Friday, August 31, 2007

Letter From Hedge Fund Guy

I came across this satirical letter and thought it was pretty funny (in a perverse way)--

Aug. 16 (Bloomberg) --

Dear investor, we'd like to take this opportunity to update you on the recent performance of our hedge fund, Short-Term Capital Mismanagement LLP.

As you know, market selection for the entire fund is guided by a proprietary investing tool we like to call "a dartboard.'' Once the asset classes are decided, individual security selections are generated by digitizing our unique hexagonal cuboid models.

Unfortunately, it transpires that our hexagonal cuboids are not as unique as we thought. Hundreds of other hedge funds possess identical dice. The technical term for this is a "crowded trade.'' You may also see it referred to as "climbing on a bandwagon already headed for the wall.''

As our alpha generation collapses, our beta has turned negative, our delta hedging has gone toxic and, trust me, you do not want to hear about our gamma. We can't even find our epsilons in the dark with both hands.

You will appreciate that accurate pricing is essential for evaluating our investment strategies. This has proven to be extremely challenging in recent days. Previously, we have relied on Bob, the sales guy at Hokey-Cokey Bank. Bob assured us the securities were still worth 100 percent of face value, so everything was cool. Bob sold the collateralized debt obligations to us in the first place, so he knows what he's talking about.

Bob, however, appears to have had a nervous breakdown, judging by the maniacal laughter that greeted our requests for price verification this week. Our efforts to implement an in- house CDO valuation framework, using a technique the ancients knew as "making things up,'' proved unsatisfactory.

Where's the Bid?

Currently, all of the portfolios we manage are undergoing a rigorous screening known as "crossing our fingers and praying that we don't have to try and find a bid in the market.'' This is supplemented by a cross-market statistical analysis originally developed by the U.S. military called "don't ask, don't tell.'' This "unmarking-to-unmarket'' procedure has been the benchmark for the hedge-fund industry for the past, ooh, 72 hours.

We have, of course, been in touch with the rating companies to update our default-probability scenarios, particularly on the AAA rated investments we own. They recommended a forecasting method using stochastics to regress the drift-to-downgrade timescales for the past 100 years and throw them forward for the next five minutes. The technical term for this is "induction,'' though those of you of a less quantitative bent may know it as "guessing.''

AAA or Toast?

We are pleased to report that, contrary to what current market prices might suggest, all of our top-rated securities remain absolutely AAA. Provided, that is, the future performance of the underlying collateral is identical to its history. Otherwise, the rating companies say our investments are likely to be reclassified as "toast.''

We have also been checking our back-up credit lines with our friends in the investment-banking world. As soon as they return our calls, we'll be able to update you on our emergency liquidity position. We are sure they are fine.

Some of you have written to us asking for your money back, citing clauses in the fund documentation called redemption rights. Frankly, we never expected you to actually read that prospectus, which came prepackaged when we bought the Microsoft Hedge-Fund Guy software. We certainly have no idea what all those long words mean.

We have filed your letters in a special drawer in the filing cabinet marked "trash'' for now. Do you have any idea how much trouble you all would be in if we actually sold this stuff in the market today? At these crazy prices? Fuhgeddaboudit. You'll thank us later.

Not a Rescue

Speaking of crazy prices, we know you'll be thrilled to learn that we've invited a bunch of our rich pals into the fund to participate in this once-in-a-lifetime opportunity. But this is not a rescue. Do not even think the word rescue. This is an opportunity. Not a rescue. An opportunity.

In fact, we think this is such a fantastic opportunity, we've agreed to forgo our usual

management fee, and we'll only take half our usual slice of the profits. Provided there are any profits to slice. You, of course, are absolutely invited to participate in this offer by sending us yet more of your money on exactly the same revised terms as our rich pals.

Finally, a word for all of you who have been kind enough to inquire about my personal financial situation. I am relieved to report that my directors and officers insurance is fully paid up.

Furthermore, my Bentley Continental was paid out of the 2 percent fee we levied when you wrote your first check to us, so I will still be able to trundle into the parking lot each morning in an open-necked shirt to ignore your telephone calls and emails.

Yours, Hedge-Fund Guy.

Tuesday, August 28, 2007

Go Browns!!

I am taking off for Cleveland tomorrow to take my 3-yr old daughter to visit my parents. Thanks Mr. Market for spiking volatility the day before my trip. Figures.

Anyway, my blogging activity will likely be sporadic at best until I get back on Monday.

I put a little cash to work at the end of the day today, but also kept some powder dry. The market breadth was ugly:
  • The ARMS Index closed at 3.23
  • Downside volume on the NYSE totalled 93%
  • The put/call ratios soared to elevated levels
  • The volatility indexes spiked +15%
  • Overall volume was fairly low vs. prior selloffs

Remember, I have been discussing the potential for some sort of retest of the recent lows, now that the market had experienced an oversold bounce. This is the normal technical action of corrections. But I still think that the market will not go to new lows. That call doesn't feel so good on a day like today, but I'm sticking with it.

FOMC Minutes Released

Here are the highlights from the just released FOMC minutes:

  • Fed said consumer spending likely to expand at 'moderate' pace
  • Fed says mortgages available for most borrowers, lower conforming loan rates some support for housing
  • FED says if heightened asset mkt volatility, uncertainty persist, could pare business spending plans
  • Fed judged 'unlikely' market rout would hurt capital spending
  • Fed officials saw 'moderate' expansion as most likely outcome
  • Fed says developments in mortgage markets suggest housing adjustment could prove deep, more prolonged
  • Fed could not rule out further financial market deterioration, need to watch situation carefully
  • Fed says further deterioration in financial conditions might require policy response
  • FOMC minutes deal solely with Aug 7 policy meeting, no mention of subsequent rate cut
  • Fed says expected a return to 'normal' markets after some time

Rally In The Yen Exacerbating Market Weakness

If you're looking for the real culprit behind today's weakness, I would point you in the direction of the Yen. The Yen is rallying sharply today, which always causes concern for the yen carry-trade unwind.

The selling pressure is fairly intense, with the ARMS Index hitting 2.37 earlier. The put/call ratios and volatility indexes are spiking in similar fashion.

Volume is light today, with many traders out on vacation. This means many desks have the "B" teams manning the desks. I don't like to draw too many conclusions from the last week in August.

Next week, volume should pick up noticeably on the exchanges.

Housing Woes Weigh On The Market

The Case-Shiller home price index came out this morning, and showed U.S. home prices fell -3.2% in Q2. That might not sound like such a large figure given the appreciation we've seen in home prices over the last several years, but it marks the largest decline in the index's 20-year history.

The financials are also down this morning after Merrill downgraded the sector. Most banks and brokers are lower. Also, there is chatter that State Street (STT) and Barclays (BCS) may be having problems of their own with commerical paper and other debt.

