Monday, October 31, 2005

Mid-day Movers

Here is a partial list of stocks moving on above-average volume:
  • High-volume advancers: ORCT, TWGP, UTHR, RAVN, NWRE, SIGI, CRI, MFE, HSII, SAY

  • High-volume decliners: NTE, IART, RTI, KOF, PVTB, K, ABX, SPW, SNN, DLX

Market Comments: The market has done a good job holding on to its early gains. Energy stocks have given back some, as the price of oil and gas continues to fall. But this is bouying other sectors, like retail and financials. If the market can hang in there for a little while longer, we could see another push higher into the close.

Morning Look

Morning News of Note:
  • WMT: Wal-Mart Stores-WMT sees October comps up 4.3%
  • GOOG: Google Weighs on Madison Avenue Ad Firms Watch Closely As Search Engine Ponders Move to Traditional Media It's the big question on Madison Avenue: Is Google a friend or foe? Ad companies are increasingly jittery about signs that Google is contemplating expanding its online ad-placement business into traditional media. (Full Story) WSJ
  • LGF: Lions Gate très shriek With its latest, "Saw II," the risk-taking studio is finding itself the object of envy, admiration. EVERYWHERE I went in Hollywood last week, people seemed to be in two distinct camps. They were either depressed — you would be too if none of your movies were working — or they were wildly jealous that they didn't have a movie like "Saw II." The Lions Gate film, which opened No. 1 at the box office with an estimated $30.5 million, the best opening in the company's history, has an eye-catching poster that sells its concept perfectly. (Full Story) LA Times
  • FSH: Fisher Scientific-FSH believe stock represents a compelling value-reit OP@GSCO The firm does not think higher input and fuel costs, while proving to be a challenge, should impair a historically reliable earnings formula. The firm expects 2006 EPS to be $4.05, 15%+. Stable life science market trends are highlighted by strong CRO results.

Market Comments: The market is really strong out of the gate this morning, following on Friday's strength. Energy is leading the way (strong earnings from VLO, OXY), followed by a nice bounce in the homies, as well as retailers (WMT guidance, SKS store sales).

Also, I don't hear a lot of people talking about the fact that the broker index (XBD) is breaking out to new highs. That's got to be another bullish sign for the broader market. Not to mention that the sentiment indicators I follow continue to point to extreme bearishness out there. I expect this to further unwind as the rally builds on itself into year-end.

long FSH, GOOG

Quote of the Day

"Wise men put their trust in ideas, not in circumstances." - Ralph Waldo Emerson

Friday, October 28, 2005

Glorious Day

Do you ever feel like the up days put you in a good mood while the down days put you in a fowl one? Of course, that is exactly the type of emotions that we should supress as traders. The market will continue to fluctuate, so don't feel too good about the up days, and don't let the declines get you down. Just do your research, manage your risk, and find opportunities to profit.

That said, today was a really great rally. Volume was strong, and the markets reversed their early weakness and then some. Everyone I know thought that today would be a down day, and that GDP would probably disappoint. Well, the exact opposite played out. And when the market does the exact opposite of what it is setting up to do, we should take notice.

I have been calling for a bottom for weeks now, and it is looking more and more like the low on Oct. 13 was THE low. If the SPX can take out its overhead 200-day next week, I think the market could be off to the races.

Mid-day Movers

Here is a partial list of stocks moving on above-average volume:
  • High-volume advancers: CTHR, TWGP, CMX, UTHR, TEX, RTP, LTM, MLM, ESRX, PSYS

  • High-volume decliners: THRX, RSYS, DECK, COLM, WEBX, PQE, KCI, VSEA, MXIM, IVGN

Market Comments: Soon after my opening post, the market reversed most of its gains from the open, and it was looking like another strong open/weak close scenario. But the market found bottom, and has since reversed sharply higher. It's still early, but looking better.

Chips stocks are still in the red. I am surprised how much MXIM is down. Wow. Energy stocks have reversed their early losses, and retail stocks are still very strong. HANS is bouncing nicely also.

long HANS

GDP report better-than-expected

Morning News of Note:
  • Q3 GDP: U.S. Economy Grew at a 3.8% Rate in Third Quarter, Survey Says The U.S. economy expanded at a 3.8 percent annual rate from July through September, powered by near-record auto sales early in the quarter and rising exports, according to economists surveyed before a government report today. The projected third-quarter gain for gross domestic product, the sum of all goods and services produced in the U.S., compares with 3.3 percent in the previous three months and is based on the median estimate of 67 economists in a Bloomberg News survey. (Full Story) Bloomberg
  • XOM: As high fuel prices roil consumers and Congress considers a Backlash Spreads As Profits Surge At Oil Companies Exxon, Shell Net $19 Billion, Fueling Calls for Profit Tax, Efforts to Boost Stockpiles variety of measures to ease the impact, Exxon Mobil Corp. and Royal Dutch Shell PLC, the world's No. 1 and No. 3 oil companies, weighed in with record third-quarter earnings that totaled almost $19 billion. Riding a wave of high prices for oil, gasoline and natural gas, Exxon reported third-quarter net income of $9.92 billion, up 75% from the year-ago period, on revenue of $100.72 billion. (Full Story) WSJ
  • C: Heard on the Street... Bricks and Mortar Loom Larger for Citigroup Bank Appears to Broaden Its Plan To Expand Number of Branches, Addressing Weak Retail Presence Citigroup Inc. may be branching out in its pursuit of old-fashioned bank branches. For the past year, the nation's largest financial institution has placed a new emphasis on bank branches as it tries to plug a hole in its world-wide operations. Executives have regularly said the bank is targeting five key areas for growth: California, Texas, Illinois, Florida and the mid-Atlantic region. (Full Story) WSJ
  • ZMH: Zimmer-ZMH believe shares near a bottom following 2006 outlook-OP@PIPR ZMH is now officially expecting 1% price declines in 2006 and overall revenue growth of 8%-9%. Earnings growth is still expected to be 17%-19%. The firm views the negative price guidance as a worst case scenario and believes multiple compression is limited.

Market Comments: GDP came in at +3.8% vs. +3.6% consensus. So much for the hurricane-induced slowdown. Of course, those estimates are still subject to revisions, but they look pretty strong at first blush.

The list of companies that have not met earnings estimates and seen their stocks get killed is growing. If you're long DECK, WEBX, IRF, MSTR, KLAC, etc., you're not too happy this morning. Retail stocks are bouncing back after yesterday's schellacking, while chip stocks are in the red so far. The market is up big at the open, and you know how I feel about strong opens. Let's just hope...

long C, XOM; short KLAC

Quote of the Day

"I never remember feeling tired by work, though idleness exhausts me completely." - Sir Arthur Conan Doyle

Thursday, October 27, 2005

Morning Look

Morning News of Note:
  • JNJ: Johnson & Johnson-JNJ FDA issues non-approvable letter for dapoxetine-Sec OP@CIBC The firm feels this is a negative surprise and a disappoint, but notes it is a recoverable event.
  • GOOG: GOOGLE'S MULLING TV AD BROKERING Google, the company that dominates online advertising, would like to try its hand at buying and selling television ad time. Google, already dabbling in print ads, recently confirmed that it's "mulling" ways to extend its ad-brokering system to television spots as well. (Full Story) NY Post
  • EBAY: eBAY Inc.-EBAY launches national television advertising EBAY has started a national television advertising campaign, "You can get 'It' on EBAY," is designed to let consumers know that whatever it is they are looking for, it can be found on EBAY. It is only the third advertising campaign in EBAY's 10 year history. Tim Hanlon, of advertising agency Starcom Mediavest Group, says, "What it will do is slightly change people's perception - when it comes to their first consideration, if they've decided on something to buy - of going to a search environment like GOOG or mega-retailer like AMZN. Now they might consider EBAY to do the same."
  • MO ISIS: Rx From Marlboro Man: Device That Delivers Drugs, Not Smoke Philip Morris Finds Other Use For 'Safer Cigarette' Idea; Tobacco Foes Are Wary 'There's So Much Mistrust' For years scientists at Philip Morris USA have studied how the human lung delivers a highly addictive chemical, nicotine, to the smoker's brain. Now, these same scientists are quietly laying plans to use their findings to enter, of all things, the business of treating illness. A team of Philip Morris engineers and scientists is working on a new design for a hand-held inhaler to treat a variety of ailments, including smoking-related lung disease. The product, called Aria, arose from a failed effort to invent a safer cigarette alternative. (Full Story) WSJ

Market Comments: The market opens on a slightly weak note this morning. The durable goods report was weaker than expected, and the new home sales report was below expectations as well. That's putting pressure on housing stocks, which have already fallen a great deal.

DOW reported a solid quarter this morning, and the stock is benefitting. But names like BIDU and DRIV are getting hammered. This is typical of earnings season, which oftens presents plenty of land mines if you're not careful.


