Friday, September 28, 2007

Friday Humor

I get lots of jokes sent to me, but I rarely even acknowledge them. The other day I saw one that actually made me laugh out loud.

I should warn you, it's crude and vulgar. Some might even find it offensive. But I still couldn't help from laughing. Let me know what you think--

Oil Continues To Move Higher

The markets are a bit weak in early trading. Today is the last day of 3Q, so we could see some support into the close (window-dressing).

Asian markets were mostly higher again overnight, with Honk Kong and Shanghai hitting new record highs.

Bond yields are down a bit, despite a stronger than expected Chicago PMI report. Although the core PCE inflation report checking in just right at +1.8% year/year, so that could account for some of the bond movement.

Other than that, there is not a ton of corporate news on this last Friday of the month. The markets have had a solid week, and growth stocks have continued to distance themselves and extend their outperformance. This remains a trend I expect to continue into year-end.

I am hearing a lot of calls for an October correction. But the market is not yet all that overbought. Additionally, I still believe there are a lot of investors that remain underinvested or short this market.

If and when performance anxiety increases, it could fuel more buying pressure later this year. I have raised some cash as a result of taking profits on a few trades, but I will look to use any upcoming weakness to add back my long exposure.

Thursday, September 27, 2007

Pension Managers Still In Love With Alternative Investments

CNBC just beat me to the punch (I hate when that happens) on a post I was preparing to make on alternative investments. Citigroup put out some interesting notes from its recent survey of pension managers, who collectively manage over $1 trillion in assets.

Here are some of the findings it contained:
  • About 85% of pension managers will raise their allocation to alternative investments over the next 3 years
  • Within 3 years, private equity allocations will surpass both hedge fund and real estate allocations
  • Almost 90% of pension fund managers allocate to private equity vs. only 50% allocating to hedge funds
  • But hedge funds get more money, larger allocations
  • The majority of pension managers find the "2 & 20" fee structure unsustainable

I found most of the observations surprising, in that I would not have expected that many managers to say they will increase their allocations to alternatives over the next 3 years. I would have thought the peak had passed, and these allocations would decrease.

Go figure.

Asian Markets Soar Overnight

The market is higher in early trading, after Asian markets soared overnight. Foreign markets were higher across the board, led by Hong Kong and Japan which both surged more than +2.4%.

Economic data in the U.S. was a bit weak this morning, with a slight downward revision to GDP (to +3.8% for 2Q) and a weaker-than-expected new home sales report. No surprise there.

MSFT is higher after the media described the release of Halo 3 as "the most successful release in the U.S. entertainment history".

Bond yields are steady, with the 10-year yield hovering just below resistance at 4.61%. And oil has spiked higher again, breaking back above $80, currently at $81.44.

The pop in oil prices is helping the energy complex bounce back, but semis are the best performing group in the early going, +1.0%. Biotechs are retail are the early laggards.

long MSFT in client accts

Wednesday, September 26, 2007

Bear Stearns (BSC) Rumor

There is a rumor going around right now that Warren Buffet is considering taking a 20% stake in Bear Stearns (BSC).

The news has traders giddy, and the stock is spiking $12 higher, or +10% on the news. This is also helping push the XBD index up nearly 3% on the day.

On an unrelated note, the CME is also spiking $25, or nearly +5% on the day. I have not seen any major news to account for the surge.

The market is turning higher, and putting more pressure on those underinvested or leaning short. With quarter-end only a couple of days away, this buying pressure could persist.

Glad I put more money to work last week.

long CME

Trade Update: Research In Motion (RIMM)

Research In Motion (RIMM) has certainly had a nice run recently, and investors may be asking themselves if it's time to take a little off the table.

The Citigroup analyst started it with a Buy today and a $115 target. He said that the recent stock price appreciation is fundamental, not momentum. He believes RIMM is just hitting critical mass adoption.

He may be right, but I am still tempted to ring the register before the company reports earnings next week. My gut tells me anything but a blowout report will result in a 'sell the news' reaction.

