Monday, January 31, 2011

Monday Morning Musings

The markets are mixed in early trading, with the S&P 500 higher but the Nasdaq slightly lower. Concerns about the turmoil and political unrest out of Egypt have cooled some, even as Egypt's stock market remains closed.

The flight-to-safety trade from Friday is not being carried over today, as Treasuries are slightly lower, gold prices are down to $1329, and oil prices are off slightly also ($89.11). The dollar is also lower while the euro is getting a big boost.

In economic news, the Chicago PMI report out this morning came in at 68.8, which is a pretty strong reading.

In corporate news, Alpha Natural Resources (ANR) said it will buy Massey Energy (MEE) for roughly a 20% premium. Intel (INTC) announced that its latest chip has a design flaw, and they are halting shipments which will result in a large charge. But at the same time they raised revenue guidance. Nonetheless, the stock is lower right now.

Asian markets were lower overnight; the 10-year yield is up a bit to 3.34%; and the volatility index is down slightly to 19.86 after a big spike higher on Friday.

Trading comment: Friday's selloff was accompanied by a pickup in volume, such that the distribution days in the market are picking up a bit. Today's bounce looks a bit tepid so far, but it's still early. It would not surprise me to see a 1-2 day bounce, but then more of a pullback in the market. This would create a better buying opportunity, but as we have seen this market is anything but predictable.

If we close near here, the S&P 500 will achieve its first positive January since 2007. So those folks who put stock in the 'January effect' should be pleased. As of now, the SPX is up 1.9% for the month.

Friday, January 28, 2011

U.S. GDP Rises to 3.2%, But Disappoints Some

The market is lower in early trading, on a wave of crosscurrents. There was another big round of earnings announcements last night, and most of the stocks that I follow are down on those announcements. Some of the ones giving me angst today include SNDK, F, AMZN, and MSFT.

We got a preliminary look at Q4 GDP this morning, which came in at +3.2%. That is an improvement in growth from the previous quarter's 2.6% rate, but it is below what many were looking for with a number in the 3.7% range. But this number will be subject to a couple more revisions, so it could get revised higher going forward.

The turmoil that is going on in Egypt the last couple of days is causing a bit of a flight to safety. To wit, global equities are lower while the dollar, Treasuries, oil, and gold are all higher. Oil is up to $87.15, while gold is getting a small bounce to $1327.

Asian markets were lower overnight following the news that S&P lower the debt rating for Japan. The 10-year yield is lower to 3.35%; and the volatility index (VIX) is seeing a really big spike so far, up 11% right now to the 18.0 level (right where its overhead 50-day average sits).

Trading comment: The market is very choppy right now, but we will have to see if the usual buying shows up this afternoon to mitigate the current declines. Right now, the S&P 500 is at 1287, which is down 1% on the day but would still leave it up for the week. Could this be the start of a correction? Too soon to say for sure, but anything is possible. That said, I am looking to add to some big-cap industrials that are pulling back from recent breakouts.

long F, SNDK, VIX calls

Thursday, January 27, 2011

Earnings Reports Trump Economic Data in Early Trading

The market is higher again in early trading, with the S&P 500 briefly touching the 1300 level for the first time in more than two years.

Earnings reports continue to roll in. Some of the stocks rallying on their earnings reports include NFLX, QCOM, POT, and TSCO. Disappointing reactions to earnings can be seen in PG, T, and MUR.

For now, earnings reports are trumping any concerns about the economic data released this morning. Jobless claims for the week came in higher than expected, and durable goods orders for December fell 2.5%, far more than expected.

Asian markets were mixed overnight, with China higher. After the markets closed, Standard & Poor's downgraded Japan's debt rating to AA-. So I would expect Asian markets to selloff when they reopen.

The dollar is flat this morning. Oil prices are a bit weaker near $86.95, and gold prices are barely in positive territory at $1336.

The 10-year yield is up a little to 3.44%; and the volatility index is still low at 16.58, after trading lower yesterday.

Trading comment: I continue to see more and more breakouts, and from many different industries. Yesterday I saw big breakouts in Halliburton (HAL), Emerson (EMR), etc. And today the list is expanding. Despite any concerns about the market being extended, the strong price action can't be ignored. I want to continue to buy the leaders and avoid the laggards.

long EMR, HAL

Wednesday, January 26, 2011

Sentiment Stays Bullish Ahead of FOMC Announcement

The market is higher again in early trading, following last night's State of the Union address by the President. Actually, I didn't really hear anything that was different that what we have heard before from the Administration, so I'm not sure how much weight I would put on last night's speech.

We got a solid housing report this morning, with new home sales spiking 17.5% in December, from 5.5% last month. That report likely boosted sentiment as much as anything else.

There was also another wave of earnings reports last night and this morning. Some of the positive reactions include JNPR, FTNT, and GILD, while BA saw a negative reactions in its stock.

The FOMC meets later today, but I think most investors are not expecting the message to change much. There is some debate about whether the Fed will complete its $600 billion asset purchase program, but I think this is a done deal.

Asian markets were mixed last night, with India and Australia closed. The dollar is flattish so far, while oil prices are up a bit to $86.30 and gold is lower again near $1331.