There was a small deal this morning, with Medco Health (MHS) agreeing to buy PolyMedica (PLMD) for $1.5 billion. Small deal, but at least they are getting done.

We will also get the FOMC minutes today from August, but since the Fed has completely changed its tune since the last meeting, I wouldn't place too much weight on the statements.

Asian markets were mixed overnight, but China hit its 7th consecutive record high. Oil is trading a bit lower, hovering near $71.75. And bond yields have broken recent support, with the 10-year yield falling further to 4.55%. I still believe this downward pressure is indicating that the Fed will cut rates in September. I would like to see them take the discount rate down another 50 bps.

Monday, August 27, 2007

China Surges To More New Highs

Overnight, shares on the Shanghai Exchange (China) surged to new highs again.

The chart above shows the sharpy rally in the FXI, which is the China ETF that trades on the NYSE. You can see that is has rebounded +37% from the lows on 8/16. Not bad, especially if you added to it while the sharts were approaching their 200-day average.

I think this bodes well for the markets. If China is hitting new highs, it will likely pull up many of the emerging markets with it. And if the emerging markets remain strong, it will probably provide some cover for our markets to recover as well.

Now, there could always be some news here in the credit markets to start making things head down again. But if the emerging markets are performing well, it simply removes another headwind from the equation.

The financials are weak today, and that is weighing on the overall market. I do see a handful of growth stocks hanging in there, but they are few and far between.

Monday Morning Musings

The market opened without much fanfare this morning, and more profit taking than anything. The S&P 500 and Nasdaq had their best weekly performances since March last week, so some profit taking in the short-term would be normal.

Home Depot (HD) agreed to sell its supply business, but the price tag is less than originally announced. This has some investors worried that the estimates $400 billion in pending deals could be subject to renegotiations.

Asian markets closed higher across the board overnight, with China hitting another record. Oil is trading lower this morning, near $70. And bond yields are steady with the 10-year around 4.61%.

Now that we have had the bounce, many people will be looking for some sort of retest of the recent lows. The bears think we will break down to even lower lows. With so many looking for this sort of market action, I have tempered my earlier views of a retest.

I still think we will get a modest pullback, but I don't think it will test the lows. I believe the fact that the Fed has started to lower rates and inject liquidity will help. I also think that the rush to buy bearish put options and downside protection will help put a bid under the market.

If the markets do not go back to new lows, it could unleash waves of short-covering that quickly take the market back to its former highs. Technically, there is plenty of overhead resistance created by the recent correction. The NDX is the only index close to testing its overhead 50-day. So this process should take some time. No need to place all your bets today.

Sunday, August 26, 2007

Weekly Wrap

Here is the Weekly Recap by

It's a stretch to say things were back to normal this week, but there was no denying that the market tone was much improved as the major indices logged sizable percentage gains on the week.

Negative headlines on the subprime exposure - and there were plenty of them - came and went without unraveling the market. Meanwhile, T-bill rates pushed higher again, providing a tacit signal that fears about a liquidity crisis have eased in the wake of the Fed cuttting its discount rate and its accommodative repurchase agreements.

Notwithstanding the Fed's reassuring efforts, a number of mortgage lenders and banks still face difficulties. On Monday, Thornburg Mortgage (TMA) said it sold $20.5 billion of its AAA-rated mortgage securities portfolio in an effort to boost liquidity amid a rapidly deteriorating mortgage market. Capital One Financial (COF) also announced that it will close its wholesale mortgage business, GreenPoint Mortgage, due to challenging conditions in the secondary mortgage market.

Meanwhile, On Wednesday, Lehman Brothers (LEH) said it will close it BNC mortgage unit and cut roughly 1,200 jobs. London-based HSBC Holdings (HBC) and Accredited Home Lenders (LEND) also announced job cuts related to the difficult credit conditions.

However, Wall Street took some comfort in Bank of America's (BAC) announcement that it plans to invest $2 billion in beleaguered mortgage lender Countrywide Financial (CFC) to help it weather the difficulties in the mortgage market. The cash infusion was seen as a vote of confidence in Countrywide's long-term prospects and its important role in the mortgage business.

A spate of deal-related news also lent some support to the market. The Wall Street Journal reported on Wednesday that TD Ameritrade (AMTD) and E*Trade Financial (ETFC) are in merger discussions, and that Dubai World, a holding company for the Dubai government, planned to acquire a 9.5% stake in MGM Mirage (MGM) and 50% ownership of its CityCenter project in Las Vegas.

Overall, it was a light week for economic data. The durable orders report and July new homes sales were the only major releases for the period.

On Friday, the Commerce Department reported orders for durable goods surged 5.9% last month after an upward revision to 1.9% in June. That easily beat market expectations and is encouraging news for business investment and coming manufacturing production. Meanwhile, July new home sales unexpectedly rose 2.8% to 870k after an upward revision to June. While the housing outlook has not improved, the latest figures were moderately better than expected and contributed to the market's climb.

Earnings continued to trickle in during the week, as second quarter earnings season winds down. Home improvement retailer Lowe's Companies (LOW) reported a higher than expected profit on Monday despite weakness in the housing market and a challenging sales environment.

Lowe's report followed last week's disappointing report from rival Home Depot (HD), which is now facing headwinds related to the sale of its supply business, which was expected to close on Thursday. According to The Wall Street Journal, three major banks, who are reluctant to finance the $10.3 billion all-cash deal amid current credit conditions and weakness in the housing market, are currently renegotiating terms of the transaction, which was announced in June.

Target Corp. (TGT) also reported strong results, despite increased consumer pressures, while luxury homebuilder Toll Brothers (TOL) posted grim results due to lower demand and write-downs, but managed to beat analysts' expectations.

A host of other notbale retailers also reported their results, including Gap (GPS), Limited Brands (LTD), Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), AnnTaylor Stores (ANN), Saks (SKS) and GameStop (GME).

Until the market gets a clearer picture on the current problems in the credit markets and the impact on consumers and the economy, stocks are likely to continue to trade in choppy fashion until the Fed meets in September. This week, though, belonged to the bulls

Thursday, August 23, 2007

Benign Consolidation Day

Following yesterday's solid accumulation day, today's action is what I like to call benign consolidation. The markets weren't down that much, and volume was relatively light. Not bad. Especially when the bears' cheerleader Doug Kass was out calling for a crash.

I listened to a PIMCO conference call today, and hear Paul McCulley make some good points about the credit markets and the Fed. His story was rather lengthy, but basically he said that at this point the Fed has to act if it wants to avert recession. I couldn't agree more.

The bears keep harping on the fact that the Fed doesn't want to bail out the hedge funds, mortgage companies, etc. But they aren't. Most of those entities are already toast. But if the Fed doesn't act, its the banks and homeowners who suffer. So ease they will. After all, the Fed played a big role in this whole mess, so its only fair that they help clean it up.

