Friday, November 30, 2007

Mixed End For Stocks On Top of Solid Week

The markets closed mixed today, with the S&P 500 up on the day, but DELL and RIMM dragging down the tech stocks and the Nazz with it.

For the week, the Nasdaq outperformed the S&P for the third straight week, and 9 out of the last 10. Growth over value?

The S&P 500 is now +4.4% for the year. Interestingly, it fell by that same amount (-4.4%) in November.

I like what looks like a new downtrend in the FXY, as that has correlated well with a rally in our markets. I also liked the action of the financials today, even as it was likely a short-covering bounce.

But look at the action in Wells Fargo (WFC). That stock was up a whopping +6.2%, and it isn't heavily shorted. I think for the most part the financials have seen their lows for the year.

I am staying bullish.

long WFC

Goodbye Evil

Evel Knievel died today at the age of 69.

My friends and I raced dirtbikes growing up in the 70s, and at one point I admit I owned an Evel Knievel dirt bike. I also think I owned some sort of motorcycle toy that jumped stuff.

But I remember taking turns jumping our dirtbikes over whatever we could, imitating Evel.

The bike that this guy used to jump was nothing like the dirtbikes of today. It was heavy, and unweildy. I wouldn't have jumped 2 cars on a bike like his. So I have to give him a lot of credit for being a skilled rider, not to mention the hype he generated around his persona.

As for the Snake River rocket jump, I can't really comment. He was crazy.

Market Gets More Good News

The market is getting a nice bounce in early trading. But this is the Friday, and the last day of the month, so the question is can it last?

Dell reported disappointing earnings last night, and that is weighing on the Nasdaq. But the financials are flying as reports swirl that the Bush Admin. is in talks with major financials institutions to implement a plan that would temporarily freeze rates on subprime loans to stem the tide of foreclosures and ease the credit crunch.

Also, last night Bernanke gave a speech were he was more dovish than previous times, and this lends further credence to the notion that the Fed is prepared to cut rates further.

There was some benign inflation news this morning with the core PCE coming in in-line, and the yield on the 10-year is back near 4.00%. Also, oil is falling again, breaking under $89 for the first time in roughly a month. This should help consumer sentiment.

And the Yen is down again also, which is my favorite indicator right now. Asian markets were up again overnight too.

The markets likely ran into some resistance this morning. For the SPX, we expected resistance around 1490, and around 2700 for the Nasdaq. Those levels were touched this morning, so a pullback from there is normal. The key is to see those levels exceeded fairly soon to keep this rally alive.

Thursday, November 29, 2007

A Consolidation Day Would Be Just Fine

After yesterday's surge, a day of consolidation would be just fine. The market never moves back up in a straight line, and building a base supports the next advance.

The market opened lower this morning, but has since pulled back closer to the flat line. Sears (SHLD) posted horrific earnings (or lack of), and the stock fell -14%. But LuluLemon (LULU) reported good earnings, and its stock is higher.

There also was an explosion in Minnesota that caused the closing of four pipelines, but two are now back up. This caused a quick spike in oil prices. But the Dept. of Energy said it will make the Strategic Petroleum Reserves available if necessary.

3Q GDP came in at +4.9%, a strong showing. Its hard to believe we are talking about the possibility of recession after growth like that, but this data is backward looking, not a predictor of the future.

Asian markets soared overnight, as I suspected. Hong Kong and Shanghai both gained more than 4%, which is the equivalent of a +500 Dow gain.

The ISEE is low again this morning (96), while the ARMS Index is high at 1.11. This should help support the market here.

Wednesday, November 28, 2007

Why Is This Day Different From All Others?

Today was a very solid day in the market. Some investors are likely wondering if this is just another oversold rally that will fade? Fair question, but there are some things that feel different about today.

This was the first time the market staged a 2-day rally since October 29th. Volume rose substantially today, making it another accumulation day as well. Moreover, this was the biggest 2-day rally in the S&P 500 since October 2002. Does that month ring a bell?

I have been talking incessantly about the Yen, and how we needed to see its uptrend halted. Today was a step in the right direction, as the Yen ETF (FXY) gapped lower and has been down 2 days in a row. Here is the chart:

In technical terms, the gap lower today left was is called an "island gap". You can see those last 4 days that look like a small island left floating near the top of the chart. The last time this happened was in mid-September, just prior to a nice rally in the market. Further weakness in the Yen would be very bullish for the market.