The 10-year yield is bouncing to 3.38%, within the range its been trading for the better part of the last six weeks. The VIX is down -4.5% today, back below the 17 level.

Trading comment: The S&P is back at new highs today, nearly touching the 1300 level. There is some data that shows the market sometimes tops coincident with the State of the Union Address, but that remains to be seen. The market bent a couple of times in the last few weeks, but sure hasn't broken. The stair-step market continues. I continue to be surprised by the lack of a bigger pullback, given how I think bullish sentiment has become stretched.

Tuesday, January 25, 2011

Is The Bloom Coming Off The Commodity Rose?

The market is slightly lower in early trading, as sentiment from overseas raised some yellow flags and commodity prices continue to trend lower.

There was a good economic report this morning, when the Conference Board said that consumer confidence in January spiked to an eight-month high at 60.6 (vs. expectations of 53.5). But the CaseShiller Home Price composite fell -1.6% in November as the housing market still struggles to find a bottom.

Overseas, Asian markets were mixed after India raised its key rate 25 basis points to 6.5%. In Europe, the UK's economy contracted 0.5% in Q4 after it was expected to grow. There is also concern that Spain's savings banks could need capital infusions.

The dollar is bouncing on these concerns, and that is weighing on commodities further. The CRB Commodity index is near a 3-week low, with oil prices down to $86.75 and gold all the way back near $1328. It certainly looks like the uptrend in gold is broken for the time being.

Earnings reports continue to roll in, and the reactions in stocks have been mixed. Some positive reactions today include TRV, BHI, and AMGN. But on the flip side we got some disappointing reactions in MMM and JNJ.

The 10-year yield is flat near 3.41%; and the volatility index is up +1.9% to 18.0, hovering just below its overhead 50-day average.

Trading comment: Tough juncture right here. There are several yellow flags on the horizon, with tightenings in Asia and commodity-related stocks rolling over. Also throw in the negative reactions we've seen in former market leading cloud computing and networking stocks. But other names like AAPL and GOOG have held in, and other sectors seem to be holding up as well, so the overall market is still barely off its recent highs. As such, I still think it is probably okay to buy the dips as well as those stocks who have already reported strong earnings.


Monday, January 24, 2011

Monday Morning Musings

The market is trading higher in early trading, despite some weakness overseas as well as in some areas of the tech market in the US.

Energy and materials stocks are leading the action so far, while networking and cloud computing stocks are lagging. The action in some leading stocks like FFIV, APKT, ARUN, RVBD, VMW, etc. lends itself to the notion that the market has more of a correction ahead of it.

Asian markets were mixed overnight, with some markets like Thailand down 4% overnight on fears of rising inflation.

The dollar is slightly lower, which is having a mixed effect on commodities. Cotton and lumber futures were both limit up this morning, while oil and gold prices were both lower to $87.70 and $1343, respectively.

There were a couple of earnings reports this morning worth noting. McDonalds (MCD) reported in-line results while Halliburton (HAL) topped estimates and its stock is higher. There are plenty more earnings reports out this week, as well as the FOMC meeting and an advance look at Q4 GDP.

The 10-year yield is lower to 3.38%; and the VIX is also lower near 18.20.

Trading comment: On Friday, we sold our VMWare (VMW) position ahead of earnings today. That looks to be a good call so far as cloud computing and networking stocks are under severe selling pressure today. After the horrible reaction in FFIV last week to its earnings report, I didn't want to take any chances. These stocks likely have a multi-week correction ahead of them, but I suspect they will be back at new highs at some point later this year.

The overall market has barely pulled back, but if the action in these leading stocks is a precursor, then we could see a broader correction unfold. I am not doing any forced selling, but in the areas where we have taken profits recently, I want to be patient about putting the money back to work.

long HAL, MCD

Friday, January 21, 2011

Google Trounces Estimates, Shuffles Its Board

The market is higher in early trading, although the Nasdaq is lagging again, and looking like it might give up some of its early gains.

Google (GOOG) reported very strong earnings last night, above expectations, but also announced that CEO Eric Schmidt was move to the Chairman role and Larry Page would assume the CEO role. Not sure if that is the problem, but the stock opened nicely higher this morning and has since retraced all of its early gains. Not inspiring price action.

Intuitive Surgical (ISRG) also reported a blowout quarter, and its stock is 14% higher. GE was also very solid, and enjoying a nice 5.5% pop. Bank of America (BAC) was a little light, and the stock is down 2% so far.

Asian markets were mixed overnight, with China bouncing but most other countries lower. The dollar is weak again today, but commodities are mixed. Cotton futures were limit up this morning, but gold prices are down near $1339 and oil prices are flat around $89.50.

The 10-year yield is lower to 3.42%; and the volatility index was lower this morning but is climbing back towards positive territory.

Trading comment: The market opened sharply lower yesterday, but once again was "saved" and rallied into the close. That made for another small decline overall. This morning, the action is kind of the reverse, where the market opened higher and has been fading ever since. Most leading growth stocks corrected hard yesterday and are not showing much of a bounce today. This tells me that the correction likely has further to go, probably both in terms of time as well as price.