Investor angst ran high again today, with the put/call closing at 1.16, and the ISEE at 93. Yesterday, I posted how I thought there were too many looking for a "retest", and that as a result that it could be a crowded trade. I took some heat from the bears for that call, but today I felt a little better when I saw Barton Biggs come on CNBC and talk my book. Maybe he read my comments yesterday?

I also liked the action in the Yen today. As the chart above shows, the Yen dropped sharply vs. the dollar. At one point, it was the biggest one-day drop since January 2005. This bodes well for the carry trade worry-worts.

The SPX has now traced 50% of its decline from recent high to lows, so some pullback would be normal. But as long as its not vicious, I don't think it will take us back to new lows. And this is turning into a lonely call. Just the way I like it--

Countrywide Injection Eases Credit Crunch Fears

The market got a nice boost at the open, although as of this writing it is fading a bit. Last night, Bank of America (BAC) said it made a $2 billion investment in Countrywide (CFC). The news helped to ease some of the fears about the current credit crunch. It also emboldened overseas buyers, who sent the markets in Asian sharply higher across the board.

This morning, the Fed has injected another $17 billion of reserves into the system. But the financial stocks arent' really responding. This has some wondering if the strategy is working, and if the Fed will in fact cut rates in September.

Yesterday, PIMCO's Bill Gross came out saying that he expects the Fed to cut 50 basis points by September. I agree with this prediction, although I don't know if we will get the full 50 bps in September. It may take another month or so, depending on developments in the credit and financial markets as well.

Bond yields are steady again, with the 10-year yield at 4.65%. And oil is up a little, testing the underside of $70.

With the market up nicely since last Thursday's lows, some selling wouldn't be surprising. Yesterday I had a debate with Doug Kass about how soon we could retest the lows. He is pressing his short bets, while I think that is a 'crowded trade'.

Wednesday, August 22, 2007

Trade Update - Acme Packet (APKT)

Yesterday, I submitted a new buy recommedation to subscribers of the website I write for, The company is called Acme Packet (ACME). And the chart above shows where the stock stood as of yesterday's close.

The problem is that today, the stock ramped +9.25% on a huge volume spike. But I don't think my readers had time to get in. At this point, I would probably prefer to wait for a pullback as opposed to chasing the stock.

The company makes session border controls (SBCs), which is jibberish for cutting edge telecom equipment that helps make next-generation IP networks operate more seamlessly. It is still a small company, but they have great products and leading market share in this emerging space.

The stock has pulled back siginifcantly from its highs at the end of 2006. And it has only been public since last October. But I think the stock is on the mend, and has already seen its lows. The company reported a solid quarter recently, and management gave bullish guidance about their outlook.

Today's big rise on surging volume validates my thesis, at least in the near-term, but I still think there is more room for upside.

long APKT

Is Everyone Trying To Game The Next Pullback?

The volatility index (VIX) has come down sharply from its spike higher last week. This means traders are pricing in a bit calmer markets going forward. And the news in the credit markets today, with the big banks borrowing at the disount window, should also be easing investor concerns.

But looking at the put/call ratios, you get an entirely different picture. The market has been up for several days following the lows from last Thursday. But the CBOE put/call ratio is at an extremely elevated level of 1.23. And the ISEE Index is equally as elevated at the put/call equivalent of 1.18. So what gives?

It would seem that too many traders are using the same playbook, and trying to game the next, potential pullback in the market. I am guilty of this as well, as I have been talking about such a "retest" after an oversold rally takes place.

But if everyone is trying to get in ahead of this event, it makes me think that any pullback could be more shallow than might otherwise be the case. And with the Fed having lowered the discount rate and changed its bias, we now have the new 'Bernanke put' active as well.

Kind of makes you go hmmmm...

Technical Difficulties

I'm fighting a nasty cold (thanks to my kids, who carry this stuff like the Outbreak monkey), so I was running a bit late this morning. It was nice to see the markets off to a good start when I got in, but Blogger was down and I couldn't post.

Anyway, you know that I don't like strong market opens, but I was pleased to see this morning's news. There was renewed dealmaking and M&A activity, which is pleasing to investors.

First, there is chatter that TD Ameritrade (AMTD) and E*Trade (ETFC) may merge. I think that would be great. Second, NYMEX (NMX) is confirming it is in takeover talks. Maybe ICE? Third, Rio Tinto (RTP) raised a record-breaking $40 billion to fund its proposed buyout of Alcan (AL). So there is funding available. And last, Dubai World is reportedly investing $5 billion to buy a nearly 10% stake in MGM Mirage (MGM).

The above should allay fears that M&A activity was dead and no more deals were going to get done. I have been saying that I felt the dealmaking was just on hiatus, and that it would return after more market participants got back into full speed after Labor Day.

Asian markets were up across the board overnight, as the calming here in the U.S. emboldened buyers overseas as well. The International ETFs are up a lot this morning. Also, the Yen is moving lower, a big positive for the carry trade fears.

Oil is still trading below $70, a psychological positive, and gas prices are trending lower as well. Bond yields are steady, with the 10-year at 4.65%.

Tuesday, August 21, 2007

A Double-Bottom in SiRF?

Growth stocks are continuing to outperform today, with the NDX +1.0% and the SPX +0.25% as of this post.

One stock that I am involved in that looks to be finding some support is SiRF Tech (SIRF). I have owned this stock on and off for years, with my most recent purchase coming before the company reported earnings, when the stock dipped into the low $20s.

The market did not like the earnings report one bit, when management basically gave soft guidance and said that the big growth from wireless carriers might take a little longer than expected.

I was tempted to sell after it gapped lower the next day, but it soon reached levels where I felt it was just too cheap to sell. Since then, the stock has started to bounce back, and a look at the chart above shows some solid support developing in the form of a double bottom.

I think the stock can climb back to the area from which it broke down, around $22-23. I will look to use such levels as a better exit point for this trade.

long SIRF

Market Anxious Over Bernanke/Paulson Meeting

The market had a nice rally into the close yesterday to offset the earlier weakness. The SPX looks to be consolidating a bit below its overhead 200-day. I would still like to see a follow-thru accumulation day this week. Absent that, there could be more selling pressure.

This morning, there will be a meeting between Fed Chairman Bernanke, Treasury Sec. Paulson, and Senator Dodd. I'm not sure what it means, but hopefully they will come up with some good ideas to improve the current credit crunch. The Fed, for its part, injected more reserves into the system this morning.

Bond yields are lowere again, with the 10-year down to 4.58%. And the T-bill has plunged all the way to 2.93%, anticipating a near-term cut in the fed funds rate. Oil is steady around $71.20.