I will likely take profits on half my position, and let the rest ride. I still like the stock as an investment, but also like to trade around my positions.

long RIMM

More Whipsaw in GM Stock

I am glad I don't have a position either way in GM. After plunging when talks were called off, this morning comes the news that GM and the UAW have reached a tentative agreement. Didn't they have a "tentative" agreement before?

Anyway, that has the stock gapping higher. I am sure there are a lot of shorts in this stock, and that could exacerbate any move.

Asian markets were mixed overnight, with Shanghai pulling back on fears about monetary tightening, while most other markets were higher (record high in India). As for the Yen, it is lower today, and bouncing off its uptrend line. This should help our markets.

Oil is also lower this morning, breaking below $80 after the inventory data today showed a build in crude inventories. Oil has been on a big run, and could be due for rest.

Bond yields are up a bit, with the 10-year yield at 4.65%. I don't mind seeing the 10-year creep a bit higher, as it likely indicates that any recession is further out in time than most of the bears are predicting.

Tuesday, September 25, 2007

Trade Update - Chinese ADRs Breaking Out

Chinese ADRs are really gaining momentum, although they could be getting a little too frothy. Look at FMCN, JRJC, ZNH, SNDA, etc. That said, I continue to look for breakouts as trading candidates.

Today I took a long (trading) position in New Oriental Education & Technology Group (EDU). The company provides educational services in China, and is growing very fast.

The technical pattern that caught my eye was the cup-and-handle formation. The stock recently regained its 50-day, and was showing excellent relative strength.

Today, the stock is breaking out to a new high on very strong volume. This looks like a solid breakout, and should have some legs. Of course, if China reverses risk management dictates a tight stop-loss. (Like I should have done with LVS!!)

Overall, the market is mixed today, with the SPX lower and the NDX higher. Growth stocks continue to outperform. The semis are higher, while most other sectors are lower. There are also a handful of tech stocks bucking today's weakness.

And the put/call ratio is back up over 1.0, and the ARMS Index is also high at 1.08.

I think given the weak reports this morning, the bears were hoping for a bigger selloff in the market. Frustrating for them.

long EDU; short LVS

Dismal Retail Sales Weigh On Market

Retailers are not reporting very strong results currently, just ask Lowe's (LOW). The company lowered guidance materially, and said that too many uncertainties exist to call the bottom. Also, Target (TGT) lowered its September same-store sales forecast. The combination pushed the retail index down to a -3.0% decline in early trading.

Homebuilder Lennar (LEN) also posted dismal results, posting a net loss vs. the consensus for a gain. The company has cut its work force by 35% and anticipates futher job losses. The homebuilder index is down -2.1% currently.

Existing home sales fell -4.4%, and the Cash-Schiller index showed U.S. home prices declined again in July, posting their steepest drop in 16 years.

AAPL and MSFT are higher so far, and this is helping the Nasdaq 100 stay in positive territory.

This week brings quarter end, so if window dressing comes into play, it should mean any pullback is shallow and buying pressure should exert itself towards the latter part of the week.


Monday, September 24, 2007

Monday Morning Musings

The market is steady at the open, with the Nasdaq leading the way. There was not much in the terms of news, and no deals done over the weekend.

But MSFT is gearing up for the release of Halo 3, and its stock is up ahead of it. Also, GM is up nicely after comments that there is a possible resolution with the UAW.

And oil is trading lower ($80.90) after feared weather problems in the Gulf did not materialize over the weekend.

Asian markets were higher across the board, with Shanghai, Hong Kong, and Australia hitting new record highs. Japan lagged again.

Bond yields are steady, with the 10-year at 4.63%.

And I continue to get crushed with my short LVS trade. What was I thinking? Lesson to self: when trade does not go your way, exit immediately. Discipline trumps conviction.

short LVS

Friday, September 21, 2007

Early Bounce On Options Expiration Day

The market is getting a bounce in early trading after some positive earnings reports.

Oracle (ORCL) beat consensus estimates and also raised guidance. It stock gapped higher on the open, and is helping the tech sector.