The market is set to have its first down week since November. Pretty surprising. And earnings season remains in high gear next week. Rest up.


Thursday, January 20, 2011

Cloud Computing Stocks Selloff Hard As Market Pulls Back

The market is pulling back further today, which should not be surprising to anyone who has been reading our concerns about the market being overbought and extended, and sentiment becoming too complacent.

Last night, F5 Networks (FFIV) reported earnings that were pretty solid, but guidance was only in-line. When you have a high-flying growth stock, the company has to consistently raise earnings guidance to keep the momentum going. Any in-line guidance is not going to be greeted well by investors, and today's action demonstrates that. FFIV is down -20% today, and dragging down all cloud computing related stocks with it. It is basically tainting anything network related.

EBAY was a bright spot in earnings, but its not enough to help today. Morgan Stanely (MS) also reported solid earnings, and that is helping boost a few financial stocks.

Asian markets were hit hard overnight, led down by China. Q4 GDP in China grew +9.8%, an acceleration from last quarter. This has caused increased concern that tighter monetary policy will be implemented to cool the overheating economy. China finished down nearly -3% last night.

There were some better than expected economic reports today. Existing home sales for December increased 12.3%, and jobless claims fell from the prior week. But investors are in profit taking mode today, and that is overshadowing any positive news.

Commodities are also getting hit, with gold prices down to $1345, and oil prices falling back to $89.25.

The 10-year yield is higher at 3.41%; and the volatility index (VIX) is spiking 7% to 18.50, and testing its overhead 50-day resistance.

Trading comment: I was early in calling for a correction, but timing market tops is probably the most difficult part of investing. That said, this looks to me like it could be the start of a much needed correction. It's okay to pick at things on the way down, but all corrections take time to complete themselves. So let stocks consolidate and form new bases. When stocks begin to breakout from those consolidations to new highs, that will be the sign to get more aggressive. Patience.

long FFIV, VIX calls

Wednesday, January 19, 2011

Apple Trades Higher, Recoups Losses From CEO Announcement

The market is trading lower in early trading, after a mixed batch of earnings reports and a weaker than expected housing starts report.

Apple (AAPL) reported blowout earnings last night, and gave very strong guidance relative to its usual conservatism. The stock had already recouped most of its losses from yesterday, after it was reported that CEO Steve Jobs was taking another medical leave. After reporting earnings, the stock gapped higher again, and has traded back as high as Friday's closing price.

IBM also reported strong earnings last night, and the stock has rallied to new all-time highs today. In the financial sector, Goldman Sachs (GS) was a little light on the top line, while Wells Fargo (WFC), US Bancorp (USB) and State Street (STT) reported solid results. Nonetheless, all of the stocks are lower today. The financial sector is down -1.44% so far, more than the -0.67% pullback in the broader market.

Asian markets were higher overnight, while Europe is lower this morning. There are rumors that China's CPI report tonight will be below what has been expected.

The dollar is lower today, helping to boost most commodities. Gold is higher to $1376, while oil prices are down slightly near $91.00.

The 10-year yield is lower to 3.34%; and the volatility index is up +4% to 16.50.

Trading comment: Today looks like it could be the first down day in a while, but we have to see if the mid-day dip buyers come back once again. Regardless of waiting for the overall market to pull back, earnings season will present its own opportunities and volatility. So far, earnings season is off to a good start. The best buying opportunities remain trying to pick up those names that are growing earnings and raising estimates if you can get them on a pullback. Focus on the leaders, not the laggards.


Monday, January 17, 2011

Part 2 from

Smaller-Cap Stocks on Our Radar1/13/2011 1:48 PM EST
I already wrote a piece on my top picks for 2011, so I won't rehash that. But I want to throw out some other picks that I don't often write about. We normally play in the mid-cap and large-cap space, as these stocks tend to be less volatile (on average). But for our trading accounts, we do play in some of the smaller names, so I do have a few on my radar.

Meru Networks (MERU) is a provider of virtualized wireless LAN solutions, a space that is heating up and garnering a lot of attention. It has a $300 million market cap and very high growth rates. The stock has been publicly traded for less than a year, so is under most people's radar. It broke out on high volume the other day and is now on my radar.

MIPS Tech is a chip maker for home entertainment, telecom, networking and multimedia. It has a market cap of $800 million and very high earnings growth. This is another stock that has been moving higher on big volume increases, and that could bode well for further gains this year. The stock also ranks well on measures of profitability, relative strength, fund sponsorship, etc.

Radware is a $700 million market cap, Israeli provider of network security solutions. This is another hot space, and there have been many rumors of a suitor looking to buy RDWR. On its own merit, the stock ranks well on all of the measures of growth and profitability that we look for. But the kicker is that I believe that eventually it will get an offer high enough to accept, and that could be the cherry for investors.

IPG Photonics (IPGP) is a manufacturer of fiber-optic lasers, amplifiers, etc. Kind of like a small JDS Uniphase (JDSU). It has a market cap of $1.6 billion, so it's a little larger than the others, but the fiber-optic space is heating up, and IPGP's growth rates are heating up as well. The stock just broke out to new highs this week and could be a good addition on a pullback.