China said it will raise lending rates further as it takes steps to prevent an asset bubble. The meteoric rise in their markets makes investing there a risky proposition. Market history tells us that when markets have that much strength in such a short period, it usually does not end in a pretty fashion. As always, timing is the key.

Asain markets were mostly higher overnight, except for India which declined.

Monday, August 20, 2007

Orderly Pullback Not All Bad

I would have preferred the market to but up today, but there is still time. The market is a bit weak, some of which could be an options expiration hangover. But the selling seems orderly, and not panicky like last week.

Growth stocks are outperforming, with the NDX -0.3% and the SPX -0.6%. Investor anxiety remains elevated with the ARMS Index at 1.41 and the CBOE put/call still high at 0.92. This weekend, the Market Vane survey hit its lowest reading since summer of 2003 (52% bullish).

The midcap index is moving into the green as I type, which bodes well for growth stocks. Here are some more stocks making notable moves today, and bucking the general weakness:

Last Thursday was a big reversal, and Friday was obviously a big up day. Now we need to watch for some follow through this week, in the form of another solid accumulation day. The fact that the market might consolidate a little in the meantime should not be disconcerting. I would be more worried if there was no follow-thru this week.


Small Bounce After Friday's Rally

The market is opening up slightly following Friday's strong rally. The Nasdaq had its biggest percent gain in a year (+2.2%), while the S&P had its largest gain (+2.5%) in over four years. Not bad.

The strength carried over into Asia, where 5 of their stock markets gained more than +5% each overnight. And Japan rose +3.0%. The Yen is also moving lower today, a trend that would go a long way to improve sentiment.

Bond yields are moving lower again, with the 10-year yield hitting 4.64%. The Fed injected more liquidity into the system this morning, as it strives to ease the credit crunch. After their move on Friday, some investors likely feel that the downside risks have been reduced.

I would agree with that, to a certain extent. I believe the Fed showed that it will not merely sit on the sidelines. Moreover, I think the change in bias lends itself toward another rate cut in September. Hopefully the market will begin to discount some of this in the near future.

On the financial shows over the weekend, I saw a lot of strategists calling for the same sort of 'bounce and retest' pattern that I have been expecting. I don't like to be part of the consensus. If everyone is looking for this pattern, it will likely not come to fruition. You know the old saying about a watched pot?

The other two scenarios are that the market goes on to make lower lows, or that the next pullback is mild, and that we have already seen the lows. If I had to choose between these two, I would favor the latter scenario.

Friday, August 17, 2007

Today's Rally Not Being Fully Embraced

The rally has held up well, with the SPX still up +2% as of this writing. Despite the strength, there is still considerable skepticism on the Street.
  • The VIX is still above 30
  • The ARMS Index hit 1.36 today
  • The CBOE put/call is at 1.22, an elevated level
  • The ISEE Index is low at 127

So there are few signs of renewed optimism with today's events and market reaction. The wall of worry is as high as I can remember. According to Hays Advisory, the market is more oversold than it has been in 40 years.

Investors are so skeptical that most now believe that Fed rate cuts will do nothing to help the markets. I disagree, and all you have to do is go back to 1987 or 1998 to see that rate cuts can have a powerful effect when they catch the herd leaning the wrong way.

Here are some stocks on my radar making strong moves off of, or back above, their 50-day averages:



Fed Finally Wakes Up, Cuts Discount Rate

Thank you, Ben. The market surged at the open this morning after the Fed cut the usually symbolic discount rate. The FOMC unanimously voted to cut the rate at which the Fed lends funds to banks from 6.25% to 5.75%.

This will have a more significant impact in terms of injecting liquidity into the system than the recent open market operations have had. It also opens the door for a cut in the fed funds rate at the upcoming September meeting. Here is a copy of the full statement from today:
  • "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

I highlighted what I felt were the important aspects of the statement, namely that the Fed is now acknowledging that the recent market turmoil could impact economic growth, and that the downside risks have increased. Moreover, that the Fed stands ready to act more if needed, to support the economy and prevent conditions from turning into a full-fledged credit crunch.

The Dow surged +300 points at the open, likely exacerbated by the expiration of index options. The sellers have come out since then, and the rally has moderated. But there still could be additional short-covering into the close that could lead to a big day.

I wrote yesterday that I felt a short-term bottom was in the cards. Today's bounce is a good first step. But if you found yourself yesterday wishing you had sold some stuff you owned, then you should use any further market strenght to lighten up.

Asian markets cut crushed overnight, led by Japan's biggest one-day decline since 2001. I have written about the yen carry trade unwind, which undoubtedly increased the severity of the decline.

Thursday, August 16, 2007

Huge Reversal For Stocks

I had to leave before the market closed, so I was thrilled when my colleague texted me in my meeting and told me the SPX recouped all of its losses.

I though the action in the market was meaningful today. I am seeing tons of upsided reversals in stocks and etfs on enormous volume. This is usally meaningful technical action. Look at some of the price-volume action in the likes of: ITA, IAI, IDU, IYE, MXI, EFA, EEM, etc. They all look like exaustion selloffs to me. I would go so far as to say that I believe the market put in a solid, near-term bottom today.

Notice that I did not say "the" bottom. That is something we will only know in hindsight. But today's action should lead to a tradeable bounce. From there we will have to see how the market holds up on any future retest of today's lows.

But there was certainly panic selling in the air this morning, as the Dow shed more than 300 points but fully recovered by the close. The SPX endured a +3.3% intraday swing. The volatility index (VIX) hits its highest level since the bear market bottom in October 2002, before revesing lower into the close.

It was the financials that led the way today, with the bank index rising +4.7% and the brokers bouncing for +3.9%. (Hard hit Bear Stearns spiked +13%) I'm sure this was mostly short covering, but that is how many rallies start after big declines.

Last, I noticed that there were 1080 new lows on the NYSE (according to Yahoo Finance). That is most I have ever seen, even during the bear market. I recall seeing Gerry Jordan of Hellman Jordan speak back when I lived in Chicago. He said that if you ever see 1000+ new lows on the NYSE, you can go long on margin and coin money over the next year. I wonder if he was buying today?


Fed's Poole Says Rate Cut Not On The Table

Fed governor Poole made comments last night that only a "calamity" would justify a rate cut. That sounds like more than just jawboning, as the Fed seems bent on not bailing out the mortgage companies, even if it means millions may lose their homes.

But at the same time, the Fed injected another $17 billion into the market, which has pulled the overnight rate down near 5.0%. Isn't this, by default, a de-facto easing in the market? If they are pressuring the fed funds rate down that much, why not just make an official cut?