Another indicator that caught my attention was the volatility index (VIX). The VIX also gapped lower today, a good sign. The VIX has been in an uptrend, while the market has been slipping lower. Today looks like that uptrend has been broken. Again, a lower VIX should correspond with a rally in the market the same way it did back in mid-September.

Despite the strong rally, retail option players remained bearish. The ISEE Sentiment Index finished at the depressed level of 96. This indicates that there are still plenty of bears left to be converted and help drive stocks higher.

And leading stocks had very strong bounces, another good sign. Look at the outsized moves in names like RIMM, ISRG, GS, NYX, FLWT, POT, AAPL, BIDU, SPWR, WFR, etc. I am not calling for smooth sailing from here. It's never that easy. But I already called a bottom last week, a few days early it seems. The market held above its August lows, and I still do not think those lows will be broken.

BIA has long positions in RIMM, GS, NYX, FWLT, AAPL, SPWR, and WFR

One Fed Head Finally Gets It

The market closed at its highs yesterday, and is getting another nice bounce this morning. I don't like to see too much strength, too early in the day, so it remains to be seen if this rally holds.

I have been railing against the Fed heads for not getting it. But this morning, Vice Chairman Kohn gave the futures a big boost by saying that the Fed must be "flexible and pragmatic" in setting policy. That was pretty much a green light endorsing further rate cuts, and the market took it to heart.

Financials are up a lot this morning, despite the news that FRE is cutting its dividend by 50%, and WFC is taking a $1.4 billion charge due to loan loss provisions on home equity loans.

On a positive note, comScore reported that Cyber Monday sales rose 21% to a record $733 million. I guess Christmas (and Hanukah) are still going to happen this year.

Asian markets were mixed overnight. I was a bit suprised they were up more. But the Yen is trading lower this morning, and that is helping. The volatility index (VIX) has also gapped down, another positive.

The 10-year yield has also bounced back from Monday's plunge, currently hovering near 3.99%. And oil is down again, below $92, and looking like it has peaked for the year.

Tuesday, November 27, 2007

Fed Governor Sounds Slightly More Dovish

The Philly Fed Governor spoke today, and made some comments that sounded slightly more dovish to me:
  • Philadelphia Fed's Plosser says economy to grow more slowly in coming months, despite rate cuts
  • Fed's Plosser says inflation data encouraging, but still a risk
  • Fed's Plosser says would need to adjust rates if economic outlook revised upward
  • Fed'S Plosser says unemployment may rise to about 5 percent next year
  • Fed's Plosser says expects decline in housing activity to bottom out by end of Q2 2008
  • Fed's Plosser says financial problems could lead to more significant spillover
  • Fed's Plosser says rise in oil, commodities prices suggest significant inflation pressures exist
  • Fed's Plosser says rate cuts run risk of higher inflation and inflation expectations

I think the Fed is so behind the curve that they need to do 50 basis points in December. They can't worry about inflation right now. Or maybe their plan is that a US recession would take care of inflation by itself?

No Morning Blogging

** Due to a family emergency, I will not be doing any blogging this morning. I will post some comments later today. **

Monday, November 26, 2007

Are We Having Fun Yet?

Today was another example of why I hate strong market opens. The market basically peaked for the day in the first half hour of trading, and closed at its lows for the day.

Bond yields plunged, with the 10-year yield falling all the way to 3.85%. It is clear that there is strong concern out there about the possibility of a US recession combined with an overall global slowdown. No other way to explain the plunge in yields.

Oh, but the Fed will tell us again this week that the risks of inflation are still present. The bond market is mocking the Fed, and its too bad these guys can't get fired for their cluelessness.

The market simply can't rally lately without the financials. Even as we are deeply oversold, and due for a big bounce. Sentiment is growing increasingly negative as well, reaching levels previoulsy seen at prior market bottoms.

I sold my emerging market plays today, as those investments are still up a lot ytd, and look like they still have downside risk. But I still believe we are due for a nice bounce, even as I may have been early in calling for it last week.

Look at the spike in the VIX today compared to prior market bottoms. Ditto for the 10-day put/call ratio, and the AAII bull/bear survey as well. And don't forget relative valuations, which now show stocks overall to be as cheap as they were at the market bottom in 2002.