Quote of the Day

"The recipe for perpetual ignorance is: Be satisfied with your opinions and content with your knowledge." - Elbert Hubbard

Wednesday, October 26, 2005

Parting shots

The market finished on a weak note, unable to maintain its gains as the SPX bounced off of its overhead 200-day. It now looks like the market will have to do a little more consolidating before making another attempt to get through this resistance. But I do not think this is the start of a renewed downtrend.

Interest rates didn't help, as the bond market pushed the yield on the 10-year to a 6-month high of 4.59%. Oil declined to below $61/barrel, but that didn't help much either, especially as energy stocks gave up their gains as well. Interestingly, the bank and broker indexes finished in the green, which is definitely a positive.

There are more and more earnings on tap, so make sure you stay on top of your positions. And have a great night--

Mid-day Movers

Here is a partial list of stocks moving on above-average volume:
  • High-volume advancers: ISRG, WBSN, CRI, SIGI, WOOF, THOR, DGIN, BEAV, NTRI, RES

  • High-volume decliners: KNSY, BSTE, XL, GTRC, EPIQ, GRMN, AMZN, YCC, SNA, PHRM

Market Comments: The S&P pushed above its 200-day briefly, but is fighting to hold on to those gains. GRMN is selling off hard after reporting earnings, while ADP and SRCL are adding to their gains. And ELOS is breaking strongly above its overhead 50-day. Energy stocks are also having a very nice day, on the heels of a strong report by COP.


Poised for more gains

Morning News of Note:
  • MDT STJ GDT: U.S. Seeks Data From Medtronic, St. Jude, Guidant Medtronic Inc., St. Jude Medical Inc. and Guidant Corp., leading makers of medical devices, said they received Justice Department subpoenas inquiring into sales practices in the heart-defibrillator and pacemaker industry. St. Jude, of St. Paul, Minn., and Guidant, of Indianapolis, both said that a broad subpoena was issued by the U.S. Attorney's Office in Boston, and that it deals with defibrillators, pacemakers, "lead" wires and related products. (Full Story) WSJ
  • WAG CVS: Retail/Drug-anticipate posting solid Oct sales particularly front end-Attract@GSCO In anticipation of a 20% intermediate-term returns, the firm advises buying CVS/OP and WAG/OP. Despite a negative Halloween calendar shift, the firm estimates an average overall gain of 5% with front end up 4%.
  • MCD: Read It and Weep? Big Mac Wrapper To Show Fat, Calories Would you care for some reading material with your fries? McDonald's Corp. said it will start posting nutritional data on some product packages next year, responding to pressure from consumer groups and working to alter the popular perception that the food served at the world's largest restaurant chain is unhealthy. Starting in February in Turin, Italy, McDonald's will print the calories, protein, fat, carbohydrates and sodium contained in some of its most popular menu items on wrappers and boxes. (Full Story) WSJ
  • Short Interest: Nasdaq Oct short interest up 2.3% to 5,944,351,614, record high; SIR 3.4 vs 4 in Sept -- WSJ

Market Comments: The market did a nice job yesterday of limiting its losses into the close. The late day rally resulted in just a slight pullback for the day. Not bad considering how big Monday's rally was, and how many times we have seen the market give back the bulk of its gains. Volume was below average levels, just what you want to see on a pullback.

The market is up again this morning, with the SPX now sitting right at its 200-day. In terms of earnings, AMZN is getting whacked on its in-line guidance. ISRG is the biggest standout on the upside, with FFIV coming in 2nd. There were also nice quarters reported by COP, ADP, and MNST to name a few.

long ADP, MDT, MNST, WAG; short AMZN

Quote of the Day

"A healthful hunger for a great idea is the beauty and blessedness of life." - Jean Ingelow

Tuesday, October 25, 2005

Start of the 4th quarter rally?

Morning News of Note:
  • CVC: The family that controls Cablevision Systems Corp. said Tuesday it has withdrawn its offer to take the cable-TV provider private, and is encouraging the company's board to pay shareholders a special $3 billion dividend. Charles and James Dolan, Cablevision's chairman and chief executive, respectively, issued a statement saying that, after four months of negotiations, the Dolan family and the company have been unable to agree on terms of the transaction.
  • CMCSK TWX S: Cable Firms Near Pact With Sprint Cellular Deal Would Arm Comcast, Cox, Time Warner In Battle With Phone Rivals A consortium of cable operators including Comcast Corp., Cox Communications Inc. and Time Warner Inc. are close to an agreement to sell cellular service using the wireless network of Sprint Nextel Corp., according to people familiar with the talks. The deal, expected to be announced in the next few weeks, would give cable operators another weapon in their battle with telephone companies. (Full Story) WSJ
  • WMT: Wal-Mart to Seek Savings in Energy Wal-Mart's chief executive is set to announce on Tuesday a set of sweeping, specific environmental goals to reduce energy use in its stores, double its trucks' fuel efficiency, minimize its use of packaging and pressure thousands of companies in its worldwide supply chain to follow its lead. Embracing energy-conscious and environmentally conscious goals will help both the company's bottom line and its customers' needs, H. Lee Scott said in an interview Monday. (Full Story) NY Times
  • JNJ GDT: Sources say FTC set to approve Johnson & Johnson-JNJ and Guidant-GDT deal-Reuters: A source close to the matter says that the US FTC is set to approve the JNJ/GDT deal "on the condition that JNJ license a key cardiac stent technology to a competitor."
  • ZMH: @ BOFA... • ZMH will report 3Q on October 26 AMC. ZMH shares have been weak on pricing concerns and on lower than expected 3Q from competitors. We forecast 3Q revs of $783M (+12%) and EPS of $0.67 (+20%). • As we await ’06 guidance, we are lowering our ests for two issues: 1) Loss of distribution rights to Haemonetic’s OrthoPAT system and 2) Applying a base 0% pricing scenario given ZMH previously communicated internal scenario analysis of –2%, 0% and+2% in its forecast models.

Market Comments: After a soft open, the SPX has climbed back into positive territory. The senior index is right at its 200-day moving average, so it may need a little time to consolidate here before breaking above that resistance. That is, unless panic short covering sets in and pushes the market higher today.

TXN gave soft guidance last night, and that is pressuring chip stocks. The market is not being kind to any company that reports a shortfall or lowers guidance (see PLAY). Energy stocks are catching a bid again today, as oil is back above $60. The question now is: was yesterday's surge the start of the 4th qtr. rally?


Quote of the Day

"The illusion that times that were are better than those that are, has probably pervaded all ages." - Horace Greeley

Monday, October 24, 2005

Glorious Day

Didn't that feel good. I was worried about the strong open, thinking that it would fade again, but the market built on its early strength and rallied from wire to wire. I can't remember the last time that happened.

Volume was nothing to write home about, but the price action was fantastic. The SPX closed above last Wednesday's highs, and the QQQs broke above their 50-day moving average. Bullish action.

The sentiment figures from this weekend showed more record bearishness. I have repeatedly highlighted these indicators, so I'm sure you know them all by now. But now we have a market that looks like it's ready to rally. If all of these bearish sentiment bets begin to get unwound, that will only add fuel to the fire.

Monday Morning Pop

Morning News of Note:
  • ELOS: Co announces the publication of clinical data on its VelaSmooth system in the Journal of Cosmetic and Laser Therapy. This study found that the VelaSmooth by Syneron and its unique elos technology provided safe and effective treatment of cellulite to study participants. 90% of the study participants had an overall clinical improvement in the appearance of their cellulite after treatment with the VelaSmooth.
  • UNH: A Big Insurer Bets on Hot Trend: Shopping Around for Health Care UnitedHealth's New Products Drive Patients to Make Medical-Spending Choices Protest by St. Louis Doctors In its three decades, UnitedHealth Group Inc. has helped drive some of the biggest shifts in the U.S. health-care system -- and made hefty profits doing so. Now the big health insurer is at the leading edge of the latest trend sweeping the industry: so-called consumer-driven health care. The principle of consumer-driven plans is that people will shop for the best care at the lowest price if they have to pay more of the cost themselves. The idea is a response to traditional plans in which employers pay most of the bill after modest deductibles and co-pays, leaving consumers with little incentive to curtail their medical spending. (Full Story) WSJ
  • Homebuilders: Home-Builders' Stocks Lose Curb Appeal As Interest Rates Climb Higher, Investors Become More Skittish Despite Likely Profit Gains Major home builders are expected to report yet another quarter of stellar earnings this week. But those figures are unlikely to revive the builders' slumping share prices. That is because a number of analysts and investors have concluded that the house party is ending. Few expect a widespread drop in home prices. Even so, the boom of the past decade is running up against some big obstacles. They include rising interest rates, regulatory concerns about loose mortgage-lending standards, swelling inventories of unsold homes and growing skittishness among consumers. (Full Story) WSJ
  • CD: CD announced that its Board of Directors has approved a plan to separate Cendant into four independent, publicly traded, pure-play cos -- one each for CD's real estate, travel distribution, hospitality and vehicle rental businesses. Following the proposed transaction, CD's shareholders will own 100% of the equity in all four cos. The transaction is expected to be effected through three 100% spin-offs in the summer of 2006.
  • WMT: Wal-Mart Stores-WMT Sees October SSS up 2%-4%

Market Comments: The market is getting a really strong bounce so far this am. I have mentioned repeatedly that markets that open higher and then sell off later in the day are clear signs of underlying weakness. So I am not too happy about the early strength. Let's just hope the market can maintain some momentum until the close, which is still a lifetime away.

