be said for the ISM manufacturing and services indexes released earlier in the week. Both were better than expected, and up from the prior month with readings of 48.6 and 49.6, respectively, but neither topped the neutral 50 level.

In the same vein, the S&P 500 had a very good week this week, but still has a ways to go to get back to neutral for the year.

Friday, April 04, 2008

Chart of the Day: Forest Oil (FST)

Technical difficulties kept me from posting this the other day, but my chart of the week is Forest Oil (FST).

The natural gas stocks have been acting very well of late. There are a whole host of them that are showing good fundamentals, and with the price of nat gas still cheap relative to crude oil prices, I am bullish on the group.

On Tuesday, FST rocketed higher on surging volume. The move was powerful enough to help the stock make a new 52-week high.

The next day, it gapped higher in the morning and stayed strong throughout the session. Volume was again more than twice its recent average (see chart above).

I pay attention to this kind of stuff, and the strong move to new highs on a huge spike in volume makes me think the move is worth noting. I think this rally will have legs, and I'm going to hang on to my FST position for a while longer.

Our firm also has a position in the natural gas ETF (IEO), which owns a basket of these stocks (oil and gas). I think this also a good way to play it for those looking for a more diversified bet on the group.

long IEO, FST

Market Reacts Calmly To Poor Jobs Report

The reaction to the weak jobs number really wasn't that bad. As of this writing, the SPX is down only 1 point, and the Nasdaq down 3. I wouldn't be surprised to see the shorts cover into the close.

The jobs report this morning showed the economy lost -80,000 jobs, more than the consensus for -50,000 jobs. But this was the most telegraphed miss I can remember. Everyone I talked to said that the number was likely to be worse than expectations. That is probably why the reaction was more muted than otherwise.

Ag stock Mosaic (MOS) reported another strong quarter, and the stock is flying. This is boosting the whole ag space. Energy stocks are also higher, as oil is firm and testing $106 again. Solar stocks are also up for a 3rd day.

Asian markets were mixed, with several closed for a holiday. The dollar is lower (yen and euro higher) today, boosting gold. And bond yields are lower on the economic data, with the 10-year yield back down to 3.49%.

long MOO

Thursday, April 03, 2008

Back In The Saddle

Ahh, that's better. Everything appears to be up and running smoothly. Oops, I hope I didn't jinx myself!

The markets were relatively flat today, but that's okay. After Tuesday's outsized rally, a couple of days of benign consolidation is fine. The markets are already oversold, so a pause is expected.

I don't know how we will react to what will likely be a poor jobs report tomorrow morning, but even a mild selloff would be okay. As long as we stay above our 50-day averages, which are now turning upward for the first time since last November.

Semi stocks led the way today. I can't remember the last time I said that, but it bodes well for tech. Lots of stocks were breaking higher today, including solar stocks, ag, materials, financials, etc.

And for the 3rd day this week, the put/call ratios were again above the 1.0 level. That indicates continued skepticism with this rally, which is good from a contrarian perspective. Markets love to climb a 'wall of worry'.

Maximum Frustration

We have been having technical problems with our Internet connectivity in the office, which is why my blog posts have been sparse. I am hopeful that we will be back running smoothly sometime today.

In the meantime, the market were fairly flat yesterday, but are under a little selling pressure this morning. The jobless claims released this morning were a bit on the high side, which increases the odds of the economy slipping into recession.

For most people, it already feels like we are in recession, but statictically we haven't seen enough data to confirm in, at least officially.

Reseach In Motion (RIMM) reported strong earnings last night, boosting that stock nicely. I hope this also bodes well for AAPL. A downgrade this morning of CSCO and a weak outlook at Garmin (GRMN) are offsetting the positive comments from RIMM.

There were several earnings estimate cuts for the brokers this morning, which is weighing on those stocks and some of the other financials.

Energy stocks are strong, with oil up again near $106. I don't know why oil continues to rally in the face of building reserves and ample supply. I guess there are enough factions out there that benefit from higher oil.

Asian markets were up across the board overnight; the 10-year yield is down to 3.55%; and gold is a little lower today also, on furthe dollar strength.

Technically the markets are still in good shape, and this 2-day pullback so far has been mild in relation to the strength of the last rally. Tomorrow's jobs report looms large.

long GS, AAPL

Wednesday, April 02, 2008

Will The Market Break Its Recent Trend?