Nike (NKE) also beat estimates, and raised guidance for future orders. That stock is higher also, but the overall retail index is lower by a bit.

And Texas Instruments (TXN) said it will buyback an additional $5b in stock, and raised its dividend 25%. That stock also gapped higher this morning, and is helping lift the semi index.

Asian markets were mixed overnight, while the Yen is falling this morning (a positive). Oil is steady, hovering near $81.88 after hitting more record levels yesterday. And bond yields are steady with the 10-year yield at 4.65%.

Today is options expiration day, which I think has exerted some upward pressure on the market this week. Sometimes the market experiences a bit of post-expiration hangover early in the week following, but I think any pullbacks from here will be brief and shallow.

Thursday, September 20, 2007

Investor Sentiment Check

The falling dollar, and rising Yen, are weighing on the market today. Also, the recent big move up could mean that there is some profit taking as well. But I don't expect the declines to be very big as most still remain underinvested or short this market.

Investor sentiment remains skeptical of this rally as well.
  • The CBOE put/call is high at 1.05
  • The ISE Sentiment Index is depressed at 108
  • The ARMS Index is above-average at 1.0
  • Bulls in the AAII survey fell slightly to 39%

Options expiration is tomorrow, so that could be exerting some pressure here as well. I am watching for any good entry points here in stocks I expect to lead into year-end.

Goldman Trounces Earnings Estimates

What a quarter by Goldman Sachs (GS). Truly remarkable. Why many were worried that they would miss earnings estimates, the company beat the consensus by a whopping $1.76. Earnings rose +88% yr/yr, while revenues rose +63%.

One of the surprising aspects was that its significant losses on subprime loans and securities were more than offset by gains on short mortgage positions. This was something that no one was talking about, but that I highlighted on yesterday. Great move.

The markets are slighly weak in early trading. Oil is higher again ($82.25). Bond yields are also slightly higher, with the 10-year at 4.59%.

Asian markets were higher overnight, but the Yen is also moving higher today. This has the potential to weigh on our markets, if recent history repeats itself.

Wednesday, September 19, 2007

iPhone Question

A buddy of mine just called me and said he went to buy an iPhone, but that AT&T told him he could not activate it under his business account.

So basically, that means that no corporate users can use an iPhone. Doesn't that seem odd? Would Apple allow AT&T to eliminate such a large population of potential customers?

If you have any info. on this, or anything to add, please respond to this post.


More Data On Yesterday's Rally

According to the good folks over at, yesterday's rally showed that upside volume on the NYSE swamped downside volume by a lopsided 25-to-1.

The last time we saw that big of a skew in upside volume was August 20, 1982, just as equities were making their low before the start of a secular bull market.

Now, I am not saying we are about to embark on a multi-year bull rally like we did in the 80s, but this statistic is meaningful to the bulls nonetheless.

There have been only 7 other instances of this type of breadth action since 1950. When they looked at the ensuing 3-month period, in 7 out of 7 instances the SPX was higher by an average of +9.4%. Not too shabby.

Where is Eric from Philly now? Funny how the bears only rear their ugly heads when the market is going through a correction...

Momentum From Fed Cut Carries Over For 2nd Day

Asian markets were up sharply overnight (+3 - 4%), and that helped push our futures higher at the open once again. The core CPI report came in in-line with expectations, which helped ease inflation concerns.

Crude oil stockpiles fell last week, and that is helping push oil prices above $82. But this too is not impeding the stock market's gains of late.

Morgan Stanley (MS) reported earnings this morning that were below expectations, but the overall strength in the financials helped support the stock price from falling.

Bond yields are moving higher, as a reflection of more economic strength coming down the road. The 10-year yield is at 4.55%. Also, 3-month LIBOR is moving lower in Europe, which should help ease more of the credit crunch concerns.

The market is quickly moving into overbought territory, but I think that the Fed rate cuts are meaningful. I put a lot of money to work yesterday, and would look to use future pullbacks as opportunities to get more fully invested.