Energy stocks seem to be finally catching a bid. I have to think that the weakness in the group last week was exacerbated by the whole Refco disaster. Brokers and housing stocks are also up nicely so far, with the SMH (semis) the only index in the red.


Friday, October 21, 2005

One-day wonder?

Morning News of Note:
  • GOOG Color: Estimates and price tgts are raised across the board as Google blew away estimates... Piper raises their tgt to $445 from $365, saying Google delivered an amazingly strong performance in what was supposed to be a seasonally slow quarter, with a sequential growth in Google sites of almost 3x the broader market growth. Firm believes Google's momentum will continue for the foreseeable future as the co appears to understand the science of targeting and monetization better than any other Internet advertising co.
  • Fund Flows: equity funds rptd net inflows $1.376bln, ex ETFs inflows $3m; domestic funds rptd outflows $1.034bln, fifth consecutive week, lgst since 1/26/05; ETF flows: IJR inflows $554m, EWJ inflows $494m, IWM inrlws $362m, IYR inflows $162m, XLE inflows $138m, IWV inflows $129m, EEM outflows ($369m), IGW outflows ($107m); taxable bond funds rptd outflows ($46m), ex ETFs outflows ($134m), HY bond funds rptd outflows ($255m); money mkt funds rptd inflows $9.022bln -- AMG Data
  • SHLD: Sears investors itching for Lampert to let loose Investors thought they knew what Edward Lampert's game plan was at Sears Holdings Corp: Sell off hundreds, or thousands, of stores, auction non-core assets like Lands' End, tighten inventories and slash capital spending. In short, they expected the billionaire hedge fund operator to employ the same golden touch he had wielded as chairman of Kmart Holding Corp. (Full Story) Chicago Tribune
  • US Economy: Fed Gov Lacker sees stable transition to Greenspan's succesor; energy price shocks no reason to ease policy; discounts notion that there is a housing bubble; inflation concerns now distinctly higher; Fed policy still accomodative; core prices drifted to higher end of comfor range (Thursday)

Market Comments: Yesterday's action felt worse than the previous day's big rally. Down days have that effect. If you're looking for a silver lining, I would point out the fact that the market avoided another distribution day, since volume was lower than Wednesday. Also, while the SPX gave up all of Wed. gains, the Nasdaq fell less, showing at least some relative outperformance.

Today, it's easy to get excited if you own GOOG or SNDK. Those two reported blowout quarters and are up big so far today. BRCM also reported a good quarter, but the stock is down. Now can someone please tell me when the energy complex is going to at least have a snapback rally?

long GOOG

Thursday, October 20, 2005

Free Voice Calls

I remember about five years ago hearing Cisco's John Chambers predict that within 5 years, voice calls would be free for consumers. That obviously hasn't happened. Now, eBay's Meg Whitman is the latest tech luminary to make the same prediction--

SAN FRANCISCO, Oct 19 (Reuters) - In a few short years, users can expect to make telephone calls for free, with no per-minute charges, as part of a package of services through which carriers make money on advertising or transaction fees, eBay's chief executive said on Wednesday.

Seeking to justify eBay's $4 billion purchase last week of Web-based communications phenomenon Skype Technologies, Meg Whitman countered criticism by a financial analyst during the company's quarterly conference call by agreeing with some of his points.

"The percentage of users that you can actually charge for (phone services) will actually go down, so I actually agree with that and we understood that when we looked at Skype," Whitman said in responding to the analyst's question.

"In the end, the price that anyone can provide for voice transmission on the 'Net will trend toward zero," eBay's top executive said.

The company is betting that by combining electronic markets, online payment systems and Web-based communications, eBay can emerge as a leader in all three businesses.
Skype, which allows free Web-based calls between members, ended September with more than 57 million registered users. EBay said it expects Skype to produce estimated revenues of $60 million in 2005, and more than $200 million in 2006.
Whitman said Skype's explosive success, would -- over the next several years -- drive the cost of phone calls to nothing.

The chairman and chief executive of the world's largest online auction site said the transition to completely free voice communications will not happen in the next year or two, but that could happen in the next three to six years.
"Our belief is that the winner in this space will be those that have the largest ecosystem," Whitman said.

"What I mean by that is: the largest number of registered users, the largest number of voice minutes, the largest number of developers who develop the platform, the best product ... that users are willing and want to pay for."

EBay said it had 168.1 registered users for its online auctions as of the end of September. It had 68.0 million active users who signed on to bid or sell in its electronic marketplace over the past 12 months. It had 86.6 million current accounts on its PayPal payment service, it said.

Yesterday felt good

Morning News of Note:
  • GDT: Guidant-GDT JNJ/GDT deal will probably go through but at lower prx-reit Neut@FACT JNJ is mulling over alternatives of its merger agreement with GDT due to GDT's CRM device recalls and the probing of the FDA of GDT's actions. The firm thinks JNJ is attempting to assess damage done to the franchise and it is unlikely GDT will regain all of the CRM share it lost due to product recalls. While JNJ's comments have been vague, the firm thinks that the Co will try to negotiate a lower price for GDT than their original bid of $76/share.
  • CMCSK: Comcast searches for way to be television's Google For Comcast Corp. Chief Executive Brian Roberts, the key challenge in today's digital video world is how to become the Google of television. Roberts, who heads the nation's largest cable TV provider, said broadband Internet makes the traditional cable TV business obsolete. As a result, he said, Comcast is stressing its on-demand video service, which enables customers to view movies and programs whenever they want. (Full Story) Chicago Tribune
  • SBUX: Lattes Lure Brits to Coffee Tea Sales Fall as Starbucks Draws the Young; Fighting Back With New Tea Flavors, Travel Cup There are eight Starbucks coffee shops within three blocks of St. Paul's Cathedral here, and all were bustling one recent lunchtime. Kevin Quinn bought a mocha frappuccino, the first of several Starbucks drinks he said he was likely to consume that day. He also picked up a caffe latte, a cappuccino and a piece of chocolate cake for colleagues, paying £10.60 ($18.55). (Full Story) WSJ
  • Hurricane Wilma: Hurricane Wilma weakened to a Category 4 hurricane with top winds of near 150 mph early today, but forecasters warned the storm may re-intensify later in the day. The storm is wobbling between Cuba and the Yucatan. Officials in the Florida Keys said they would order a mandatory evacuation for all residents, perhaps as early as noon today, if the storm continues to appear headed in that direction. - CNN

Market Comments: What a nice close yesterday. Picture perfect turnaround. The market was weak most of the morning, causing more panic selling, but then turned higher and rallied strong into the close. That left a LROD (large-range outside day) on the charts for both the SPX and COMP. Volume expanded on both exchanges, qualifying as an accumulation day. So count that as Day 1 for a new rally. Now we need to look for some follow-thru accumulation over the next week.

AMGN and EBAY reported in-line results, which weren't enough to keep the stocks from selling off. JNPR reported a strong quarter. Tonight, we'll hear from GOOG, BRCM, and SNDK.


Quote of the Day

"Humility is the most difficult of all virtues to achieve; nothing dies harder that the desire to think well of self." - T.S. Eliot

Wednesday, October 19, 2005

Mid-day Update

Here is a partial list of stocks moving on above-average volume:
  • High-volume advancers: LUFK, IMN, SGDE, VAR, RLI, FCN, LCAV, STC, FAST, PNRA

  • High-volume decliners: ATMI, MNT, USNA, TSS, HNI, SYK, FLIR, ARTC, GBX, AAUK

Market Comments: Stocks are just about climbing back into positive territory. I think (hope) today could see some short covering which would add to the gains into the close.