Position: Long IPGP, MIPS, RDWR

Q&A 1/13/2011 3:02 PM EST

Here are some questions I have received today from readers:
Andrew L.:
With the specter of higher yields, what are your ideas for fixed-income portfolios? Andrew, mostly what we are doing for fixed income is keeping maturities short on some corporate bonds when we can find acceptable yields. We have also been adding to our preferred stocks and hedging a portion of the interest rate risk with the ProShares UltraShort 20+ Year Treasury (TBT). On the fund side, we have been allocating to floating-rate funds (which should hold up better as rates rise) and dipping our toe in the water slightly in emerging market bond funds.

John G.:
What is your take on Doug's favorite long, Yahoo! (YHOO)? John, I love Dougie, but I am less enamored of Yahoo!. At the end of the day, I still think Google (GOOG) will outperform Yahoo! this year. Google was totally flat for 2010 (actually down 3%), so I think it will come back this year and provide solid returns. Google continues to take market share from Yahoo! and is doing a better job at diversifying its revenue streams, in my opinion. On a P/E basis, Google is still cheaper, and Yahoo!'s EPS are not even expected to grow in 2011. I prefer to stick with the leaders, and leave the turnaround situations to those with more patience.

What do you think about iShares Russell 2000 Index (IWM) and PowerShares QQQ (QQQQ) as shorts? Mo, I don't think these are good shorts while the market is making new highs and in a confirmed uptrend. When the market is trading below both its 50-day and 200-day moving averages, and those moving averages are no longer upwardly sloping, then I think they might be good hedges on a portfolio. Until then, they are just speculative trades and should carry tight stops with them.

John G.:
Who is the group of managers you polled for your annual forecast? Hedgies? Big firms? John, My group of participants includes many factions. I have a lot of guys that you read here on the pages of RealMoney Silver daily, I also have some institutional traders, as well as a handful of people running their own small investment advisory firms. So while my sample size may not be huge, it is well diversified amongst the various investor types.

Sentiment is on the complacent side of things.
Let's take a look at the sentiment backdrop. Again, here I look at several different types of indicators. I also should point out that while I think sentiment is a bit on the complacent side overall, I have found in my work that following the sentiment indicators works better in helping to time market bottoms than it does trying to time tops. Often that's because market tops are more of a process and take time, while market bottoms are often events (more short term).
Looking at the put/call ratios, the 10-day CBOE put/call is down to 0.77, which is on the low side of the equation. Last year before the flash crash, it got down to 0.75. The 10-day ISEE call/put ratio is more in neutral territory at 131.

The investment adviser surveys show higher levels of bullishness. The spread between the bulls and bears on the Investors Intelligence survey rose to 38% last week. That matches the highest level since October 2007, the height of the last bull market. The spread in the AAII survey eased back this week to 29%, but I should note at the end of December it spiked to 47%, which was the highest reading I could find going all the way back to 2004. Last, the Rydex Nova/Ursa ratio (of mutual fund market timers) also eased back to 0.586 from its recent highs -- it rose to 0.665 last year before the flash crash, for reference.

As such, I think that sentiment is on the complacent side of things. It was even more so at the end of December, and as such, I found myself in the camp calling for a correction. Earlier this week, Bank of America (BAC) put out its hedge fund survey, which showed long/short hedge funds had lowered their net long equity exposure at the end of last year from their normal 30-40% range to just 18%. As such, it looks like the correction camp became a little too crowded, and that may be one of the reasons we have not seen much of a pullback. But January is also a month well known for headfakes, so don't get too lulled into a sense of complacency. Overall, I would have to give sentiment a grade of C+, due to high levels of bullishness (which is bad from a contrarian perspective).

Constructive on the Macro Picture1/13/2011 4:01 PM EST
From where I sit, it looks like the economy will continue to gradually improve.
Last, I wanted to briefly touch on the macro picture. This is the fourth leg of the market stool, where we take into account the economy, interest rates, inflation, etc. On this front, I am constructive on the economy as it looks like a continued gradual improvement from where I sit.
Unemployment remains stubbornly high, but this is not a good data point to wait for when investing -- it lags.

The ECRI weekly growth rate continues to improve. Last week, it moved further into positive territory at 3.3% (a 33-week high), and we get another update tomorrow.
Interest rates are poised to move higher, but I don't think they will do so dramatically. Moreover, the reason they are moving higher is as a reflection of an improving economy. Over the summer when the double-dip crowd grew vocal, interest rates fell to levels that appeared unsustainable. So upon an improving economy, one should expect rates to drift higher to a more normalized level. Also, inflation remains low. I know there is some food and energy inflation, but the biggest component of inflation in the economy is labor costs, and those appear well anchored. Additionally, there remains considerable slack in the economy, so inflation is unlikely to be broad-based in the near future.

And with that, I want to again thank everyone for reading and also for the questions. Feel free to continue to email me with any questions or feedback. Tomorrow you will be back in the capable hands of Mr. Kass. Enjoy your evening.