Tuesday, September 18, 2007

Fed Surprises Market With A 50 Basis Point Rate Cut

Wow, color me surprised. Maybe the Fed is more worried than we thought. In a surprising move, the FOMC unanimously cut the fed funds rate by 50 bps to 4.75%.

The market surged on this news, with financials leading the way. The banks and broker index are both up +3.75% as of this post. The Dow is surging +250 points right now.

I think the Fed felt it needed to throw a lifeline to the housing/mortgage market, and if they were just going to cut again in a couple of months, why not do a full 50 bps right now?

Of course, sentiment has been terrible, and the put/call ratios have continue to soar. So you can bet that a lot of this fuel we are seeing in buying power is due to a healthy dose of short-covering. Not a fun day for the bears.

Here are some of the highlights from the FOMC release:
  • FOMC cuts fed funds by 50 bps to 4.75%
  • Fed cuts discount rate by 50 bps to 5.25%
  • Fed says inflation readings have 'improved modestly'
  • Fed says rate cut to 'forestall' harm to broader economy
  • Fed says financial conditions increase uncertainty to outlook
  • Fed says tightening of credit conditions has potential to intensify housing correction, restrain growth

Hurry Up And Wait

The markets are getting a nice bounce at the open, but it means little until we get the FOMC announcement at 2:15pm EST today.

Lehman Bros. (LEH) reported earnings this morning that were not nearly as bad as many had feared. The stock popped higher on the news, and is currently up more than 3%. This is helping lift the broker index and the financials overall.

Best Buy (BBY) also reported a solid quarter, and the stock gapped up. The retail index is the leading group so far, up by more than +1.0%.

Asian markets were lower across the board overnight. And oil is still in record territory after closing above $80 yesterday. I am surprised that this isn't more of a headwind, but the broker reports and FOMC meeting seem to be garnering all of the attention of investors.

On days like today, I wish I could point my remote at my trading screens and hit fast forward to get to today's big event. Hurry up and wait, I guess.

Monday, September 17, 2007

Light Volume Selloff Ahead of Fed Meeting

Last week, I commented on a trade update that I was taking profits in Las Vegas Sands (LVS) as the stock had moved up appreciably from its summer swoon.

The stocks has continued to move higher, and now it has rallied so much that is looks both overbought and overextended. This makes the stock vulnerable to at least a short-term pullback.

A look at the chart above shows the multi-day spike shares have just experienced. Also, you can see that it is heavily overbought on the RSI scale. I took a short position in the stock at the close, but just as a very short-term trade.

The market pulled back today, but volume was extremely light. It seems everybody is sitting on their hands until we get the earnings report from Lehman (LEH) in the morning, and the FOMC announcement later tomorrow.

The volatility indexes surged +6% today, and the put/call ratios rose throughout the day. Most investors believe the market will selloff after the FOMC announcement tomorrow, and were either raising cash or buying protection (put options) today.

I hate to run with the consensus, but this time I can't help myself. I don't think there is anything this Fed is likely to do that will sooth the market. And I don't think they really want to sooth the market.

I think they will likely lower the fed funds rate by 25 bps, and maybe take the discount rate down another 50 bps. This latter move would be nice, but it probably still won't keep the market from declining.

Beyond this week, I still like this market into year-end, and want to use any upcoming weakness to redeploy funds that I recently raised.

short LVS

How 'bout those "Dawgs"?

I would be remiss if I didn't give a big shout out to my beloved Cleveland Browns, aka the "Dawgs".
That was some shootout yesterday with Cincinatti. If you had told me that some team scored 45 points against my Brownies, I would have told you that we for sure lost.
I don't think I have ever seen the Browns score 51 points in my lifetime (I need to research that). Let's hope the big win carries some momentum with it.

Monday Morning Musings

Not a lot in the way of news this morning. The markets are under light selling pressure in early trading, much of which is likely due to weakness in Europe after a "run" on the Northern Rock financial institution in the UK.