TGT is a standout today, breaking out to the upside on strong volume. And PNRA is building on yesterday's gains, as I predicted. Wish I hadn't sold it.

long TGT

Searching for a bottom

Morning News of Note:
  • Hurricane Wilma: Hurricane Wilma has been upgraded to a Category 5
  • GOOG: 'Splogs' Roil Web, and Some Blame Google Spam, long the scourge of email users, rapidly has become the bane of bloggers too. Spammers have created millions of Web logs to promote everything from gambling Web sites to pornography. The spam blogs -- known as "splogs" -- often contain gibberish, and are full of links to other Web sites spammers are trying to promote. Because search engines like those of Google Inc., Microsoft Corp. and Yahoo Inc. base their rankings of Web sites, in part, on how many other Web sites link to them, the splogs can help artificially inflate a site's popularity. (Full Story) WSJ
  • Telecom: Wireless May Be Bells' Ace in the Hole REPORTS OF TELECOM'S DEATH may be exaggerated. EBay's $2.6 billion purchase of Luxembourg start-up Skype has fueled fears that the Internet will make phone calls free. That's hurt shares of U.S. phone companies like Verizon and SBC, which just hit new 52-week lows and have lagged the Standard & Poor's 500 by as much as 47 percentage points over the last five years. (Full Story) BARRONS
  • US Economy: Fed Gov Ferguson says measured rate path should cont for now; oil shock stresses need to monitor incoming data; growth been solid even with high oil prices; GDP will be cut 1% in 2005 and 50bps in 2006 due to oil prices; economic outlook solid; high energy prices may be quite long lasting (Tuesday)
  • JNJ GDT: J&J Is Weighing Its 'Alternatives' On Guidant Deal Johnson & Johnson publicly signaled to Guidant Corp. that their pending merger deal is in jeopardy, a possible prelude to renegotiation of terms or even dissolution of the pact. During a conference call announcing third-quarter earnings yesterday, Johnson & Johnson Vice Chairman Robert Darretta declared for the first time publicly that management is considering "alternatives under our merger agreement." (Full Story) WSJ

Market Comments: Mixed bag of earnings last night. MOT and YHOO were the standouts on the upside, while INTC and GILD reported in-line quarters but saw their stocks sell off.

The market declined big in early trading, but has since clawed its way back. Yesterday's close was terrible, so let's hope today shows the mirror opposite. So far, the financials have held in positive territory, which should help support the market.

Energy stocks continue to be sold in earnest. I tend to think that energy is still in a bull market, and that during bull markets is when you experience the sharpest corrections. That shakes the bulls' confidence, and allows the trend to continue. Similar to what the homebuilders experienced over the last few years.


Tuesday, October 18, 2005

Sentiment and Technicals align

I have mentioned how sentiment has been approaching extreme bearish levels recently, but now I am seeing deeply oversold technical conditions aligning with those extreme bearish sentiment readings.

Here are some examples:
  • The Rydex Nova/Ursa ratio has hit a new yearly low at 0.15
  • The Specialist Short ratio recently hit a multi-decade low at 0.13
  • The bulls on Market Vane are at their lowest level (58%) since August 2004
  • The 10-day put/call ratio hit 1.07, its highest reading since May 2004

These levels are often seen just prior to tradeable rallies. In terms of how the technicals are now lining up, consider:
  • The oscillators are now as deeply oversold as they have been at prior bottoms
  • The stochastics are oversold on both the short-term and intermediate-term time frames (the last time was April)
  • The 10-day moving average of downside volume (NYSE) is at its highest level in over a year
I was probably a little early in citing extreme bearish sentiment as a reason the markets should rally. What was needed was a deeply oversold market to wash out the sellers, and let the market lift thereafter. I think that is where we are now.

The combination of this technical condition and extreme sentiment readings leads me to be more bullish now. As such, I think it is too late to sell, and I am starting to add to my positions as well as put on trading ETF longs.

Long SPY, QQQQ, etc.

PNRA breaks out

Former SOTD Panera Bread (PNRA) is breaking out today. The company raised earnings guidance for the upcoming quarter, saying that higher-than-expected sales will result in higher profit. Panera said quarterly sales increased 31%, and that same-store sales rose +8.2% for the quarter.

The news has the stock gapping higher by nearly 7%. The stock is up on very strong volume, and is breaking above its overhead 200-day moving average. I took profits on my trading position into the spike, but will probably regret it and look to buy back the stock on any weakness.

PPI takes the market lower

"The wise person possesses humility. He knows that his small island of knowledge is surrounded by a vast sea of the unknown." - Harold C. Chase

Morning News of Note:
  • US Economy: Fed Chairman Alan Greenspan said rising fuel costs have drained consumers' purchasing power and will undoubtedly be a drag on global economic expansion; surge in energy prices after storms effectively represented a tax that drained purchasing power from oil consumers; status of global refining capacity worriseom b/c it rising slower than oil production
  • TGT: Target-TGT expects its October SSS to be up 3%-5%
  • RFX: Refco Files for Bankruptcy, Flowers Buys Futures Unit Refco Inc., the broker reeling from a bad-debt scandal, filed for bankruptcy court protection and agreed to sell its futures-trading business to a group led by J.C. Flowers & Co. for $768 million. Christopher Flowers' New York-based buyout firm will acquire the biggest independent U.S. futures broker with partners including Texas Pacific Group. Refco applied for Chapter 11 protection for some units, setting up a possible auction, according to a PRNewswire release late yesterday. (Full Story) Bloomberg
  • MDT: Medtronic-MDT ENDEAVOR IIII data solid; expect launch in 2007-Outperform@TWPT

Market Comments: The PPI report came in a little higher than expected, which has spooked the stock market and led to some early selling. The market closed strong yesterday, so let's see if it can reverse today's early losses and make it two strong closes in a row. That would be a change in character from last week's strong opens followed by weak closes.

long MDT

Monday, October 17, 2005

Hurricane update

According to my colleage at Street Insight, Gary Smith, the chances of Tropical Storm Wilma becoming a threat to natural gas production in the Gulf are only 5%. The odds that Wilma gets upgraded to hurricane status is currently 65%.

Sentiment and Technicals align

"Protect your health. Without it you face a serious handicap for success and happiness." - Harry F. Banks

Morning News of Note:
  • RFX Refco in advanced discussions with J.C. Flowers for sale of futures brokerage biz (7.90 ) -Update- Co announces that it is in advanced negotiations with a group of investors led by J.C. Flowers & Co for the sale of RFX's futures brokerage business conducted through Refco LLC, Refco Overseas Ltd, Refco Singapore Pte Ltd, and certain related subsidiaries and other assets. The co expects that it will reach a memorandum of understanding with The J.C. Flowers & Co shortly and will execute definitive agreements soon thereafter.
  • Fed Tracker: Chairman Greenspan was in Japan this weekend talking on the global economy with BoJ's gov Fukui, while also meeting with PM Koizumi. He will conclude his visit with a speech to business leaders tonight. Philly's Fed pres Santomero will be discussing monetary policy at 4:30 in North Carolina.
  • WMT Wal-Mart maintains Oct sales forecast of up 2-4%
  • Tropical storm Wilma forms in Caribbean: Tropical Storm Wilma formed in the Caribbean Sea on Monday and could move into the oil-rich Gulf of Mexico by the end of the week, the U.S. National Hurricane Center said. Wilma is the twenty-first named storm of the 2005 Atlantic hurricane season, making this the equal most active year on record, the NHC said.

Market Comments: The market is bouncing at the open. I just hope it doesn't sell off and close down like it did so many times last week. GM is up on news of improvement on its healthcare talks. Refco is in talks with JC Flowers, which should take some pressure off the markets. And Citi reported good earnings this morning. Also, MO got a favorable ruling, which is lifting the tobacco stocks.

Technically, the market is heavily oversold, with many indicators now showing signs of a bottom. The sentiment indicators continue to reflect extreme levels of bearishness. I think that the combination of the two supports a tradeable bounce in the short-term.

long C, MO

Sunday, October 16, 2005

Fantasy Football

I had the first round pick in our draft (a bunch of portfolio managers from, and I opted for LaDanian Thomlinson. If he is not still the best fantasy player, I want to know who is?!?

Consider this: LT scored 29 fantasy points (ESPN system) today, including running for a TD, catching a TD, and throwing for a TD. And that was all in the first half!!!!! This guy is single-handedly carrying my team today.

Nuf said.

Saturday, October 15, 2005

Year-end Tax Tips

Here is a list of some year-end tax tips from Morningstar:

Woulda, coulda, shoulda.

Would have sold that loser fund. Could have opted for munis. Should have kept better records.
If you're like most investors, these sorts of admonishments flit through your head just once a year--while you're preparing your taxes--only to be forgotten until the next tax season rolls around.

But the best time to think about improving your tax position for next year is right now, while you still have time to enact changes that can meaningfully affect your bottom line.

In a previous column, I highlighted some tax-savvy ideas for managing your portfolio; those tips make sense no matter what the season. But in this week's column, I'll share some concrete steps you can take in the next couple months to make sure that your tax bill in 2006 is no higher than it need be.