Overseas, Asian markets plummeted overnight as the Yen rose another 2% to a 1-year high vs. the dollar. This is sparking further unwinding of the yen-carry trade, which is only adding to the global liquidity crisis. If speculators are scrambling to buy back borrowed yen, they are likely selling anything and everything to raise funds.

Bond yields are moving lower, likely exacerbated by a flight to quality, with the 10-year yield down to 4.65% (well below the fed funds rate). And oil is falling today, with crude prices near $71.70.

It has been like shooting fish in a barrel for the short sellers of late. We need some piece of good news that will spark a round of short covering and at least put a modicum of fear into the short sellers again. In the meantime, I am still sitting on the cash I raised recently while I watch for some signs of stabilization for more than just a day.

Wednesday, August 15, 2007

Too Soon To Call This Correction Over

The fear guages were spiking higher again today, as the market sold off into the close. It looked for a while like the market was going to bounce, but the late day weakness that developed crushed any hopes the bulls may have had.

The volatility index (VIX) rose to hit new 4-year highs, nearly reaching 32. The CBOE put/call ratio opened at 1.63, an extreme reading. Fear is not the best timing indicator, but it is a necessary ingredient for a market bottom. I have not yet tried to sound the all clear, and suggest that "the" bottom is in, but I continue to believe we are getting close.

The SPX closed below its Jan.1 levels, erasing all of this year's gains. But many of the other, more growth-oriented indexes are still in positive territory. The forced liquidations feel like it is spreading into everything, as no group was saved from today's selling.

There was also a lot of chatter that there was additional pressure on the market today due to Friday's upcoming options expiration. This is hard to gauge, but we know from past experience that expiration week can add to the volatility in the market.

Existing Home Sales Report Not That Bad

The NAR put out its quarterly Median Sales Price report for single-family homes as of Q2. Even though this is a snapshot of the recent past, I did not find as much weakness as I would have thought. Overall, the median sales price for the entire U.S. fell -1.5% from Q2 2006, but was higher than last quarter (Q107).

For the major cities I track, here are the recent figures:
  • Chicago (+1.7%)
  • Los Angeles (+2.9%)
  • Miami (+2.0%)
  • New York (+1.7%)
  • San Francisco (+7.6%)

These are pretty surprising figures, and show no declines in these major cities. Given all that we hear about the bubble in home prices over the last several years, these figures continue to lend themselves to the notion of a soft-landing in housing.

Of course, given what is currently going on in the subprime market and the credit markets in general, it will be more telling to see how prices are affected in next quarter's report (since these prices dont' reflect what has transpired since July).

Other notable areas that have been strong in recent years and are on more real estate watcher's radar include:

  • Las Vegas (-3.6%)
  • Phoenix (-2.7%)
  • Portland (+5.2%)
  • San Diego (+0.2%)
  • Washington DC (+0.3%)

The strongest areas in the report were cities like: Salt Lake City (+21.9%), Salem (+16.7%), Binghamton (+19.8%), Farmington (+14.0%), Seattle (+8.9%), San Jose (+8.8%), and Charlotte (+8.3%).

The weakest areas in the report were cities such as: Palm Bay, FL (-15.0%), Elmira, NY (-17.9%), Davenport, IA (-11.3%), Sarasota (-11.3%), and Cleveland (-7.1%).

Another Oversold Bounce?

The market is getting a boost in early trading, which is pretty good considering the early news. Asian markets plunged overnight as the subprime news made its way across the pond. One Australian hedge fund has gotten hit, and one of Japan's biggest banks is reporting losses as well.

The economic news was good, with the core CPI coming in at just +0.1%. The 10-year yield is down slightly to 4.73%.

Tech stocks are mostly weaker after disappointing guidance from Applied Materials (AMAT). But financials are higher, even in the face of a big Countrywide (CFC) downgrade.

The markets have gotten oversold again, and are due for a bounce. The last time we were deeply oversold, we saw a pretty strong 3-day, +5% rally. But then when the markets came back down for the retest, they undercut the previous lows.

Sometimes this is how the pattern plays out. So no we have to again wait for a bounce, and then see if these new lows hold on the next retest. Obviously, this process takes time so investors need to be patient and not try to force things.

With each level the indexex move lower, they leave behind more overhead resistance. But eventually the news gets priced in, everyone who wanted to sell has done so, and a new uptrend can begin.

If the Fed ever comes in and cuts rates, that would ignite the market. But for now, this is still wishful thinking.

Tuesday, August 14, 2007

Stocks Still Struggling To Find Solid Footing

My Stock of the Day is Syneron Medical (ELOS).

The stock got a big boost on Aug. 6th after reporting a strong quarter. But it then faded back into its consolidation. Today, it is spiking higer again, and bucking the overwhelming weakness in the market.

The stock is up more than +5% on rising volume. It has run into some resistance at its overhead 50-day average, but the trend here looks positive. The more times it tests this resistance, the more likely it is that it will eventually be successful in piercing this level.

This company has strong fundamentals, and the stock remains very cheap on a valuation basis.

Other stocks that are making strong moves today on above-average volume include:

The market is struggling to find its footing today, as the selloff continues. I am monitoring last week's lows as support levels to watch.

long ELOS

The Continuing Correction

After yesterday's relatively quiet session, the market is back under selling pressure this morning. While it looks rough out there, I would note that the SPX has not undercut its 8/6 lows yet, which is a positive. Ditto the Nasdaq, which remains above its 200-day support.

Retailers are down this morning on the heels of weak earnings reports and guidance from both Home Depot (HD) and Wal-Mart (WMT). And both of these stocks are trading lower. On a positive note, the IPO of VMware (VMW) opened with huge fanfare.

The core PPI report was positive this morning, in that it showed a continued easing of inflation pressures. This is helping bond yields drift lower, with the 10-year yield around 4.74%.

Oil is still up a bit, with crude prices around $71.85. And Asian markets were mixed overnight.

Measures of investor anxiety are again elevated today (put/call ratios, ARMS Index, volatility indexes), and there is significant pressure on the brokers. I think the market will recoup some of these losses into the close, which would be a net positive.

Monday, August 13, 2007

Midday Check

Lots of crosscurrents in the market again today. The broker stocks have gone mostly negative, but there has also been a negative reversal in oil which seems to be bolstering sentiment.

Speaking of sentiment, the put/call ratios are again at elevated levels despite the record readings we have witnessed of late. The VIX hit its highest level since March 2003 on Friday.

My Stock of the Day is MEMC Electronics (WFR).

I think this stock has been unfairly punished during the selloff, despite reporting an outstanding quarter and raising its outlook. The stock is oversold, and just bounced off its 200-day support on Friday. I believe this stock still has material upside into year-end from here.

Other stocks rising on above-average volume today include:

long WFR

Monday Morning Musings

The market is getting a nice bounce this morning, after Friday's positive technical action, when the S&P recouped all of its losses by the closing bell. It also helps that Asian markets were higher across the board overnight, as central banks continued to add liquidity to the system.