There is also likely some nervousness over the Fed meeting tomorrow, and whether or not they will be as accomodative as the markets are hoping for. I am still skeptical of that, as this Fed seems to be more of the "tough love" ilk. As such, I am bracing for a pullback this week.

In addition to the FOMC meeting, all eyes will be watching Lehman Bros. (LEH) earnings report tomorrow, to gauge the extent of the damage to the company's earnings from this whole subprime debacle and credit crunch.

Asian markets were mixed overnight, with Hong Kong pulling back, but China making a new high.

Bond yields are up slightly, with the 10-year around 4.48%. And oil is higher, but still below the psychological $80 level.

Friday, September 14, 2007

Bank of England Bails Out Mortgage Lender

After a solid day in the market yesterday, stocks are slighly lower in early trading after a weaker than expected retail sales report (+0.3%).

Also, Merrill (MER) downgraded both Intel (INTC) and American Express (AXP), which is weighing on the Dow average.

Overseas, the Bank of England provided emergency funding for the U.K.'s 3rd largest mortgage lender, showing that the liquidity problems are still with us.

Next week, the Fed meets, and while I think they will only cut 25 bps, their accompanying statement will be more closely read than anything in recent history.

Asian markets were up across the board overnight. Oil and interest rates are steady.

long INTC

Thursday, September 13, 2007

Solid Day, but Volume Lacking

The market put in a solid day overall. It was reassuring to see the broker group (XBD) up +2.6% for the day. Retailers were also very strong, +2.1%. Semis and biotechs lagged, and were down slightly for the day.

The one thing that has been missing from the strong price action this week has been volume. Ideally, you want to see rallies come on strong volume and selloffs see lighter volume.

Over the last week, we have basically seen the opposite. The rallies have been on light volume, while the pullbacks have seen rising volume. This amounts to distribution days adding up, which puts a question market next to the current trend.

I still am not in the "retest" camp, but I am growing increasingly worried that we could see some selling resume next week. Next week, we have the important earnings reports from the major brokers, the FOMC meeting, and also quadruple options/futures expiration to boot.

I have raised some cash this week, which doesn't feel great on a day like today, but I think I will be able to put that cash to work at some point next week at better prices.

Trade Update - SiRF Technology (SIRF)

I have traded and recommended SIRF on and off for a couple years now (see archives), and have been very profitable. But my most recent trade did not work out as well.

The stock has come down quite a bit, mostly on pricing concerns as ASPs fell quicker than expected and hurt margins. Also, the rollout of location-based services (LBS) among wireless carriers was delayed, and this was supposed to be a big area of growth.

Today, the stock is spiking +9% higher on some good LBS news - finally. Motorola (MOT) has a new handset out, and it is believed to have SIRF chipsets in it. This is good news, and is certainly helping the stock. I held on to my position when it fell into the upper teens, as I felt it was simply too low to sell.

But on today's bounce, I am letting go of my positions. The stock could enjoy more of this relief rally, but I am not sure how long it lasts. I think the pricing pressure is still there, and there is also growing competition from large competitors such as Broadcom (BRCM).

The stock has certainly been a laggard this year, especially when compared to some other stocks in the GPS space, such as Navteq (NVT) and Garmin (GRMN). I think both of these stocks make better swap candidates, and would look to get into one of them on a pullback.

sold SIRF

Nice Bounce In Early Trading

The market is enjoying a nice bounce in the first hour of trading. Of course, I am always skeptical of strong market opens.

McDonald's (MCD) raised its dividend by 50%, and GM got upgraded to Buy at Citigroup (C). Both of these seem to be aiding investor sentiment.

Currently, the S&P 500 is approaching overhead resistance at its 50-day moving average. Let's call it SPX 1482. I think this is a key level to watch. If the market can break above this level, it could spur some short-covering on a squeeze.

Oil is still near record levels, hovering just below $80. Bond yields are up a bit, with the 10-year yield at 4.44%. And Asian markets were mostly higher overnight, with Hong Kong hitting new record levels.