Sunday, January 16, 2011

Commentary from

Here is a copy of the posts I made on Thursday while filling in for Doug Kass on Below are the first four posts from that day. I will post the second four later--

The Folly of Forecasts1/13/2011 7:30 AM EST
It's always nice to be filling in for Doug in The Edge. I'll try to give readers an update on how the market looks from where I sit and also offer a few ideas. I also want to take some time to answer any questions readers have, so feel free to email me, and I will do my best to answer them all.
It is that time of year when all the market strategists put out their forecasts for 2011. First off, these forecasts should be taken with a grain of salt since all of the strategists are generally bullish and put out positive forecasts. After all, they earn their living in the markets, so it's in their best interest to be upbeat and positive. Second, no one ever goes back and takes them to task if their predictions are way off. To wit, all of the strategists were bullish heading into 2008, but we won't bring that up. Right?

I actually do an annual blog poll of my own. I do this partially for fun but also to see how real life portfolio managers' sentiment compares to the consensus. I recently completed my poll for 2011, and the participants I talked to are bullish, but less so than the consensus.

You might have seen that the average strategist polled by Bloomberg forecast the S&P 500 to close 2011 at 1,379, for a 9.6% gain. Merrill was more bullish with a forecast of 1,400, and Goldman even more so with a forecast of 1,450 (up 15%). The fearless forecast from my group of money managers was for the S&P to rise to 1,332, for a 5.9% gain.

This would be a below-average gain for the stock market, and thus one can conclude that my group is somewhat cautious on the year ahead. Of course, the real reason why we don't place too much emphasis on these forecasts is that no one invests their portfolio based on them and then just sits there until the end of the year to see how they did. The key to solid investment results come from staying on top of your investments and actively managing your risk in your portfolio.

Fundamentals Get an 'A'1/13/2011 10:01 AM EST
I want to provide an update today on our view of the "">market stool," which we covered the last time we had the helm on The Edge. We tend to look at the four legs of the stool as:

the fundamentals;
the technical picture;
the sentiment backdrop; and
the overall macro picture.

For the fundamental component, I think the market remains on solid footing. We are just entering earnings season, so we will have to watch to see how corporate profit reports come in and how confident managements are in their guidance, but so far the overall level of corporate profits is high and stable. Standard & Poor's has current EPS forecasts for the S&P 500 at roughly $94.79 for 2011, and these estimates have been stable.

That leaves the market at a still very reasonable valuation of 13.5x earnings. This seems to be a low multiple to us relative to past periods in history that demonstrated similar characteristics of low interest rates, low inflation, etc. So we think it is likely that we could see some multiple expansion in the market as the economic recovery continues and the hangover from the Great Recession continues to dissipate.

Corporate balance sheets are also in wonderful shape, with cash balances higher than they have been in decades. Most companies have also refinanced their debt at lower rates, increasing their cash flow and improving the outlook for continued high levels of share buybacks and dividend hikes, as well as continued M&A activity. As such, I would probably have to give the grade of an "A" to the fundamental aspects of the market today.

Technicals Also Get an 'A'1/13/2011 11:06 AM EST
The technical picture for the market looks pretty good as well. We look at a lot of things, but let's start with where the market is trading in relation to its medium- and long-term moving averages -- namely, the key 50-day and 200-day moving averages.

Looking at the S&P 500, the senior index is trading comfortably above both its 50-day and 200-day averages. Moreover, the slope of these key moving averages is important to note as well, and in that light, they are both showing nicely positive upward-sloping shapes.

We also look at the price/volume action in the market, or the accumulation vs. distribution days. On this front, there has been very little high-volume selling of late, and at least a few rallies that have come on higher volume. This is another good sign for the market, and we would expect that before we see any sort of top in the market (even a short-term one), we would see some sort of cluster of distribution days.

Looking at new highs vs. new lows in the market, we see that new highs continue to greatly exceed new lows and that the absolute number of both have been fairly steady of late. Breadth has been positive, and, again, right now we are not seeing any major chinks in the armor. Last, we closely monitor the action of "leading" stocks. Our motto is, as goes the leaders, so goes the market. So the fact that the market leaders have held up well, and continue to break out to new highs is another indicator that falls on the bullish side of the ledger.

I don't want to get off on too-Pollyanna-ish of a note this morning, but I'm afraid that I would probably have to give an A to the technical picture also. It's funny that I phrased my last sentence that way, but these days it's almost as if you feel apologetic for being too bullish. But that is something I'll touch on in a later post when I delve into sentiment.

Positive Signs From the Eurozone1/13/2011 12:11 PM EST
The euro is bouncing for a third day after another bout of solid demand for bond auctions. Earlier this week, it was Portugal, and today Italy's auctions were met with solid demand. More notable is the action in the credit default swaps (CDS) market, where CDS prices for Greece are down 5%, Italy has fallen 8%, and Spain is down 9%. This is a good sign, and hopefully it will continue.
ECB President Trichet has urged eurozone governments to "get ahead of the curve" in dealing with their debt issues. He also wants to improve the "quality and quantity" of the European Stability Fund. So is it possible that the euro crisis won't be the calamitous market event everyone is expecting?