1. Contribute to your tax-advantaged accounts. One of the best ways to cut your tax bill is to reduce your taxable income. No, I'm not suggesting you take a pay cut, but you should be sure to take advantage of any retirement-plan contributions you can make to reduce your taxable income. If you haven't recently reviewed how much you're socking away in your 401(k) plan, it pays to do so, as contribution limits have gone up: You can contribute $14,000 to your 401(k) plan in 2005, and savers over age 50 can pitch in an additional $4,000. If you're on pace to fall below that contribution limit, consider ratcheting up your contribution before year-end.
Some taxpayers may also be able to contribute up to $4,000 to a traditional IRA (individuals over age 50 can contribute $4,500, and married couples filing jointly may contribute up to $8,000--$9,000 if both spouses are over 50), and you'll be able to deduct that contribution from the income you report on your tax return. Bear in mind that to be eligible for a traditional deductible IRA, your income must come in below a certain threshold; single filers earning more than $55,000 and joint filers earning more than $75,000 won't be eligible. To help find the right IRA for you, check out this article; Morningstar's IRA Calculator is also a handy tool.

2. Beware of ticking tax time bombs. Have you had big winners in your portfolio? If so, there's a very good chance that they'll be making capital gains payouts later this year--which means you could wind up owing taxes on those gains. In a recent Wall Street Journal article, authorities from Vanguard, Fidelity, and T. Rowe Price all acknowledged that their firms' funds will likely be making larger capital gains payouts in 2005 than they have in the recent past; that's apt to hold true for most fund shops. Among domestic-stock offerings, funds from the small-blend, small-value, mid-value, real estate, and natural resources categories--all of which have been standout performers recently--are the most likely to make big capital gains distributions this year. International-stock funds--particularly foreign small/mid-value, Latin America, and emerging-markets offerings--could also be making big capital gains payouts.

If you were planning to buy into one of these asset classes, by all means wait until after they've made their distributions for the year. That way, you won't be on the hook for taxes on gains you weren't around to enjoy. Many fund shops begin making capital gains distribution estimates available later in October and into November, and capital gains payouts typically occur in December. If your fund company doesn't list this information anywhere on its Web site, call to find out whether your fund is planning a distribution, how much it will be, and when it will occur.
And while an imminent capital gains distribution isn't usually a good enough reason to sell a fund, it can be an indication that an asset class' best days may be behind it. If you were planning on lightening up on your winners as part of a rebalancing plan, it's smart to unload your shares before you're on the hook for capital gains taxes. Click here for tips on being tax-savvy as you rebalance your portfolio.

3. Tread carefully with tax swaps. Some investors and financial planners use tax swaps to try to reduce the tax collector's cut. One form of tax swap consists of looking at your fund lineup for offerings that are about to make big distributions, then selling those funds before they make their payouts. Once distribution season is over, you swap into another fund with a similar mandate, thereby maintaining your asset allocation. (You can't buy the same fund back without running afoul of IRS rules; also, beware of swapping an index fund for another that tracks the same benchmark.) For example, you could sell Fidelity Low-Priced Stock FLPSX before it makes a distribution, then buy Vanguard Small Cap Index NAESX after distribution season is over.

If you try to do this, however, don't forget about your own tax position in a fund: If you yourself have a taxable gain in the fund (say you bought it at an NAV of $12 and it's now trading on $20), you'll be forced to pay taxes on that gain, and the swap could end up costing you more money than simply paying taxes on the distribution would receive. You also need to keep other potential costs related to the swap in mind--back-end loads or redemption fees levied on the funds you sell may also well make the swap counterproductive.

4. Harvest your losers. Tax swaps can be much more effective if you're holding an investment at a loss. You can sell your loser and use up to $3,000 of net investment losses to offset income in the current year (and you can use the losses to offset capital gains indefinitely), then swap into a substantially identical fund. Many growth funds--even decent ones--are in the red over the past five years, and you too may be in the red over the life of your investment. If you find yourself in that position, you can sell, book a loss to offset gains elsewhere in your portfolio, then buy a similar fund that invests in that same universe.

5. Mind your bonds. The Fed's ongoing spate of interest-rate hikes has been good news for income-focused investors, but fatter payouts also equal higher tax bills. That's because the income that taxable bonds and bond funds produce is taxed at your ordinary income-tax rate (as high as 35%), whereas the maximum rate for long-term capital gains is 15%. As I noted in a recent column, you needn't be in the highest tax bracket for a municipal-bond fund to be a better bet for you than a taxable one is. Turn to Morningstar's Bond Calculator to compare aftertax yields of municipal and taxable funds--you may well find that munis are the way to go.
And while you're checking up on your portfolio's bond stake, also pay attention to which funds are in your taxable and non-taxable accounts. To the extent that you own taxable bonds and bond funds, particularly high-yielding offerings (such as junk-bond and emerging-markets bond funds), you'll want to be sure to hold them in your tax-sheltered accounts; ditto for high-turnover stock funds that generate a lot of short-term capital gains.

6. Put the AMT on your radar. You've probably heard ominous warnings about how the alternative minimum tax (AMT) is set to ensnare more and more middle-class and upper-middle-class taxpayers. Trouble is, many individuals won't know whether they could be on the hook for the AMT until they go to file their tax returns, and by then it's too late to reverse the damage. I'll devote an upcoming column to the AMT, but in the meantime, you should be aware that exercising stock options is an activity that could very likely put you into the "AMT zone." Talk to an accountant before you exercise your options; you also owe it to yourself to read my colleague Sue Stevens' article, "Stock Option Basics".

7. Get generous. If you're among the millions of individuals who have contributed to the Hurricane Katrina relief effort--or to any other charity, for that matter--your generosity could come in handy come tax time. If you itemize your deductions, you can deduct charitable contributions; just be sure to save receipts and canceled checks as proof. And if you're helping those near and dear to you, remember that you can contribute up to $11,000 per year per recipient without triggering gift tax. If you're helping a loved one with medical expenses or college tuition, you can circumvent the gift-tax system entirely by making a check payable directly to the medical or educational institution.

Friday, October 14, 2005

What a week

Finally, a strong finish into the close. But man, what a week, huh? I am pretty spent.

Oil stocks got the biggest bounce today (+2.5%) followed by biotechs (+2.0%) and brokers (+1.5%). Chip stocks failed to participate in today's rally, which is a bit bothersome. As is the fact that GOOG was down all day. But there were plenty of stocks to make up for it.

The 10-day put/call ratio is well above 1.0, an elevated level which usually precedes a tradeable rally. And I've mentioned repeatedly how high short interest levels are. If the market can get jiggy on the upside next week, I think short covering and options expiration could really exacerbate the buying. I know this sounds like wishful thinking, but you have to look at what could go right, not just what could go wrong.

So keep your buylist up to date. And have a great weekend!!

Nice start to earnings season

"Happiness is someone to love, something to do, and something to hope for." - Chinese proverb

Morning News of Note:
  • TWX: Time Warner-TWX snubs Icahn's request to spin off cable business-FT: TWX's Dick Parsons has rejected Carl Icahn's proposal to spin off the company's cable division saying the move would do little to increase shareholder value.
  • AAPL: shortage of NOR flat could cause shipment delays and slow sales of AAPL iPod nano in past 2-3wks; rumors that supply shortage of certain parts causing delays circulating for a while -- Digitimes
  • OXY VPI: Occidental to Buy Vintage Petroleum For $3.5 Billion Occidental Petroleum Corp. said it agreed to acquire Vintage Petroleum Inc. for about $3.5 billion. Occidental also will assume $550 million in debt and $225 million in cash on Vintage's balance sheet at the end of the year. (Full Story) WSJ
  • ERTS: EA and Spielberg to develop three new video games Oscar-winning director Steven Spielberg and Electronic Arts, the world's biggest video game publisher, said on Friday they are teaming up to develop three original video game titles. Spielberg, a video game enthusiast and co-founder of DreamWorks SKG, will work with EA's Los Angeles studio on the concept, story and design of the new game franchises. Terms of the multiyear, exclusive agreement were not disclosed. (Full Story) Washington Post
  • Avian Flu: New EU Measures Expected To Fight Spread of Bird Flu Turkish Officials Put Nine People Under Medical Watch in Affected Area European Union veterinary experts were expected to endorse additional precautionary measures Friday to prevent the deadly bird flu virus strain H5N1 spreading from Turkey westward into the EU. Turkish officials put nine people under medical observation after reports that 40 pigeons in their neighborhood mysteriously died, as officials confirmed that earlier bird deaths were caused by the virulent H5N1 strain of bird flu, authorities said Friday. (Full Story) WSJ

Market Comments: Strong earnings from GE and UNH are helping those stocks. FDC reported solid numbers as well. But the lower-than-expected core CPI report is what really boosted the market at the open. I think the market is viewing this rear-view window report as indicative that inflation has likely peaked in the near-term, and could moderate.

The news got the market trading higher in the first half-hour, but it has since given up all of those early gains. This is disappointing, but it's still early. I would like to see the market build on yesterday's strong turnaround. But hesitiation ahead of the weekend might keep a lid on any potential rally. We shall see.

long FDC, GE, UNH

Thursday, October 13, 2005

The Refco Bottom

I am cutting out early today. But if the market finishes strong today, we will have to label it the "Refco bottom". This would be the classic crisis event that coincides with a peak in selling. And when everyone who wants to sell has already sold, the market naturally lifts.