Wednesday, September 12, 2007

Happy New Year

For those of you that will be celebrating the Jewish holiday this evening - Happy New Year!

I, of course, can't stand to be away from the markets, so I will be at my trading turret bright and early as usual.

I am filling in for Doug Kass tomorrow for his column The Edge on If you would like a copy of my commentary for the day, just reply to this post with your e-mail. I'll send it to you, and then delete your info. from my site.

Trade Update - Foster Wheeler (FWLT)

A short while ago I highlighted FWLT as a stock that had recovered nicely from the August correction, and looked to be setting up nicely. I posed the thought that after a short period of consolidation, that it would likely breakout to new highs.

Well, today it did stage a breakout, as the stock rallied to new highs before selling off a bit into the close. Volume expanded noticeably, which is a good sign when guaging the strength of a breakout.

FWLT has solid fundamentals, good growth, and long-dated projects. If the market stays reasonably healthy, I think FWLT should continue to move into new high ground.

long FWLT

Trade Update - Las Vegas Sands (LVS)

I have not been shy about my bullish thesis on LVS since it was bottoming back in May (see archives). Recently, I tempered my enthusiasm after the stock really began to pick up steam on the upside.

Over the last 2 days, the stock has gone parabolic (straight up), and looks overdone to me. As a result, I have taken profits on all my positions in the stock.

Among the big casino stocks, Wynn Resorts (WYNN) actually reported the strongest quarter of earnings last quarter. That stock has also enjoyed a monster run. But on a pullback, I want to swap into WYNN going forward, as I think it could offer more upside.

These stocks are plenty volatile, so I'm certain we will get a pullback at some point. As usual, patience is key.


Market Shrugging Off Record Oil Prices

I am a bit surprised to see the market bouncing in the face of record oil prices ($79). You know that if the market was down today, CNBC would be all over the place saying that record oil is hurting the market.

But it is a strange twist in the market lately that when the oil patch rallies, the overall market follows. Guess everyone is involved in the oil trade, huh?

The semis are lower after Texas Instruments (TXN) offered tepid guidance. I think given the strong comments out of many chip companies, expecatations were certainly higher to TXN.

Asian markets were mixed overnight, while the Yen is slighly lower for the 2nd day. Bond yields are slightly higher, with the 10-year yield at 4.41%.

Tuesday, September 11, 2007

Strong Bounce On Little News

The market is getting a nice bounce in early trading, although you know by now that I am often skeptical of strong market opens. I prefer to see a market that opens flattish and rallies into the close.

Wireless equipment maker Ericsson (ERIC) issued a strong forecast, and disk drive maker WDC also raised its guidance. So those are some positive developments that are helping the tech sector at the margin.

Goldman Sachs (GS) put in a big reversal yesterday, and helped lift the whole group. The brokers are up again this morning, by +1.4%. GS reports earnings tomorrow, and the whisper has gone from expecting a big miss to thinking that the company may report an upside surprise due to a bump in trading revenues on volatility. That would be something.

Asian markets were mostly higher overnight, save for China which plunged on inflation worries. Bond yields are steady, with the 10-year yield near 4.35%. And oil is down slightly, with little out of the OPEC meeting, trading near $77.

long GS

Monday, September 10, 2007

Market Finds Its Footing

The market saw some heavy selling pressure this morning, but it looks to have peaked. The sentiment indicators I follow showed some extreme readings, which may have helped stem the selling tide. To wit:
  • The ARMS Index hit 2.46, a high reading
  • The put/call ratio hit 1.42, another extreme reading
  • The ISEE fell to 59

After the selling ran its course, GS bottomed and rallied back into positive territory. Growth stocks overall held up well, and the NDX soon rallied back into the green as well.

There is still a lot of trading left for the day, so anything could happend. But so far, this is constructive action.

Here are some stocks making notable, high-volume moves:


long AAPL, GS

Monday Morning Musings

The market got a small bounce at the open, but has succumbed to more selling pressure in the first hour of trading. This despite some positive news in the chip sector. INTC raised revenue guidance for Q3, citing stronger than expected worldwide demand.