The Bank of Japan added $5.0 billion, while the ECB pumped in another $65B and declared that the markets are normalizing.

Also, the hedge funds sponsored by Goldman Sachs (GS) that were rumored to be liquidating are not. GS said that the funds are down significantly, but that the company and some outside investors are committing more money to the funds to take advantage of what they believe are dislocations in the market.

Oil is trading higher this morning, near $73, and bond yields are steady with the 10-year yield hovering around 4.81%.

It is nice to see the brokers leading on the upside. But it is still very early in the day.

long GS

Friday, August 10, 2007

Credit Crunch Continues, Fed Steps In To Provide Liquidity

The market had a very rough day yesterday, after the credit crunch news moved across the sea to hurt a large French bank. This morning, the pressure is still on the markets. It didn't help that Asian markets were down across the board overnight.

CNBC is reporting that there is a significant forced liquidation on at a large hedge fund. That could be one of the reasons that there is so much selling pressure on the market. The upside of these liquidations, is that once they run their course, there is usally a natural lift for the market.

Of note, the Fed stepped in this morning to inject liquidity into the system, as I have been saying they would for weeks now. They then stepped in a second time, adding roughly $35 billion in reserves this morning. And they focused their buying on the mortgage-backed securities, where liquidity was most needed.

Additionally, the ECB added $83 billion to its money markets, and the Bank of Japan added liquidity last night as well. So this is the largest coordinated central bank intervention since the aftermath of 9/11. That should tell those doubters out there how serious this situation is.

But the Fed can easily throw a lifeline to the markets by just cutting interest rates, as we have been screaming for. Donald Trump was on CNBC this am saying he thinks the Fed needs to cut by a full 1% right now. Whoa, Donnie. Let's not get crazy.

The Fed will step in and cut rates, that is what the fed funds futures market is telling us. But given their history of being late to do everything, I don't expect an emergency meeting to take place.

In the meantime, this correction is still in the range of the previous 6 over the last several years, in terms of its percentage decline. And negative sentiment is again off the charts. One silver lining is that the number of new lows on the NYSE looks to by going down, indicating the selling pressure may be easing. Stay tuned.

Thursday, August 09, 2007

Credit Crunch Moves Across The Pond

This morning's market open is a reminder that after a 3-day rally, headline risk remains. News that France's biggest bank (BNP Paribas) suspended withdrawals from three of its funds roiled our markets at the open. These funds, valued at $2.1 billion, cannot value their holdings currently due to the turmoil in the U.S. credit markets.

Also, AIG reported earnings and said that mortgage delinquencies are spreading, and that they will soon spread beyond subprime to prime. All of the above has moved the fed funds futures to now predict fully a 100% chance of a rate cut at the next FOMC meeting (Sept. 18). Didn't I just finish saying that the Fed was late to the party?

Bond yields are moving lower amid the flight-to-quality, with the 10-year yield back down to 4.78%. And there appears to be additional unwinding of the Yen carry trade given the continued rise in the Yen. But the ECB, and to a smaller extend the Fed, are injecting reserves into the system as we speak.

Oil is lower again this morning, around $71.35. This could help sentiment, which seems to be improving as of this writing, as the Nazz is clawing its way back to positive territory after being down -1.75% at the open. This is a testament to the furhter relative outperformance of growth stocks.

Wednesday, August 08, 2007

The Halo Effect of Cisco Systems (CSCO)

People love to talk about the "halo" effect for Apple (AAPL). That is, as iPods and iPhones gain popularity, consumers become more aware of the brand and are more apt to buy Apple PCs also, which really helps boost the company's earnings.

Well, Cisco Systems (CSCO) has a large halo effect of its own. Its halo effect has to do with the large ecosystem of companies that benefit when the tech giant is clicking on all cylanders, as it seems to be doing now.

We know this because of the incredibly bullish comments that CEO John Chambers made during and after its conference call. He said that, "he believes this is the strongest global economy he has seen in his career." He also said that CSCO is in its 2nd phase of Internet growth and believes it could be as big as the first phase we saw in the '90s. Last, he raised the company's long-term revenue growth forecast from +10-15% to +12-17%. All in all, very bullish comments.

So all of those companies up and down the supply chain should be able to ride on the Kid's tailcoat. Case in point is Broadcom (BRCM), which is surging nearly +10% today on big volume.


The Bellwethers Are Back

We know that the Fed didn't really give us the ammo we were looking for to stoke this market, so the credit for this morning's rally has to go to the Cisco Kid (CSCO), which reported a strong quarter, raised guidance, and gave a bullish outlook on the global tech economy.

This is helping the entire tech sector bounce, but the group that is really leading the charge is the brokers (+4.1%). Bargain hunting in the sector has likely exacerbated short covering, and that is proving a lethal combination for the bears.

The Fed decision is now behind us, and with earnings season winding down, the stock market will focus more on economic news and Treasury action. For its part, the 10-year yield is up a bit to 4.84%. The uptick is not all bad, as it signals renewed confidence that the economy won't slow too much.

Oil is trading lower again, down near $72.20, so this is not a headwind right now either. Let's hope we don't get any bad hurricanes in the near future.

As for Asia, markets there were up sharply overnight, giving our markets another boost at the open. I don't know how long this oversold rally can last, but it is exactly what I was looking for coming from the panic selling we saw last week.

Tuesday, August 07, 2007

FOMC Statement Offers Little, But Market Rallies Anyway

The Fed held rates unchanged today at 5.25%, as was widely expected. Bulls were hoping that they would go to a 'neutral' bias, or at least explicitly acknowledge that they see the risks in the credit market and will act accordingly.

But alas, the Fed is almost always behind the curve. They don't usually react until well after they should. In this light, the Fed maintained its tightening bias today, stating that its "predominant policy concern remains the risk that inflation will fail to moderate".

They did offer investors one very small nugget, in saying that they recognize the "volatile" markets and "tighter" credit conditions. But that was about it. So this statement does little to ameliorate the conditions that have been developing in the credit markets.

The market sold off hard when the statement was released, with the Dow dropping a quick 150 points. But it then recovered, and rallied fairly hard into the close. This is what happens when a market is so oversold that it just can't drop any further.

The ISE Sentiment Index made a new record intraday low at 43, implying retail investors continue to load up on bearish put options. I suspect this market has a little further to go on the upside, but then we will likely be in for some sort of retest.

Hurry Up And Wait

The market has a negative bias to it this morning, after yesterday's huge rally. The productivity number that was released this morning was a bit below consensus. Hopefully the Fed is paying attention.