Look, the sovereign debt issues in Western Europe are serious matters, and as such they are not being taken lightly by the markets. But it is possible that they will be dealt with without a huge amount of fallout in the other parts of the global financial markets. Not every crisis leads to a market crash. It might just be that the market will price in these events, yields will move higher for those affected nations, and in the end, we will look back on it as just another stone in the wall of worry that bull markets like to climb.

We are not there yet, so I will continue to monitor the CDS action of the sovereign debt in Europe. But right now, it is not causing us to alter our plans or how we are approaching the market today.

Friday, January 14, 2011

Market Bounces On Solid Start To Earnings Season

The market was weak before the open, but so far it has found solid footing and is now trading higher in the first hour of trading.

Intel (INTC) and JPMorgan (JPM) both reported solid earnings. JPM's report has improved sentiment throughout the banking sector, while INTC's comments about raising capex has lit a huge fire under the equipment players (see NANO, CYMI, NVLS, VSEA, etc). On the disappointing side of the ledger is Coinstar (CSTR), which lowered guidance and its stock is plunging -25%.

Asian markets were mixed overnight, and Europe is lower this morning after the People's Bank of China raised the reserve requirement over there another 50 basis points. This will increase than agnst over China stepping on the brakes to slowdown their economy and thwart inflation. It will also weigh on commodities in the near-term. To wit, oil prices are lower right now near $90.71 while gold prices are down further to $1366.

The 10-year yield is a bit lower today to 3.27%; and the volatility index (VIX) is down another -2.6% to 15.95. I have been looking for a bounce in the VIX, but they have been few and far between.

Trading comment: This market sure doesn't want to pull back. I think there were too many folks looking for a correction early this year, and as we know the market rarely accomodates what the herd is expecting. That said, there is always plenty of volatility surrounding earnings reports, so I expect upcoming opportunities to take advantage of. Earnings season really heats up next week with AAPL, GOOG, etc. So rest up.

Also, I had the pleasure of filling in for Doug Kass's daily column on yesterday. Check back over the weekend when I will repost all of my comments that ran throughout the day.

long AAPL, GOOG, JPM, VIX calls

Wednesday, January 12, 2011

Europe Bounces On Strong Portugese Bond Auction

The market is rallying to fresh highs this morning on the heels of some positive news and action in overseas markets. Asian markets were higher across the board overnight (except Japan), and Europe is nicely higher this morning.

Both Germany and Portugal held successful debt auctions earlier, which greatly improved sentiment across the pond. Germany also announced that its GDP for 2010 grew by 3.6%, a solid rate of growth.

The sigh of relief with regards to European sovereign debt is boosting the euro, at the expense of the dollar. While this is weighing on gold again, down near $1379, it is not thwarting oil prices which are now up to $91.85.

In corporate news, yoga clothing maker Lululemon (LULU) raised guidance last night. This fast growing company has seen its stock on a tear, and this news pushed it another +8% higher today. Short interest in the stock is very high, so I'm sure there is a considerable amount of pain and short-covering going on in the market. But you can't deny that the consumer is willing to spend on things that they really want.

Among the sector ETFs, financials are strongest out of the gate so far, up 1.50%. Goldman Sachs (GS) made positive comments about the banking sector this morning, and yesterday's interview with JPMorgan's Jamie Dimon was bullish in that he said lending was up across the board in 2010 and the bank would like to reinstate its dividend if allowed to do so.

The 10-year yield is higher to 3.40%; and the volatility index is -3.3% lower to 16.32 on today's rally in the overall market.

Trading comment: Those looking for a correction (yours truly included) have been frustrated by the market hovering near recent highs and refusing to give back any ground. I think the correction camp simply became too crowded, and thus less likely to occur as most envisioned. I am still mindful that January can often be a month of headfakes, so I am looking for individual situations to add to, while keeping some powder dry just in case.

long JPM, VIX calls

Tuesday, January 11, 2011

Euro Can't Bounce, Despite Successful Debt Offerings

The market is a little higher in early trade, following positive action out of European markets this morning. There were successful debt offerings in both Greece and Italy, which improved sentiment in Europe. Additionally, Japan has pledged to support eurozone sovereign debt. Tomorrow, Germany and Portugal will conduct their own bond auctions.

Despite the solid auctions in Europe today, the euro can't muster much of a bounce, and remains down slightly vs. the dollar. This is not hurting commodities so far, as the price of oil is higher near $89.85 and gold prices are also up to $1382.

Alcoa (AA) kicked off earnings season last night, but its stock is slightly lower today. There are more earnings reports to come out this week, but earnings season really kicks into gear next week with more bellwether companies reporting.

I will be listening to hear management's tone about guidance, and if they're willing to get a little more constructive on the economy. I will also be watching how stocks react to earnings, since that is the most important factor when it comes to market news/data.

Asian markets were mixed overnight; the 10-year yield is higher to 3.34%; and the volatility index (VIX) is -2.4% so far back down to 17.12.