The volatility indexes spiked today, as did the put/call ratio. That means that if the market starts to rally, blowing out those puts and short covering could add fuel to the fire. This is what I'm hoping kicks into action next week.

Have a good night.

(Check out the reversal in AAPL, SBUX, JNJ)

The Day of Atonement

"A man should always consider how much he has more than how much he wants." - Joseph Addison

Morning News of Note:
  • AAPL: Video Comes to the iPod In Deal With Disney, Apple Will Sell Hit ABC TV Shows At Its iTunes Store for $1.99 Over the past three years, Apple Computer Inc. has shaken up the music business. Now, in a move that could lead to big changes in how entertainment is distributed and sold, it plans to do the same with television and other forms of video. The Cupertino, Calif., company yesterday introduced a collection of hardware and Internet services that allow users to purchase video programming over the Internet and watch it on a new version of Apple's hit iPod media player. (Full Story) WSJ
  • CMCSK: To Ward Off New Competitors, Comcast Builds a Mini Internet The Threat of Being Bypassed Prompts Talks With Google About Investment in AOL Watching 'Lost' on an iPod Here's one reason why the nation's largest cable company needs to reinvent itself: CBS is developing an online service for people to watch as an alternative to the early evening news. "We call that the cable bypass," said Leslie Moonves, co-president of CBS's parent, Viacom Inc., at a recent investor conference. (Full Story) WSJ
  • JNJ: Value & Growth at Johnson & Johnson AFTER TWENTY CONSECUTIVE YEARS of double-digit earnings gains, healthcare giant Johnson & Johnson bears more than a passing resemblance to baseball's model of consistency – iron man Cal Ripken Jr who didn't miss a game for most of his career. The company's stock price has jumped 231% since 1995 and has outperformed the Standard & Poor's 500 Index over the last one, two, five and ten years, according to Thomson Baseline. (Full Story) BARRONS
  • UNH: @ BOFA... • UNH reports 3Q05 earnings early Friday, October 14; we’re looking for EPS of $0.62 (vs. $0.63 consensus). Over the past ten quarters UNH has beaten consensus by an average of $0.02 per share (including PPD averaging $0.04). Of greater interest is the status of the PHS deal, and UNH’s current thinking re: Part D and Medicaid.

Market Comments: The market was weak in the first half hour of trading, but has begun to stabilize. Maybe today will be the day that the market finally closes on a high note. Biotechs are ripping out of the gate, which often can be a good sentiment guide. Chip stocks are fairing well also, after the SMH finished flat in yesterday's down tape. Energy stocks and various yield plays are still under pressure.

Volume will likely be light today due to the jewish holiday. Remember "Sell Rosh Hashannah and Buy Yom Kippur"? Will that axiom hold true this year? It's looking that way.


Wednesday, October 12, 2005

Where's the relief?

Another day of early gains that get completely erased by the close. Volume levels rose on both exchanges, signifying yet another day of distribution. Breadth was terrible, and the Hi/Lo index (NYSE) made a new low for the year, with over 300 net new lows. That's a lot of weakness.

Sentiment indicators, including the VXO, put/call, etc., were all higher today. So bearish sentiment is nearing extremes. But we need to change this pattern of weak closes. I don't know what will cause this, maybe some strong earnings reports, but if we can get a good upside reversal day I think the market could enjoy a fast run on the heels of a short squeeze.

Oddly, the SMH finished up a little today. So did the DRG index. Brokers and bank stocks were hit the hardest. Yield plays, from utilities to REITs to energy trusts, have also been sold relentlessly this month. Not a lot of places to hide. If you're an individual investor, I would be happy to just sit in cash right now.

Pop and Fade

"The unfortunate thing about this world is that good habits are so much easier to give up than bad ones." - Somerset Maugham

Morning News of Note:
  • AAPL: Apple Booms, but iPod Disappoints Net More Than Quadruples On a 57% Gain in Revenue; Shares Fall After the Close Apple Computer Inc. said its quarterly profit more than quadrupled on a 57% increase in revenue, but sales of the company's iPod portable music players weren't strong enough to satisfy some investors, and Apple shares fell sharply in after-hours trading. Still, Apple emphasized that its financial performance was the strongest in its history. The Cupertino, Calif., company said net income for the fiscal fourth quarter ended Sept. 24 was $430 million, or 50 cents a share, up from $106 million, or 13 cents a share, a year earlier. (Full Story) WSJ
  • US Economy: Fed Gov Kohn says US core inflation pretty well behaved; unclear if globalization to keep damping inflation; globalization may affect Fed interest rate policy; expansion of China and India helps restrain US prices; stronger Chinese and India fx could add to US inflation; globalization doesnt impinge on US job creation; China can let CNY float or face higher inflation (Tuesday)
  • MDT: Medtronic-MDT boosts guidance for 2006-2008: Company sees FY06 EPS $2.18-$2.23 vs. consensus est of $2.16 and FY06 rev $11.1B-$11.6B vs consensus est of $11.49B, sees FY07 EPS $2.45-$2.55 vs. consensus est of $2.46 and FY07 rev $12.2B-$13.3B vs. consensus est of $12.99B, and sees FY08 EPS $2.78-$2.98 and FY08 rev $14B-$16B. MDT still targets 20% payout of earnings.
  • LCDs: Digitimes reports the average selling price of LCD monitors is expected to fall 5-10% this quarter, with certain branded companies already cutting their prices, according to monitor makers. According to the article, the ASP is expected to fall due to increasing panel supply, falling panel prices and promotions from monitor makers, the companies said. Supply of LCD panels continues to increase due to new capacity being ramped from panel makers, according to Taiwan-based monitor makers. In addition, iSuppli recently indicated that sales of monitor panels will flatten in the second half of this year and prices for 17- and 19-inch monitor panels will decrease in the fourth quarter.
  • MSFT YHOO: Sources: Microsoft, Yahoo Reach IM Deal Microsoft Corp. and Yahoo Inc. have agreed to make their two instant-messaging programs work together, a partnership that could threaten market leader America Online, people familiar with the situation said. The deal was expected to be announced early Wednesday, these people told The Associated Press. One of them works closely with Microsoft. The other was briefed on the deal. Both spoke on condition of anonymity because they were not authorized to disclose details. (Full Story) Washington Post

Market Comments: AAPL's numbers were disappointing, and the stock (and related stocks) is being sold. AMD reported what looked like good numbers, and it's stock is off big (-8%) also. MDT is higher on its upward earnings revisions. The bank index is getting a small bid this morning, and the SPX is currently rolling over and in jeopardy of erasing its early gains. Let's see if the recent trend of weak closes gets reversed today.

long MDT, MSFT

Tuesday, October 11, 2005

More late-day selling

See why I distrust bounces at the open? Once again, the market closed down for the day after late-day selling surfaced. The S&P 500 has declined in 6 out of the last 7 days. That's one dubious streak. I actually started doing some nibbling today, given that we are overdue for a bounce. But then again, I have been saying that for a few days.

Volume rose today on both exchanges, making it another day of distribution. That's quite a few days of distribution this month alone. The CBOE put/call ratio ran well above 1.0 most of the day, a good contrarian sign.

After the close, MDT raised earnings guidance, and AMD reported great earnings. The latter should help the semis bounce tomorrow. AAPL has not reported yet, but the numbers are due out shortly.

Another opening bounce

"The nature of man is always the same; it is their habits that separate them." - Confucius

Market News of Note:
  • Consumer Price Index: U.S. Inflation to Reach 15-Year High After Storms, Survey Says Hurricane-stoked fuel costs may trigger the biggest jump in U.S. consumer prices in 15 years and another bump in the Federal Reserve's target rate, the latest Bloomberg News monthly survey of economists shows. The consumer price index will rise 3.7 percent for 2005, based on the median estimate of 66 economists, up 0.5 percent from the previous month's forecast. The jump in prices would be the biggest since a 6.1 percent gain in 1990. (Full Story) Bloomberg
  • EBAY VRSN: PayPal to Buy Payment Service From VeriSign for $370 Million EBay Inc.'s PayPal electronic-payment-service unit said it will pay about $370 million to acquire VeriSign Inc.'s payment-gateway business, in a move to add customers and expand services available to merchants. Internet-security company VeriSign's payment-gateway business, which processed more than $40 billion in total payment volume last year, provides technology that allows merchants to authorize and process credit-card payments on the Web. (Full Story) WSJ
  • TWX: Icahn Pressures Time Warner for Changes Carl C. Icahn, the investor, has increased his stake in Time Warner and is challenging the track record of the company's senior managers and directors, dating back to its merger with America Online. The moves are a part of his campaign to push for changes and board seats at the media conglomerate. Mr. Icahn is expected to say in a letter to Time Warner shareholders, to be filed with regulators as soon as this morning, that the company's board and top management have produced a "dismal record of mistakes and inaction" since the AOL merger in 2000 (Full Story) NY Times
  • GOOG: With 'Free' Lure, Will Google Tap More Markets? It's hard to compete with "free." Some rivals of Web search powerhouse Google Inc. have already learned that lesson. Now, companies in a broader set of industries are grappling with how Google's ad-fueled expansion could potentially make it harder for them to charge for consumer services and products. Google last month proposed that it offer free high-speed wireless Internet access throughout San Francisco, raising the question of why residents would pay for Internet access from cable and telephone companies. (Full Story) WSJ
  • TRLG: Co raises guidance for Q3 (Sep), to EPS of $0.29-0.30 from $0.22-0.24 vs. $0.25 Reuters Estimates consensus; raises Q3 (Sep) rev guidance to $35 mln from $29-30 mln vs. $30.64 mln consensus. Company stated that it is currently comfortable with fourth quarter analyst consensus estimates of revenues of approximately $24.3 million and diluted earnings per share of $0.20

Market Comments: The market is getting another opening bounce. The problem is that late-day selling keeps surfacing. You know I prefer a market that opens weak and builds strength throughout the day. Lately, we have been getting the opposite.