Monday Morning Musings

The market got a bounce at the open, but it is currently under pressure. The financial sector is lower this morning, and the trend lately is that the overall market has had a difficult time lifting without participation from the financial sector.

CNBC reported that Citi (C) is preparing for massive layoffs. Also, Fannie (FNM) and Freddie (FRE) were downgraded by UBS this morning. The banks and brokers are down roughly -2.0%.

ShopperTrak said that Black Friday sales rose +8.3% from year-ago levels, higher than was anticipated. But UBS still expects holiday sales this year will be the weakest since 2002. Ouch.

Asian markets soared overnight, rising 2% - 4% after the US bonced on Friday. The Yen is flat this morning, but still at lofty levels.

Oil is lower this morning, on rumors that one OPEC country could announced a production increase. And bond yields are slightly lower, with the 10-year yield struggling to stay above 4.00%.

Friday, November 23, 2007

Too Little, Too Late

Nice rally today, but the market still finished lower for the week. The SPX fell -1.26%, while the NDX was down slightly less at -0.96%.

The positive thing about the price action today was that the indexes closed above Wednesdays highs, showing some strength. Upside volume was 93% of total volume on the NYSE. Also, the Nasdaq was able to recapture its 200-day moving average.

But alas, as today is a half day with very light volume, I would not try to glean too much from it. Next week we should get a better idea if the market is ready to stage a bounce.

Brokers led the way today, +3.95%. Energy stocks also fared well. Small-caps led the indexes, with the Russell 2000 gaining +1.99%. And GOOG is back above $675. I read an article today where an analyst was talking about GOOG at $1200 in 2009. Lotta time still left, buddy.

I have mentioned the Yen as public enemy #1. Watch that one closely. Another indicator I am eyeing is the VIX. It has made a 3rd lower high, like it did in August. A move lower in the volatility index would also bode well for a tradeable rally.

long GOOG

Small Bounce On Shortened Trading Day

The market is getting a little bounce at the open, but bulls would like to see some real conviction behind it after the recent drubbing the market has taken. This might be a tall order on a shortened trading day like today, where many traders have likely taken the day off. But not yours truly.

There was some news that E-Trade (ETFC) is considering selling itself. Also, GMAC is looking to shore up its ailing mortgage lending business. These pieces of news are helping the financial sector lead the market this morning, with the brokers up the most so far.

Asian markets were mixed overnight, with bargain hunting in Hong Kong and some selloffs elsewhere. The Yen is up again, which I hate to see more than anything.

Oil is roughly flat, trading above $97. And the 10-year yield has bounced slightly, hovering at 4.03%. I would like to see this one trend higher as well, to quell fears of an impending recession.

Most of the focus will be on the retailers today, as it is "Black Friday". I have some shopping to do, but the thought of going near the malls today is frightening. At least the Colorado-Nebraska game is on soon. Go Buffs!!

Wednesday, November 21, 2007

No Follow-Thru From Yesterday's Rally

My colleague Doug Kass is fond of saying "this market has no memory from day-to-day". That is certainly the case today. I would have thought there would be some follow-thru from yesterday's late rally, but such is not the case.

Asian markets plunged overnight on concerns about growth in the U.S., their largest export market. Also, there seems to be a big "risk aversion" trade on, as investors embark on a flight-to-safety of U.S. Treasurys, pushing the 10-year yield down to a new low of 4.00%. Silly Fed.

The risk aversion trade is also pronounced in the yen carry trade unwind. Look at the chart of the FXY and you can see what I'm talking about. The spike higher in the yen is exacerbating the selling pressure, imo.

There are lingering concerns in the financial sector as rumors abound that AIG might have more write-downs. Also, oil is spiking higher, and touched $99 this morning. This is finally starting to weigh on consumer psychology, and the retail sector is lagging.

On the plus side, the ARMS Index spiked this morning above 2.25, a very high level. And the put/call ratio opened at a whopping 1.94! Clearly, this is not sustainable. We are heavily oversold, and while the market can always get more oversold, I still think a nice bounce is in the cards.

Tuesday, November 20, 2007

Now That's Volatility

Today looked like it was going to be a real bummer, as the market gave up all of its early gains and went on to new correction lows. But low and behold, the market then staged a late rally to come all the way back to positive territory.

The Dow, if you look at how much it was up, then down, then up again, logged over 400 points of travel today. That's volatility. Volume spiked also. But with the markets finishing in positive territory, we could be seeing the making of a short-term bottom.