Some are saying that the market rallied yesterday because investors are anticipating the Fed making comments about the state of the credit markets. I think it was more that the market had gotten very oversold, and investors took profits on their shorts ahead of the FOMC meeting to lock in profits and reduce risk.

There is a bit more short covering going on this morning in the mortgage stocks, but insurers are lower after a weak earnings report from Marsh & Mclennan (MMC). Nonetheless, the brokers are higher this morning, which is a good sign.

Of course, none of this means very much, as the real fireworks won't come out until after the FOMC announcement at 2:15 EST. I think the Fed will make some sort of subtle comment about the credit markets, but I doubt it will be the kind that the bulls are hoping for.

I still think the market can continue to rally from oversold levels, and due to the overbalance of negative sentiment. Unless there are some real surprised from the Fed, I don't think it will have a lasting affect on the tape for more than a day or two.

Monday, August 06, 2007

The Bulls Are Back In Town

Finally a strong day in the market. The Dow had its biggest point gain (+286) since 2002, though we know its all about percentage moves, not points.

Nonetheless, the SPX led the way today, rising +2.4%. The Nasdaq gained +1.4%. But it was the financials that were really strong. The bank index vaulted +5.4%, followed by the brokers which rallied +3.8%.

Volume was very strong also. Some of this could have been short covering ahead of the FOMC meeting tomorrow. It's tough to gauge what the Fed could say in its statement, but if they make any dovish comments, it should help the market build on today's gains.

If I were Bernanke, I would lower the fed funds rate, but I have little confidence that Ben would do something that overtly market friendly.

The 10-day put/call ratio hit 1.31 today, only one point shy of its all-time record in March. We know how that correction played out. I am betting that the surge in bearish sentiment will have a similar effect on helping the markets bottom this time around as well.

Brokers Bottom, Market Rallies

The market is enjoying a significant bounce on the heels of the brokers bottoming. S&P is saying that the market is overreacting to its Bear Stearns (BSC) outlook change last week. It is also saying that BSC's liquidity remains "solid" and that the liquidity at the big brokers in general is sound.

Also, Wells Fargo (WFC) announced a big buyback this morning, which helped the financials gain support.

Despite the rally, the put/call ratios are still very elevated, with the CBOE put/call at 1.30 and the ISEE at a very depressed 75.

Oil is down roughly $4 from its high today, which should be a big positive for psychology.

long WFC

Monday Morning Musings

The market tried to bounce at the open, but quickly sold off again. There is a real tug of war going on between the bulls and bears. The market is highly oversold, and the put/call ratio is near all-time record levels. But the bears don't want to give in here, as they are still trying to crush the spirit of the bulls.

Per that point, I am starting to hear more people finally throw in the towel and call for more downside before the market finds a bottom. That is a necessary contrarian ingredient, and makes me more bullish for a bounce. I have increased my longs this morning, as well as taken some new trading positions.

It would certainly help if the brokers could finally bottom, but the pressure there is immense. Merrill Lynch (MER) was upgraded this morning, as the analyst felt the fallout from the mortgage and credit business is mostly discounted. I feel the same about many in the group. And the COO of Bear Stearns (BSC) resigned on Friday.

Oil is down handily this morning, falling all the way back to $73. Bond yields are a bit lower again also, with the 10-year near 4.69%. Asian markets were lower across the board overnight, which isn't surprising given the way our markets finished on Friday.

Now let's get back to that oversold rally...

Saturday, August 04, 2007

Weekly Recap

Here is a copy of's Weekly Wrap:

The major averages suffered their third straight weekly decline thanks to a significant and broad-based sell-off in late-afternoon trading on Friday. Once again, concerns about the deteriorating credit market and the health of the economy weighed heavily on sentiment.

Investors have been concerned that problems in the sub-prime mortgage market and the housing sector could curb economic growth and weigh further on US equities. Last week, stocks suffered their worst week in nearly five years.

With some investors moving away from equities and into safer investments, Treasury yields continued to fall. The yield on the benchmark 10-year note fell to 4.71% from 4.79% last Friday.

In the latest indication that the lending environment is worsening, Accredited Home Lenders (LEND) acknowledged that its business is in jeopardy and may file for bankruptcy. Another mortgage lender, American Home Mortgage Investment Corp. (AHM), also said it has stopped accepting mortgage applications and is laying off the bulk of its 7,000 employees. Shares of both companies plummeted on the news.

Persistent credit fears were also evident in the market's reaction to unconfirmed rumors that homebuilder Beazer Homes (BZH) would file for bankruptcy protection due to liquidity issues. Shares of the company fell as much as 40%, dragging down the rest of the industry and the broader market, before management said the information was unfounded. The reaction to the news further underscores the deteriorating lending climate and investors' growing jitters.

Some reassuring economic data helped lift the market earlier in the week. The Core Personal Consumption Expenditure index, a favored inflation measure by the Fed, showed moderating price pressures, while Consumer Sentiment rose in July to its highest level in nearly six years. Actual consumer spending in July, however, was up just 0.1%.

Separately, the Chicago PMI declined to 53.4 in July from 60.2 in June, but still implied expansion in manufacturing in the Chicago Fed district.

The Labor Department's latest report showed non-farm payrolls rose a lower than expected 92,000 last month, exacerbating investors' concerns about the economy. That was below the 132,000 jobs created in June and below the average forecast of 135,000. Also, the unemployment rate rose to 4.6% from 4.5% in June. Still, overall unemployment remains low.

The market, though, didn't respond favorably on Friday to the softer than expected data. It also felt some discomfort after S&P lowered its debt rating outlook on Bear Stearns (BSC) to negative from stable citing recent developments that could impact the investment bank's performance. Bear Stearns did its part to alleviate such concerns on a subsequent conference call, but with the acknowledgment that it won't repurchase stock in order to preserve liquidity, it failed to turn the tide of negative sentiment.

The comment from Bear Stearns reinvigorated concerns about a credit crunch and prompted a late, broad-based sell-off in the market, sending stocks to their weekly lows. The sharp decline on Friday contrasted the late-day rallys seen in the prior two sessions that produced consecutive triple-digit gains in the Dow Jones Industrial Average.

In corporate news this week, Dow components General Motors (GM), Verizon Communications (VZ), Walt Disney Co. (DIS) and Procter & Gamble (PG) all reported strong earnings results. Other bright spots included Sun Microsystems (SUNW), Wrigley Co. (WWY), Electronic Arts (ERTS), Viacom (VIA.B) and Chipotle Mexican Grill (CMG).

However, not all company news was positive. RadioShack (RSH), Avon (AVP), Clorox (CLX), and Nortel Networks (NT) were among the week's losers.

Overall, Utilities, Telecom, and Consumer Staples - all more defensive-oriented areas - fared the best during the week. Energy stocks posted the largest declines, followed by Financials and Consumer Discretionary.