DNA reported strong earnings last night, giving the BTK a small pop. I am a little surprised AMGN is not participating more. INFY also reported strong numbers this morning. Aside from that, housing stocks and energy are up the most, given they have been sold the hardest over the last week. Let's see if the bulls can hang in there today, like the Angels did last night.


Monday, October 10, 2005


Boy, did I ever mush that rally attempt. No sooner did I post about the intra-day turnaround than the markets completely rolled over to close near their lows. What a jinx I am.

Volume rose slightly on the NYSE, qualifying as a distribution day for the S&P 500. Chip stocks sold off the hardest (XLNX warning), followed by housing stocks and energy. As for investor sentiment, the VXO rose today and the put/call closed above 1.0. I am considering buying some ETF longs for a trading bounce.

Midday Movers

Here is a partial list of stocks moving on above-average volume:
  • High-volume advancers: LMS, GFIG, NDAQ, GME, IRIS, FDG, RAIL, FCL, RIO, GPN

  • High-volume decliners: ALDN, FLIR, XLNX, AMED, LNC, AXL, BWA, LENB, HW, WLK

Market Comments: The market has found some support and is bouncing, as I had hoped for this morning. The SPX is thisclose to breaking into positive territory, while the Nazz has achieved this. I would like to see the market build on this rally attempt into the close.

A couple notable turnarounds so far today include: SBUX, ELOS, and GOOG.
(I am long all three)

Opening selloff

"To grow and know what one is growing towards-- that is the source of all strength and confidence in life." - James Baillie

Morning News of Note:
  • WMT: Wal-Mart's Best Bargain IT WAS A LONG, LONG TIME AGO that shares of Wal-Mart Stores were last this cheap. Newt Gingrich was speaker of the House, most people hadn't heard of the Internet and O.J. Simpson was on trial for murder. Chances are, it'll be quite awhile before they're this cheap again. At a recent price of about 44, the shares are trading at just 14.6 times estimated earnings for next year, the stock's lowest multiple since 1995. (Full Story) BARRONS
  • INTC: Intel to Unveil New Chips for Servers Processor With Two Brains Is Designed to Close Gap In Performance With AMD Intel Corp. today hopes to close a performance gap with rival Advanced Micro Devices Inc. in the hotly contested market for chips used in server systems. Chips from Intel, of Santa Clara, Calif., provide the processing power for the vast majority of x86 servers, the design typically used to run the Linux operating system or Microsoft Corp.'s Windows. (Full Story) WSJ
  • NOK: CEO Jorma Ollila sees good demand for global handset sales in 2006; emerging mkt demand making up for slowing growth in developed countries; buzz in Mid East, Gulf and Africa is similar to China seven or eight years ago and LatAm two years ago -- FT
  • Avian Flu: U.S. Revises Flu Emergency Plan Romania, Turkey Battle Avian Flu As Tests Look for Deadly Strain A superflu could kill up to 1.9 million Americans, according to a draft of the government's plan to fight a world-wide epidemic. Separately, Turkey and Romania culled thousands of birds and imposed quarantine zones Sunday to try to stop the spread of avian flu as scientists worked to discover if the outbreaks could be the deadly H5N1 strain (Full Story) WSJ
  • PFE: Pfizer's New Headache DRUG-BENEFIT MANAGER EXPRESS SCRIPTS HAS YANKED the beard of the biggest lion. Now, investors will see if it emerges a hero or gets mauled. Word got out last week that the St. Louis-based pharmacy-benefit manager (ticker: ESRX) will drop Pfizer's cholesterol-lowering drug Lipitor from the list of preferred drugs that it promotes to its clients. (Full Story) BARRONS

Market Comments: The market is plunging after a relatively flat open. It's still early though, and if stocks can mount a turnaround today, it could set us up for a nice bounce this week after last week's selloff.

XLNX earnings warning this morning has the chip sector under a lot of pressure. Housing and energy stocks are also under the gun, continuing last week's selling. There are a few stocks bucking the weakness, but not much else. Sentiment figures showed bearishness remains high, which is one of the reasons I think we get a bounce.

long INTC, WMT

Friday, October 07, 2005

Payroll report better-than-expected

"Not doing more than average is what keeps the average down." - William Winans

Morning News of Note:
  • TWX MSFT: AOL-MSN Ties Are the Subject Of Revived Talks Time Warner Inc. and Microsoft Corp. have restarted discussions about forming an alliance of their Internet units, America Online and MSN, according to people familiar with the situation. The two companies are focused on ways to combine AOL's Web content with Microsoft's search-engine technology, although other aspects of the talks are sketchy. It isn't clear, for instance, whether they are considering merging their Internet dial-up businesses, which generate lots of cash. (Full Story) WSJ
  • Refiners: Refiners Profit From a 'Disconnect' Gap Between Crude Oil And Refined Products Is Up; Valero and Others Cash In Storms and supply constraints have disconnected the prices for gasoline and home heating oil from the core value of crude. Benchmark oil futures closed yesterday at $61.36 a barrel, down from $69 the day before Hurricane Katrina began its assault on the Gulf Shore. (Full Story) WSJ
  • US Economy: RBC Oct Consumer Attitudes and Spending by Household Index 66.8 vs 61.5 in Sept, expectations index 0.9 vs (13.5) in Sept; 23% rptd strong personal finances vs 28 in Sept
  • GILD: A Gilded Age for Gilead? THE GROWING WORRIES over the Avian flu and a possible pandemic appear to be giving the AIDS drug maker Gilead Sciences a shot in the arm. Though up a robust 20% over the last 12 months, the stock has twice this year recovered from big selloffs when its efforts to make a new combination AIDS drug suffered setbacks. (Full Story) BARRONS

Market Comments: The market is getting a nice bounce at the open, due to the better-than-expected jobs report. If you exclude the effects of Hurricane Katrina from the figures, it appears the economy added about 200,000 jobs. That's pretty good. Additionally, there were upward revisions to the figures from the prior two months. So this should ease some of the fears about the economy suddenly slowing.

Energy stocks sold off hard again yesterday, so it will be interesting to see what kind of bounce they can garner. Retail stocks are also getting a bid this morning. It's still early, so let's see if the market can hold onto these gains.

I was out of the office yesterday, so I apologize for the lack of posts. I'll try to make up for it today and over the weekend.

Thursday, October 06, 2005

Turnaround Thursday?

"We are all in the gutter, but some of us are looking at the stars." - Oscar Wilde

Morning News of Note:
  • Energy: Sept global oil consumption dn 0.12% y/y to 82.62m bbls/day; industrialized country demand dn (0.6%) y/y, developing country deamnd dn (0.6%) y/y; US consumption dn (1.6%) y/y; revised July and Aug data suggest global demand slowed drastically after oil breached $50/bbl -- Intl Oil Daily
  • Bull Market: Will the Bull Catch a Second Wind? ENTERING THE FOURTH YEAR of the bull market, the musical accompaniment could be Frank Sinatra crooning, "It's all or nothing at all." Some bull markets don't even make it to the four-year mark. But when they do, the Standard & Poor's 500 Index has produced a not-too-shabby average 12-month return of 14%. (Full Story) BARRONS
  • AAPL: Apple May Unveil New Video iPod During Next Week Apple Computer Inc., in a much-anticipated effort to expand its position in digital entertainment, next week is expected to introduce a version of the iPod capable of playing video and to begin selling music videos through its iTunes Music Store, according to people familiar with the matter. A spokesman for the Cupertino, Calif., company declined to comment on "rumors and speculation (Full Story) WSJ
  • US Economy: MNST US online employment index 140 vs 142 in Aug

Market Comments: The market is hovering around the flat-line so far this morning. I think a dip this morning followed by a rally into the close would make for a nice turnaround Thursday. Retail sales were pretty much better-than-expected this morning. Especially for stocks like SBUX, CTRN, PSUN, etc. On the downside, check out TLB, PETM, and FD.