Here are some interesting stats:
  • There were 614 new lows on the NYSE today- selling exhaustion?
  • ISEE fell to 96;
  • CBOE put/call finished at 1.12
  • ARMS Index topped 1.40 intraday
  • VIX fell -4.3%
  • Europe closed higher across the board
  • Asia put in big upside reversals

If you look at the daily chart of the DIA, SPY, IWM, etc., you will notice what we call "long tails". That is when you have a big intraday drop, but the stock/index rallies to close near its highs for the day.

Though not as pronounced, this type of action is similar to what we saw on August 16th, the last tradeable bottom. This is why I think that we may have put in some sort of near-term low today. I know I'm sticking my neck out, but that's how my gut feels.

FOMC Minutes Show Rate Cut Was 'Close Call'

The market has been brutal in its inability to hold onto any sort of gains that come early in the day.

The financials really took this market down, as the XLF fell and rumors surfaced that Countrywide (CFC) might file for bankruptcy. I don't buy it, but you can pretty much rumor any financials stock lower these days with minimal effort.

Also, the FOMC minutes were released and showed that the last rate cut was a 'close call':
  • "Most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity,'' according to the minutes.

The Fed lowered it's '08 growth forecast to as low as 1.8% vs. the prior 2.5% - 2.75% in June, and also lowered its inflation forecast to 1.7% to 1.9% from 1.75% - 2% as FOMC members believe the decline in inflation since June is "real".

The odds are pretty high (currently 84%) that the Fed cuts again in December, even as they jawbone the market that they don't want to cut. The bond market is signaling that they are behind the curve, and I expect they will comply, even as they probably don't want to considering the dollar.

Market Bounces, But Freddie Weighs On Financials

The market closed basically at its lows yesterday, and this is a patter we need to see reversed. Yesterday's decline wiped out Friday's gains, but did not take out last week's lows. The Nasdaq again found support at its 200-day moving average, while the S&P 500 is well below its 200-day.

Asian markets bucked weakness in the U.S. yesterday and closed mostly higher. Also, HPQ and Nordstrom (JWM) both reported better-than-expected earnings last night. This helped our futures point to a much stronger open early this morning.

The market did open higher, but a report of large losses from Freddie Mac (FRE) dampened the enthusiasm. It is also weighing on the financial sector, for a change, right?

FRE recorded losses for the quarter totaling $2.7 billion. They also said they are considering reducing their dividend, and have hired investment bankers to look at capital raising alternatives. Fed, are you listening?

Oil is back up above $96, which is giving a big boost to the energy complex. Also, XOM got a nice upgrade to Buy from Neutral at UBS. And the 10-year yield is still very low at 4.10%, up slightly on the day.

long XOM

Monday, November 19, 2007

Monday Morning Musings

After the strong finish on Friday, I sure didn't expect this this morning. Nor did I expect to arrive at my office Monday morning to find all of the power out and the building non-functional. Luckily, I live close by, so I turned around and headed back home. Frustrating.

The markets are selling off again this morning, after Goldman Sachs (GS) downgraded Citi (C) to Sell, and also downgraded a number of other brokers. This started the selling in the financial sector.

There is also rumors about more unwinding of the yen carry trade, as the yen is higher this morning. And this seems to be taking its toll on some of the groups that are still up the most this year, such as the commodity/mioning stocks.

Also, there was some news that Chinese regulators have asked Chinese banks to cool lending to avoid an overheating of their economy. This helped cause a selloff overseas, as the Asian markets were down nearly across the board overnight.

There was some good news in the form of renewed M&A activity over the weekend. Celgene (CELG) bid Pharmion (PHRM) for $2.9 billion, SABMiller offered $1.2 billion for Grolsch in the beer industry, and TomTom offered $4.2 billlion for TeleAtlas in the GPS arena. Normally, this would have a positive affect on the market, but this morning it doesn't seem to matter much.

The ARMS Index is very high currently, and the put/call ratio is back up near extreme readings after being high all last week. Let's see if this can help stem the selling, and maybe the market can firm a bit into the close.

Sunday, November 18, 2007

Weekly Wrap

Here is a the weekly recap from

Amid ongoing concerns about the health of the financial sector and the overall economy, the stock market finished the week slightly higher.