Trading comment: Yesterday was another example of this market bending but not breaking. The SPX came down towards that 1160 level again, but found support and bounced, closing down a little more than a point on the day. This sort of sideways consolidation has been a hallmark characteristic of the "stairstep" market, where gains get digested by a sideways move, and then the market moves higher after the digestion period. That could be what we are seeing again. I have been looking for more of a pullback, but the market doesn't seem to want to cooperate so far. Go figure.

long VIX

Monday, January 10, 2011

Monday Morning Musings

The market is trading lower in early trading, taking its cues from overseas markets. Asian markets were lower overnight, with China down -1.7% and Indonesia falling -4% on inflation concerns. Europe is lower this morning amid continuing concerns over the sovereign debt issues in Spain, Portugal, etc.

Economically speaking, there has been no data to come out this morning to speak of. There was one merger deal, with Duke Energy (DUK) buying Progress Energy (PGN) for $13.7 billion.

The dollar is lower today, which is boosting commodities. Oil prices are up just above the $89 level, and gold is a tad higher near $1370.

The 10-year yield is lower to 3.29%; and the volatility index is spiking 6.2% higher to 18.20.

Most stocks are lower this morning, with energy stocks down the most, and consumer staples down the least. Apple (AAPL) is bucking the weakness so far, and trading up near $340. A handful of other tech stocks are positive also. But that's about it. Financials are mixed, while energy and materials stocks look lower across the board.

Trading comment: The market soldoff a few times last week, but each time it basically rallied back by the close to narrow its losses. This must be frustrating to the bears, who are looking for a bigger pullback. The market is still concerned with the sovereign debt issues in Europe, but it certainly hasn't led to a ton of selling. This could mean that instead of a deeper pullback, the market merely consolidates in more of a sideways fashion as it works off the recent gains. I still think we pullback a little bit more, if only to work off the extreme bullish sentiment that had built up in the market. But right now, the SPX 1250 level could provide initial support, if we even get there.

long AAPL, VIX calls

Friday, January 07, 2011

Jobs Report Disappoints, But Unemployment Rate Still Falls

The market was slightly higher in early trading, but has since slipped a bit below the flat line. Overseas trading was mixed, with some Asian markets gaining overnight (China), but Europe trading mostly lower this morning. There is also continued concerns in Europe about the debt situation, and the Spanish and Portuguese banks in particular.

Today's big economic report was the December nonfarm payrolls report, which showed that the economy added 103,000 jobs. That was well below the 150,000 jobs forecast, and I even heard whisper numbers yesterday that were looking for more than 200,000 jobs to be created. So on the surface the jobs report was a little weaker than expected. That said, the unemployment rate fell from 9.7% to 9.4%, which is a slight positive, even as most of it comes from a decrease in the overall labor force.

Fed Chairman Bernanke testified before Congress this morning, and said that most FOMC members expect the unemployment rate to hover north of 8% for the next couple of years, and that it could take 4-5 years to return to "full employment".

He also said that the economic recovery is continuing, but at a pace that is insufficient to reduce unemployment significantly. But growth should be stronger in 2011 than it was in 2010.

The dollar is roughly flat this morning, and commodities are mixed. Gold is a little lower again near $1367, while oil prices have bounced a bit to $89.

The 10-year yield is lower to 3.35%; and the volatility index is down -2.4% to 17.0.

Trading comment: The concerns in Europe continue to escalate, but for the time being they have not let to much selling here in the U.S. The ISEE call/put ratio opened at a sky high 361, indicating no bearishness among options traders at the moment. I continue to lock in some profits in things like commodity-related names (steel, etc), which could correct a lot, and have raised a bit of cash to put to work on any correction. My early call was that the beginning of January could show some strength that turns into a headfake before a pullback. We are still early in the month, so I'm taking it day by day.

long VIX

Wednesday, January 05, 2011

Will Strong ADP Jobs Report Lead To Strong Payroll Report on Friday?

The market is slightly higher in early trading, but not by much. Overseas market action was mixed, with Asian markets mixed and Europe mostly lower this morning.

In the US, we did get some strong economic reports. The ADP Employment report was by far the strongest, showing a gain of 297,000 jobs in December, almost 3x what was expected. And the December ISM Services index came in above expectations at 57.1.

The strong economic data stoked buying in the dollar, which is weighing on commodities. Oil prices are lower to $88.50, and gold prices are off again near $1370.

The 10-year yield is also up sharply on the strong economic data, with yields on the 10-yr. rising 10 bps to 3.45%. The volatility index (VIX) is barely changed near 17.40.

Trading comment: Yesterday's selloff looked like it was going to have some teeth to it, but once again the market rallied at the end of the day so that the close was little changed from the previous day. Oil and gold prices have started to rollover, and real estate (IYR) was down sharply yesterday also. That increases the chances that equities follow suit, and continue to pullback.

As such, I want to be selective with my buying, and not get sucked into a potential January headfake. I think there is a better buying opportunity on a further pullback for those who can be patient.

long VIX

Tuesday, January 04, 2011

2010 Blog Poll Results

The S&P 500 closed last year at 1257, and the winner of our annual In The Money poll was LakeView Asset Management's Scott Rothbort. Scott forecast the the SPX would close the year at 1265, which was the closest prediction (by a hair!).

Congrats, Scotty. You win a great dinner at the fine LA steakhouse Mastro's. Just let me know when you'll be in town to collect.