As the second quarter earnings season winds down, credit risks and problems facing the housing market will continue to take center stage, overshadowing corporate earnings news.

Friday, August 03, 2007

Trade Update - Las Vegas Sands (LVS)

I have been bullish on Las Vegas Sands (LVS) since it started to pullback in the Spring. The stock experienced a large decline, exacerbated by concerns that new visa regulations in China would hurt visits to Macau.

These fears peaked and the stock bottomed in late June. Since then, the stock began a new uptrend, slicing through overhead resistance along the way.

This week, the company reported strong earnings, beating estimates by 3 cents. But it wasn't the type of blowout earnings report that often sends a stock soaring. Nonetheless, the stock has vaulted +13% in the last 2 days, on rising volume.

Since bottoming in June, the stock has now rallied fully +35%, an outsized move. It looks like it is getting a little overbought, and I want to hedge some of the recent gains here. I still like the stock, I just think it could be due for a little pullback. And trading is trading.

As an aside, a friend of mine recently met with MGM management, and they were very bullish on their prospects, and about their stock. They said they continue to be shocked by the valuation discount between MGM and LVS/WYNN. fwiw--

net long LVS

Weak Jobs Data Weighs On Stocks

The market opened slightly weak this morning on the heels of a weaker than expected jobs report. The economy added only 92,000 new jobs (consensus 135,000), which means it is running at a below average rate. Also, the unemployment rate ticked up slightly to 4.6%.

Within an hour, the news came out that S&P cut its credit rating on Bear Stearns (BSC) to negative. This caused a wave of selling pressure that took down the brokers first, and with them the whole market deteriorated. From a contrarian point of view, maybe this even will mark a short-term bottom in the group?

Bond yields are moving lower, with the 10-year yield breaking below its 200-day at 4.72%. Oil is also lower again, as Colorado State lowered its hurricane forecast for 2007.

And Asian markets were up nearly across the board, save for Japan. Shanghai made new highs, which bodes well for many of the emerging markets.

I think this whole subprime debacle, the failures of mortgage companies like LEND and AHM, the tanking of homebuilders, the BSC downgrade, coupled with the slight uptick in unemployment increase the likelihood that the Fed cuts rates. Financial crises usually give them cover to do so. They probably won't do it next week, because they are always late to the party-- but they should.

Thursday, August 02, 2007

Wrap Up: Put/Call Indicator Hits 2nd Highest Level On Record

The market rallied again into the close, putting in a solid day. Volume again was nothing to write home about, but I'll take the positive price action regardless.

I continue to look for a tradeable bottom. I have commented several times on the oversold nature of the market, the rise in pessimism, the spike in volatility, and the high readings in the put/call ratios.

Today, the 10-day CBOE put/call ratio hits its 2nd highest reading on record (1.24). The first time I saw a reading near these levels was in May 2006. The market bounced nicely after this point, but then came back down to make a lower low in June 2006.

In March of this year, this indicator reached 1.32, an all-time record. The market bottomed quickly that time, and surged on to new highs. So this level on the put/call ratio is an important one, and warrants attention.

It it too early to know if we have seen THE bottom. Although some pundits will try to make such calls, ultimately we will only know in hindsight. The normal pattern is for the market to bounce, and then come back down at some point and retest these lows. Sometimes they hold, and sometimes the market goes lower.

But this summer correction is no different than the ones we have seen in each of the last four years. And the sentiment indicators are lining up such that I think it will eventually play out in similar fashion.

Wipeout: SiRF's Down

SiRF Tech (SIRF) reported earnings the other day that were a bit disappointing. And the ensuing reaction by the stock was even more disappointing.

The company reported in-line earnings, but they were aided by a lower tax rate. The big disappointment was that they lowered revenue guidance, citing a slower than expected ramp in wireless.

This had been one of the areas that made me the most bullish. There is talk that much of the weakness stemmed from problems at Motorola (MOT), as opposed to the company losing market share or carriers losing interest in LBS.

So the bullish thesis is that wireless growth will still kick in at some point, and that the attractive growth profile for the company warrants sticking with the investment. The bearish argument is that the last few earnings reports have been disappointing, and thta brings into questions management's ability to execute.

I have traded SIRF very profitably over the last couple of years. This trade was looking good, adding to the position in the low 20s, and watching it rise into the mid 20s. At that point, I hedged my risk. But going forward, I think SIRF is going to be in the penalty box for a while, and I might use any bounce to exit positions and deploy the proceeds elsewhere.

long SIRF

Looking For The Oversold Bounce To Continue

The market is slightly positive this morning, after a very strong finish yesterday. The market rallied hard in the final 20 minutes yesterday, making for a strong, positive reversal on what was shaping up to be another negative day.

Volume ran below Tuesday's levels on the NYSE, so that trend hasn't changed. That is, we have seen volume rising on the down days and moderating on up days. Bulls want that relationship to reverse. We would like to see some higher volume up days, followed by modest volume on the down days. But this takes time, as we are still in a correction.

There was a buyout this morning, as Fiserv (FISV) will acquire Checkfree (CKFR) for $4.4 billion in cash, a 30% premium. So deals aren't dead. And while private equity had been bidding for any and everything, corporations are still flush with cash and very willing to do their own deals.

There were also some strong earnings reports last night and this morning, from the likes of SBUX, DIS, VIA, and NOK.

Asia was mixed overnight, but more markets rose than declined. Bond yields are steady this morning, and oil is up slightly after a big negative reversal yesterday. Given the strong run in oil prices, I would not be surprised to see crude take a breather for a while.

Wednesday, August 01, 2007

Personal Finance: Get Out Of Credit Card Debt

David Bach had a good article today with a game plan to get out of credit card debt. If you're looking to improve your credit score, and your personal finances in general, take a look.

He starts:

I've spent a lot of time teaching Americans how to get out debt. From television appearances to books to speeches, I've tried to proactively address how to fight the credit card companies at their own game. reports that the median amount of credit card debt carried by a typical American is about $6,600. But 13 percent of participants in a recent online poll reported balances higher than a staggering $25,000.

Many of these families now have over nine credit cards per household. That's not hard to believe considering that the average college student now graduates with three credit cards.

Here is the link for the rest of the article

More Fallout From Bear Stearns

As if two funds going under wasn't bad enough, now Bear Stearns says there is a third fund in trouble. This makes investors wonder, well, how many more are there?

Chrysler (DCX) got some financing today, so there is some relief in other parts of the credit market.

The market opened under more selling pressure, as any negative credit market news is now viewed as a reason to sell. But it appears that the market may have found an early bottom, and is trying to bounce.

I am still looking for an oversold rally to kick in. Yesterday's action was clearly disappointing, but timing bottoms is always a tricky thing.

I have to run out to some morning meetings. Keep the market up while I'm out.