The week, however, began on a negative note as the market lost ground Monday amid continuing credit market turmoil.

It was a particularly dark day for E*Trade Financial (ETFC). The online brokerage said late last Friday that it expects more write-downs on its holdings of mortgage-backed securities and would no longer meet its previous earnings forecast. Its shares plunged nearly 60% during the session. A Citigroup analyst suggesting there was a 15% probability of a bankruptcy filing exacerbated the selling pressure. E*Trade called the suggestion "irresponsible."

In other news, IBM (IBM) announced a $5 billion all-cash offer to acquire Canadian software company Cognos (COGN), reflecting ongoing consolidation activity in the space, while private equity giant Blackstone Group (BX) reported lower third quarter earnings as charges related to its IPO weighed on results.

Snapping a four day losing streak, stocks rebounded sharply on Tuesday, led by strong gains in technology shares and reassuring words from Goldman Sachs' (GS) chief executive that the investment bank won't be announcing a write-down like many of its peers.

Retailers also performed well during the session, following a stronger than expected earnings report and outlook from Dow component Wal-Mart Stores (WMT). A drop in oil prices Tuesday also helped ease concerns about consumer spending ahead of the holiday shopping season.

The recovery in stocks was short-lived, though, as persisting credit worries once again pressured shares on Wednesday.

London-based HSBC Holdings PLC (HBC), for its part, said it will take a $3.4 billion charge in the third quarter due to mounting losses in its HSBC Finance consumer lending business in the U.S., which continues to struggle with the fallout from the housing slump.

That helped offset some mildly encouraging economic news. The October Producer Price Index was up 0.1%, versus an expected 0.3% increase, and core prices were unchanged from the previous month. Meanwhile, October retail sales rose a modest 0.2%, but were in line with expectations and didn't decline as many had feared.

Stocks continued their slide on Thursday, as investors weighed a steady read on consumer inflation and a drop in oil prices against ongoing credit market worries. Financial stocks were hit hardest, giving back much of the gains from Tuesday's rally with concerns surrounding Fannie Mae's (FNM) accounting contributing to the sell-off.

The Consumer Price Index rose 0.3% in October, matching last month's rise and meeting economists' expectations. The core CPI was up 0.2%. That was also in line with expectations and leaves the year-over-year increase at a still low 2.2%. Meanwhile, a report by the Philadelphia Federal Reserve Bank showed an unexpected rise in its November index of manufacturing conditions in the region.

A disappointing report from Applied Materials (AMAT) weighed on technology stocks, while mixed results from Petsmart (PETM) and a lowered outlook from J.C. Penney (JCP) added to worries about consumer spending and a weak retail environment.

Adding to investors' worries, the Federal Reserve reported Friday that industrial production fell 0.5% last month, due in part to continued problems in automotive and housing-related industries. That was much weaker than the 0.1% gain that had been expected.

Meanwhile, a profit warning from FedEx Corp. (FDX) and disappointing outlooks from Starbucks (SBUX) and Kohl’s Corp. (KSS) further dampened the outlook for the economy and weighed on investor sentiment. Despite these issues, a rally in the final half hour enabled the market to close the week on a positive note.

Friday, November 16, 2007

FedEx Lowers Earnings Guidance, Cites Fuel Costs

The market is under more pressure in early trading.

FedEx (FDX) lowered its earnings guidance. But it cited rising fuel costs as the main reason, rather than a slowing economy. Kohl's (KSS) and Starbucks (SBUX) both met earnings estimates, but gave downbeat guidance, and the stocks are lower. Retailers are so out of favor right now they will likely start to bottom.

Cisco (CSCO) upped its stock buyback by $10 billion. I think that given the relative valuations between stock and bonds right now, we will continue to see a lot of this.

Asian markets were lower overnight, following our lead from yesterday. Oil is up this morning, trading near $95. The energy stocks are mixed. And bond yields are down again, with the 10-year yield down to 4.14%.

The Fed staying at 4.50% when every yield along the curve is well below that is laughable in my opinion. Unless, of course, you think a bunch of central bankers are better forecasters than the global bond market.

Thursday, November 15, 2007

Bond Market Growing More Worried About Recession

The bond market is growing increasingly worried about the prospects of recession. That is the screaming signal from the drop in the 10-year yield today, and the reason that the stock market sold off so much.