On the bond side, the closest prediction for where the 10-year Treasury yield would end the year came from SeaBreeze Partner's Doug Kass, who was the only participant to forecast anything with a 3-handle on it (his forecast was 3.00% vs. 3.30% actual). Nice job, Doug.

Overall, the average forecast for 2010 was SPX 1200, for a gain of 7.7%. The actual gain for the year came in at 12.8%, so our pollsters were a tad conservative in their outlooks.

I don't yet have the final predictions in for my 2011 poll, but hope to have it completed by the end of the week. So check back to see how our fearless forecasters see 2011 shaping up.

Stock Picks For 2011

Below is a copy of an article I wrote for last Friday:

'Tis the time of year to make bold predictions for next year. While you may glean some good investment ideas from these pieces, I hope that all investors realize by now that proper risk management entails following your stocks, as well as not letting losses get out of hand when things don't go as expected.

On the last trading day of 2009, I said my top picks for 2010 were: Apple (AAPL) , Google (GOOG) , Broadcom (BRCM) , F5 Networks (FFIV) and one speculative play in MEMC Electronic Materials (WFR) .

Although I provided updates on these throughout the year, let's pretend you bought them at year-end last year and held them until today. You would have done best in F5 Networks, which rocketed 151%. Apple didn't do too shabbily, either, with its return of 54%. Broadcom rose 38%, and Google was roughly flat for the year, though this stock should do better in 2011. My big loser was MEMC, which is currently 23% lower. Again, though, with proper risk management, one may have elected a stop-loss strategy to limit losses on that name.

I also said that, while analysts were coming out on television and hyping Microsoft (MSFT) as a top pick for 2010, that the stock would likely underperform again. Right on cue, Microsoft shares ended the year 8% below where they started it. This stock has been a serial disappointer, and I still feel your hard-earned investment capital will do better elsewhere. I think the company's upcoming foray into the tablet market will be about as exciting as its Zune MP3 player. (What, you haven't heard of the Zune?)

I also wrote a piece in early March about the commercial real estate market, suggesting that readers not fall into the bearish trap of avoiding this rebounding sector. I suggested six different ways of playing the group. Fortunately this was a good call, and all of my picks experienced gains from ranging from 20% to 30%. That's not bad, and I would stick with these names for 2011.
With that, here are my top picks for 2011.

First there's Priceline (PCLN), which has defied the slowdown in Europe and, in my view, can continue growing in 2011. I'm also going with MercodoLibre (MELI) , another fast-growing Internet play capitalizing on the rapid growth in Latin America. Another pick is Mosaic (MOS) , a fertilizer play that was much higher in 2008, and should benefit from rising agriculture prices.

Rounding out the list, finally, are Intuitive Surgical (ISRG) -- a depressed growth stock which is down for 2010 and which I believe can bounce back next year -- and Urban Outfitters (URBN) . The latter name is another one that was flat for 2010, but it's still growing and should be a solid pick for 2011.

As for Apple and Google, I continue to hold both of these names. Each is executing well, and the companies are sporting solid growth. Moreover, valuations are reasonable, and if 2011 is the year of price-to-earnings multiple expansion, these two stocks are prime candidates for bigger multiples. Apple, in particular, should have a big year with iPads (my kids love mine) and garner more respect for its sustainable growth.

So Happy New Year, and happy trading to all.


Monday, January 03, 2011

Quote of the Day

Professionals are people who can do their job when they don’t feel like it. Amateurs are people who can’t do their job when they do feel like it.
-- Anonymous

Monday Morning Musings

The market is strong out of the gate on this first trading day of the New Year. Several overseas markets remained closed for the holiday, but the ones that were open in both Asia and Europe were nicely higher.

Before you start making predictions based on this morning's action, recall that last year the first trading day of 2010 was a huge day, and the strength lasted into mid-January before the plug was pulled and the market actually finished lower for the month. I'm not trying to get too bearish, just pointing out what happened.

Financials are the strongest group so far, led by Bank of America (BAC) which spiked nearly 5% on news that it plans to take a $3B provision related to the repurchase of residential mortgage loans sold to the GSEs Fannie and Freddie. While that sounds like a big number, it is the removal of uncertainty that is allowing investors to better gauge the impact to earnings.

The only big economic data this morning was the ISM Index, which came in a little light at 57.0, but that was up from last month's 56.6.

The dollar is up a bit, but that isn't hurting stocks today. The correlation between weak dollar - strong stocks has diminished a bit in recent weeks. Commodities are mixed, with gold prices lower near $1417 but oil prices higher to $92.30. Rising oil prices remain a concern, as they could provide a potential headwind to the economy and to consumer spending.

The 10-year yield is higher to 3.38%; and the volatility index (VIX) is a bit lower near 17.67.

Trading comment: Tough juncture here as the market is overbought, investor sentiment seems too bullish, but new money is coming in and the market is breaking out to fresh highs. I'm trying to let our winners run a bit, but I admit I'm a bit leery of putting new money to work right here. I think a better buying opportunity awaits after a little shake out that brings about a bit more bearishness back into the market. Buy the dips.

long BAC, VIX calls