Other than that, not much in the way of news. Notably, there were no big deals announced over the weekend. As for Asia, their markets were lower following the selloff here in the U.S. on Friday. The spike in the Yen also hit markets across the pond.

Bond yields are lower again this morning, with the 10-year yield now down to 4.32%. Oil is also lower this morning, trading near $75.75.

The brokers begin reporting earnings this week, which should alleviate some of the lingering concerns about how bad their quarters are going to look. I wouldn't be surprised to see some of these stocks bounce once earnings are reported and out of the way.

The market is quickly working off its overbought condition, and should be able to bounce. There is a big Jewish holiday mid-week, which could keep trading somewhat thin. I am expecting a choppy week overall.

long INTC

Friday, September 07, 2007

Investor Angst On The Rise

The market continues to selloff today, and it does not look like we will get much of a bounce into the close. But this is part of the process of working off the overbought condition, even the selloffs are somewhat severe.

On the plus side, our investor anxiety indicators are spiking, a necessary ingredient to help stem the decline. To wit:
  • Bears exceeded bulls in the AAII survey for the 4th straight week
  • The ARMS Index spiked above 3.25, a rare occurrence
  • The put/call ratio is elevated at 1.10
  • The volatility indexes are surging more than +10% today

Many are beginning to worry that the Fed rate cuts won't help. I am not in that camp. I believe that they will help, and that the financials will rally and boost the overall market. Patience is key.

Economists Off The Mark A Little With Jobs Forecast

I fully thought that we would see a weak payroll report today, at least weaker than the 100k jobs forecast. But I didn't think we would actually see job losses.

But that is what happened. The economy lost -4000 jobs last month, with notable weakness in the housing and construction industry. This marked the first negative reading in 4 years, since August 2003.

That caused some weakness at the open of our markets, but the silver lining is that it takes much of the doubt away about whether or not the Fed will cut rates. They will cut rates. The debate now is if they will cut 25 bps or 50 bps. Goldman Sachs (GS) was out this morning saying that they think the Fed will cut 50 bps.

While everyone will be solely focused on the jobs report today, don't overlook the added pressure of the rising Yen. We have talked a lot here about the concerns regarding the Yen carry-trade. Well, this morning, the Yen is gapping higher again and this is likely exerting just as much pressure on the financial markets.

All of the above is causing bond yields to fall further. The 10-year yield is now down to 4.39%, and from both a fundamental and technical standpoint, looks to be going lower still.

I wonder where all of those bears are now that were saying there was no way the Fed would cut rates? Of course, they will simply change their tune and say, "Ok, the Fed may cut. But will it matter?" The answer is-- yes.

Thursday, September 06, 2007

Stock of the Day

The market reversed its early losses, and appears to be firming heading into the closing hour. Although it probably wouldnt' take too large of a sell program to knock it back down.

Among some of the notable stocks I would highligh that have shaken off early declines include GS and AAPL. Both have reversed higher, which is a good sign. AAPL is a bellweather for tech, and GS is the most important broker stock, imo.

Also, the stock I highlight in the chart above is Foster Wheeler (FWLT). This stock has fully recovered from its August swoon, and is now right back near its former highs.

I think the stock could consolidate around these levels for a bit, and might test support at its 50-day again if the market weakens, but it should soon break back to new highs as the fundamentals for this engineering and construction company remain solid.


Still Working Off Overbought Condition

Considering that the market moved deeply into overbought territory, and the SPX ran into resistance at its overhead 50-day, it should not be surprising to see a pullback here.

This morning, there are lots of cross-currents in the market. There was some good economic news, with productivity revised higher and unit labor costs revised lower. There were also some solid retail sales reports, including WMT, TGT, and many teen retailers.

On the flip side, military tensions are heating up between Israel and Syria, and this is helping push oil prices up over $1.50 to $77.25. And LIBOR is climbing for the 11th straight session to fresh 7-year highs. So the credit crunch concerns are still there.