Energy stocks continue to be sold with reckless abandon. I think many of these stocks are getting short-term oversold, and our due for a bounce. But I don't think they are at levels that are long-term buys yet.


Wednesday, October 05, 2005

Late day plunge

The markets were weak all day, but the selling really accelerated in the last hour of trading. Volume rose on the NYSE (not the Nazz), marking the 2nd consecutive day of distribution. This is the first time the SPX has had two consecutive declines of 1% or more since April.

Breadth was terrible, with upside volume accounting for only 10% of total volume ==> heavy selling pressure. The Hi/Lo index also fell into negative territory, with 158 new lows and only 74 new highs. And the CBOE put/call ratio finished the day at 1.0, as fear started to peak.

The culprit, at least according to the talking heads, was lingering concern that inflation is heating up, and that this will cause the Fed to slam on the brakes harder than previously thought. I'm not sure I agree with this. I think inflation is spiking currently, but that it will likely taper off as energy prices ease and demand slows a bit.

Like I said, protect your capital until this selloff runs its course. It might take a little while, but I think we will have another tradable rally sometime in the fourth quarter.

Follow-thru selling

"Every individual should have a purpose in life which is worthy of intense effort-- and constantly work toward the definite goal ahead." - Roderick Stevens

Morning News of Note:
  • US Economy: Fed Gov Santomero said economic outlook is positive; Fed to cont shifting rates to neutral; storm impact on US economy temporary; sees steady growth in biz spending; long run inflation expectations remain stable; energy prices pushing up inflation (Tuesday) // IMF Chief Economist Raghuram Rajan said US FOMC to continue raising interest rates in the near future
  • INTC: Don't Count Out Intel THE WORLD'S BIGGEST CHIP MAKER has been humbled, but it isn't fading away anytime soon. Intel's market for computer microprocessors has changed from a virtual monopoly to a near duopoly this year, thanks to gains from competitor Advanced Micro Devices. And it has ceded the biggest market for chips -- cellphones -- to Texas Instruments. As a result, shares of Intel have risen 18% in the last year compared to AMD's 91% gain. (Full Story) BARRONS
  • MSFT GOOG SUNW: A challenge to Microsoft? Not this deal Google Inc., the world's leading Internet search service, yesterday struck up an alliance with computer hardware and software maker Sun Microsystems Inc. that could strengthen both companies' bids to play leading roles in the future of online services. But the deal fell short of the blunt challenge to the power of Microsoft Corp. that had been expected by many industry watchers. ''Both companies are devoted to software as a service and the network as the computer," said Sun chief executive Scott McNealy. (Full Story) Boston Globe
  • Bulls/Bears: Bulls 49.5 vs 53.2, Bears 27.8 vs 26.6, Correction 22.7 vs 20.2

Market Comments: More selling pressure at the open today. Earnings warnings hit HGSI, MERQE, and ADCT. ELOS is getting a bump from positive chatter about a strong quarter. The ISM Services report came in weaker-than-expected (53 vs 60). Biotech stocks are giving back the most this morning (-3.1%), followed by housing stocks (-2.9%). Big pharma stocks are the only ones in positive territory, a defensive move. Stay nimble, and let the selling run its course.


Tuesday, October 04, 2005

Who pulled the plug?

Nasty turnaround late in the day. The SPX broke below the key 1225 level, and the selloff basically picked up steam from there. That left a big reversal day for the markets, on higher volume (read: distribution). The Nazz traded over 2 billion shares.

The bearish action likely means that the short-term direction is down. Yes, the trend can change that quickly. I know it's frustrating, but we have to be flexible. I am still looking for the market to rally during the fourth quarter, but it looks like we have to take a trip lower first.

I lowered my long exposure dramatically today, by adding some ETF shorts. I will still be keeping my eye on recent leaders, as they will likely make the strongest moves higher after any brief correction.

Market hanging in

Here is a partial list of stocks moving on above-average volume:
  • High-volume advancers: PLAY, LMS, GPN, IRIS, SMTS, RRC, UTIW, TOO, BF, TDY

  • High-volume decliners: LXK, AMSG, AHL, VLCCF, SMBI, CLX, EPEX, AF, HOS, CLB

Market Comments: The market is hanging in there so far. And I am still seeing lots of breakouts in the healthcare sector.

Stocks that look good to me include: AMGN, TEVA (big breakout), UNH, PSYS, ISRG
(I am long all of these stocks)

Warning season begins

"There are two things to aim at in life: first, to get what you want; and, after that, to enjoy it. Only the wisest of mankind achieve the second." - Logan Pearsall Smith

Morning News of Note:
  • Homebuilders: Home Builders' Stock Sales: Diversifying or Bailing Out? Home builders have never had it so good. Low interest rates and creative financing have caused a frenetic pace of new-home construction across the country. Builders are reporting blistering earnings and their shares are trading at or near record highs. (Full Story) NY Times
  • RRI: Reliant Plans to Raise Electricity Prices in Houston Reliant Energy Inc. said it is raising its electricity prices for Houston-area customers by 14% as soon as possible and could implement an additional increase of about 10% in January, making its prices among the highest in the nation. The Reliant move comes as electricity prices in many markets around the country are rising because of the surging price of natural gas. (Full Story) WSJ
  • US Economy: Atlanta Fed Pres Jack Guynn said Fed will cont to raise interest rates; concernd higher energy prices will spill into consumer prices -- Reuters
  • Weight Control: Majority of Americans Are Expected To Become Overweight, Study Says A new study that followed Americans for three decades suggests that over the long haul, nine out of 10 men and seven out of 10 women will become overweight. Even if an American is one of the lucky few who made it to middle age without getting fat, they can't congratulate themselves -- they need to keep watching that waistline. (Full Story) WSJ

Market Comments: It looks like earnings preannouncement season has begun, and the first two casualties are pretty nasty. LXK and AMSG both warned this morning, and the stocks are getting whacked for -17% to -25% losses so far. The market opened on an uptick, but has since slipped into negative territory. But the S&P has held the 1225 level, so the technical picture is still in good shape.

Healthcare stocks have really been making moves lately. From the insurers, to generic drugmakers, biotech, and specialty healthcare, there is widespread strength in the sector. I think this is a good place to look for strong stocks, in addition to some tech names that remain strong as well. Retail stocks have really lagged, and I think it might be time to nibble there, maybe after this month's sales figures come out.

Monday, October 03, 2005

ISM strong, despite Katrina

"Take the course opposite to custom and you will almost always do well." - Jean-Jacques Rousseau

Morning News of Note:
  • GOOG: Google's Wireless Plan Underscores Threat to Telecom Free Internet Access Proposal In San Francisco Lets Users Bypass Phone, Cable Links Internet companies are making an aggressive and unprecedented push into services traditionally offered by phone and cable companies -- threatening to upend the business of transmitting voice and data. Google Inc. unveiled the latest such effort Friday with a proposal to provide free, wireless high-speed Internet access in the city of San Francisco. (Full Story) WSJ
  • WMT: Demand for hurricane recovery supplies like bottled water and clothing, as well as higher prices for the gasoline sold at its Sam's Club warehouse stores, boosted sales in the five weeks ended Friday. Excluding higher gasoline prices, sales at stores open at least a year -- or same-store sales -- would have been up 3.2 percent, Wal-Mart said. The world's biggest retailer had forecast a 2 percent to 4 percent increase in September same-store sales
  • EBAY: Heard on the Street... EBay Draws Skype Skeptics On Wall Street Wall Street is wondering just how eBay Inc. will get its $2.6 billion acquisition of Skype Technologies SA to pay off. Last month, the Internet auction company made its largest-ever acquisition by buying Skype, a Luxembourg start-up that enables telephone calls over the Internet. EBay painted the purchase as one that would help it generate new revenue from existing content, such as classified ads. (Full Story) NY Times
  • Managed Care: Managed Care: incorporating Medicare drug benefit accretion@PRUS The firm believes this will be an unprecedented earnings growth opportunity for most companies and are upgrading SIE & HNT, and raising target prices on CVH, UNH, WLP, CMX & MHS. However, PRUS is urging investors to avoid HUM, noting the company's ability to generate profits from the Part D program is almost non-existent.

Market Comments: The market opened higher, but is currently struggling to stay in positive territory. The ISM Index came in better-than-expected at 59.4 vs. 52.0 consensus. This is somewhat surprising given it includes post-Katrina data and shows that national conditions remain solid. Of course, the downside is that this strong report makes it less likely that the Fed will pause at its upcoming meeting.

I am surprised that LEN got added to the S&P and not GOOG. But I never understood how they picked their components anyway. Chip stocks are the strongest so far this morning, while big pharma stocks are lagging.