Yesterday, I noted the change in character of the market to rally in the face of additional negative headlines out of the financial sector. Well today, the market has a chance to show an additional change in character.

Yesterday's +3% rally in the indexes was the 3rd time it has done so in the last month. But the prior two instances had little follow through. On 3/11, the market surged but then went on to make new lows. And on 3/18, the market surged again, but gave half of it back the next day.

So if the market can hold on to its gains today, that would mark an additional change in character. The recent downtrend looks broken from a technical perspective, so we now need to see the market begin to make some higher highs, and higher lows on pullbacks.

The March ADP employment report showed some promise, as it indicated that the private sector added 8,000 jobs, vs. estimates for -45,000 losses. Hopefully this bodes well for the all important jobs report on Friday.

The WSJ is reporting that KeyBank (KEY) is in talks to buy National City (NCC). That would be good. They need to be bought.

Asian marekts surged +2-4% overnight. And the Yen is lower for a 2nd day. Both good. Oil is down slightly on an increase in reported reserves. Bond yields are up a bit, with the 10-year yield at 3.58%.

Bernanke is testifying this before Congress this morning. Poor guy. His comments are basically that GDP could contract slightly in the first half of 2008, that markets are still under considerable stress, and that inflation should moderate in coming quarters.

Tuesday, April 01, 2008

Stocks Soar Despite More Bank Writedowns

Tuesdays have been very good for the market lately. 3 of the last 4 Tuesdays have seen these +3% rallies in the major stock indexes. Don't ask me why.

The bullish trends that I highlighted earlier remained in place all the way into the close, with the markets finishing at their highs for the session. Here are the highligts of today's session:
  • Negative financial headlines didn't hurt the market
  • The Nasdaq 100 spiked +4.1% higher
  • Today was a 90% upside volume day
  • Gold fell another 4%, breaking below the $900 level
  • The Yen fell sharply vs. the dollar
  • The volatility index (VIX) plummeted -11.4% to 22.68
  • The ISEE remained very low at 72, highlihgting continued skepticism of the markets abilitiy to rally
  • The technicals improved today, with the SPX breaking above its recent downtrend line
Volume wasn't spectacular, but it did rise on the day, making for an additional accumulation day. Banks and brokers led the rally today, rising +7.5% and +8.6% respectively. But all of the sectors were higher on the day. Actually, it was hard to find a stock that was lower.

How meaningful was today's action? Hard to say. I think it further supports the notion that the market can continue to bounce from its March lows. The market has been oversold, and pessimism has been off the charts. That gives this rally some room to run as those trends unwind.

But at some point, when the market gets oversold again and pessimism gets converted to optimism, the markets will likely have another correction. I still think that the March lows will hold, but I would not rule out a retest at some point this quarter.

But for now, I am looking for stocks to add to on pullbacks, and new areas of leadership to emerge.

Midday Check: More Signs of a Bottom?

The markets are really off to the races here. The Dow is up more than +300 points as I write (I hope I didn't just jinx it), and the financials are surging higher.

First, one of the most surprisingly different set of events today was the fact that there was more negative financial headlines, but the stocks shrugged it off and rallied.

UBS announced another $19 billion in writedowns, bringing its total to $33 billion. Deutsche Bank (DB) announced a $3.9 billion writedown, and both of those stocks are much higher! Also, Lehman (LEH) is raising $4 billion in a preferred stock offering that was "significantly oversubscribed". And LEH is up +13.5% today.

This is a big change of character for the financials. Normally, these news items would have the shorts pressing their bets on these stocks, and all financials would be lower. But today these groups are leading the market, with the broker index +6.0%. Nice.

Also, commodities are mostly lower today, led by gold. Gold is down -$35, breaking below the $900 level. This is occurring in tandem with a firming dollar, which is up against both the Yen and the Euro. The Yen ETF (FXY) is down -2.4% today. I would like to see this trend continue and for the Yen to keep falling.

The volatility index (VIX) is dropping -10.5% right now, and testing support at its 200-day average. A break below this level would be another bullish development.

Asian markets were mostly higher overnight; bond yields are higher, with the 10-year yield up to 3.53%; and the ISEE index is very low today, expressing skepticism of this rally.

It is rare to see so many indicators lining up to support a higher market. We have seen things reverse quickly in recent months, but if this continues, it would bode very well for the market in the near-term.