The ECB met and left its lending rate steady at 4.0%. For its part, the Fed injected $32 billion of liquidity into our system this morning. The rate cut debate is intensifying, but I still believe they will cut.

The 10-year yield broke below the psychological 4.50% level yesterday, and is steady near 4.47%. Asian markets were mostly higher overnight.

The biotech stocks are the early leaders so far, followed by the energy complex. Homebuilders and brokers are lagging.

Wednesday, September 05, 2007

Technical Update: Head & Shoulders Bottoms?

Despite today's pullback, I think the recent action in the markets has been constructive. Last week, the market had some strong advances on rising volume, demonstrating marked accumulation.
If you look at the charts above, you could make a case that the indexes are carving out 'head and shoulder' bottoms. I think this adds to the notion that although volatility will persist, the odds of breaking to new lows are becoming less likely.
Today, the volatility indexes are spiking higher by more than +10%; the ARMS Index is high at 2.03; and the put/call ratio is elevated at 1.27. These are high levels of angst on the part of investors.
Should the market fail to break to new lows, there is likely a lot of new short positions that could pressure managers to cover, thus driving the market higher. Without another significant pullback, performance anxiety could set in again like last year, which turned out to be a very good Q4.

Fresh Round of Credit Concerns Hit Market

Another fun night in LA-LA land. Day 2 of no power for the Kahn family. Luckily, some friends put my whole family up for the night. Nice to know someone with an extra crib, right? Ugh. If ever I thought there was a need to updgrade the power grid, it's now!

Back to the markets. A fresh round of credit concerns is hitting the markets this morning. A Japanese govt. official stated his worries that the subprime issues could spread more.

Also, LIBOR in Europe is spiking to its highest levels relative to our fed funds rate since 9/11, as problems in the commercial paper market increase. The ECB will need to inject liquidity like the Fed, maybe even more so.

With the market up nicely over the last four days, the initial selling was also probably some good old fashioned profit taking. But a very weak housing report caused the selling to accelerate, as pending home sales plunged -12.2% last month (20% in the West).

The ADP employment report estimated only 38k new jobs last month, a low figure.

All of the above support the thesis that the Fed needs to cut rates, and will do so at its next meeting. The question is how much will they cut, meaning could they do another 50 bps in the discount rate, along with a cut in the fed funds rate?

Most measures of investor anxiety are spiking this morning, which could help the market bottom and pare its losses into the close. I think the recent action in the market has been constructive, and that we will not test the 8/16 lows.

Tuesday, September 04, 2007

Happy Tuesday

Hope you are having a good morning. After a 5+ hour flight home yesterday with just me and my 3-yr old daughter, I came back to 100 degree heat in LA and no power! And let me tell you its no fun being without power with a 1-yr old and 3-yr old in that kind of heat.

SoCal Edison said that 29,000 homes are without power, but a spokeswoman on the radio this morning said she felt the company was handling the heat wave "pretty well". Huh?!?

Anyway, there's no room for whining in the market, so let's get to it. The market had a solid week last week, with a high volume rally on Wednesday that completely reversed Tuesday's weakness. The Nasdaq handily outperformed the S&P 500 for the second week in a row.

This morning, the Nazz is outperforming again. AAPL got a big upgrade from Piper Jaffray; KLIC raised Q4 guidance; and Bear named YHOO its top pick. This has the NDX up over +1%, and the semis are the strongest sub-sector of the market.

It is also a good sign that despite a big downgrade of the banks by Merrill, they are still positive, and the brokers are the 2nd strongest sub-sector so far.

Asian markets were mostly lower overnight, on profit taking after last week's rally. And the Yen is moving lower again also, which should ease some carry-trade fears.

Oil is still moving higher, with crude prices around $74.65. But the bounce-back in energy stocks mostly coincided with the overall rise in the market last week.

Bond yields remain steady, with the 10-year yield around 4.57%, a low level relative to the fed funds rate. I have not fully gone through Bernanke's comments from last week, but despite his need to save face, I still believe it is likely that they will cut in September and that it will not be the only cut we see this year.