The 10-year yield dropped to a fresh 2-year low of 4.16%, and economically sensitive stocks were sold across the board. Everything from financials to energy stocks were hit.

I am not in the recession camp, but if this market can't lift, it will likely mark a shift in character. Still, I think it is a little early to call this bull market over.

And with every single yield along the curve below 4.2%, what is the Fed doing with the fed funds rate at 4.50%?!?

Here is what the Fed's Hoenig had to say today in his comments:
  • Fed's Hoenig says U.S. economic outlook uncertain
  • Fed's Hoening says impact of housing on economy wider than merely 6% share of GDP; says not seen decline in U.S. housing prices now being seen since early 1990s
  • Hoenig says global growth, demand for U.S. goods has helped mitigate impact of housing decline on economy
  • Hoenig says over next year expect GDP to grow around 2%
  • Hoenig says dollar's decline could add to inflationary pressures
  • Hoenig says was very supportive of Sept rate cut; says "right now I'm more in a wait-and-see mode"
  • Fed's Hoenig says weaker data, housing mkt may require Fed action
  • Hoenig says Fed ready to provide liquidity to market as Fed did in August

Is It The Weekend Yet?

The markets have been bouncing all over in early trading today. In case you missed it, yesterday the markets got hit with a sharp late day selloff. The culprit looks to be this news out of GE Asset Management.

GE announced that its GEAM Trust Enhanced Cash Fund ran into some trouble on its asset-backed securities and had to liquidate some holdings. This is a $5 billion fund, and when big investors went to redeem, GEAM told them they could get 96 cents on the dollar. This is not good news for a cash fund, and was likely the spark for yesterday's selloff.

Chip-maker Applied Materials (AMAT) gave weak guidance yesterday when it reported earnings, but the stock is up this morning, which is nice to see. Maybe the semis are finally oversold.

Asian markets were lower overnight. Oil is down this morning, trading near $93. And bond yeilds are lower with the 10-year yield back down to 4.24%.

Let's see if the market can make a stand and close firmly today.

long GE (client accts)

Wednesday, November 14, 2007

Trade Update: MEME Electronic (WFR)

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

There is no real notable news or action in the stock today, but I was looking over my list of stocks that reported strong profits in the most recent quarter.

Further, I wanted to find examples of stocks that gapped higher after reporting earnings, but have since pulled back due to the overall weakness in the market. WFR fits this bill to a "T".

The fundamentals at the company remain solid, and I still believe that the stock is undervalued relative to its growth prospects. The stock trades at a P/E of 17x next year's earnings estimates. This despite the fact that earnings are expected to grow +27% next year, and sustain that growth rate for the next several years.

Solar stocks have been on fire recently, and WFR is one of the arms dealers in the war. It supplies the materials from which many of these polysilicon (solar) wafers are made. And the company recently extended two of its long-term supply contracts, so visibility looks good.

I think the stock has a good 20-25% upside from here, for the patient investor.

long WFR

More Benign Inflation Data Boost Markets

Boy, that was some rally yesterday, right? I looked at some historical sites, and it didn't make it into any of the top 10 historical market moves, but it was still impressive.

This morning, the market got some more positive inflation data when the core PPI came in unchanged (vs. +0.2% consensus). Retail sales were also pretty good.

Bear Stearns (BSC) commented that it thinks the worst of the mortgage markdowns are behind it. This helped the stock pop higher, and also boosted the broker/dealer index, which is the leading index this morning.

The markets have eased off their initial pop, but are still hovering in positive territory. Asian markets were up huge overnight, with China and Hong Kong gaining nearly +5%. Also, the Yen is lower today, which is a big positive.

Oil is up today, trading near $93.43. This is helping the energy stocks. And bond yields are a bit higher, with the 10-year yield near 4.27%. I want to see this yield rise a bit just as an indication that the bond market doesn't think a recession is a foregone conclusion.

Last, Bernanke made some positive comments this morning, not about the economy but about how the Fed will try to increase its transparency going forward with greater communications. As the market hates uncertainty, I think any move to add more clarity into the Fed's process is a positive for the markets.

Tuesday, November 13, 2007

Strong Into The Close

The markets have been able to maintaing their bid (remain strong) all day, and have even strengthened a bit. Historically, when the markets are strong all session, they usually close at their highs. (I hope I don't jinx them)

The mortgage insurers are spiking on the news that Berkshire Hathaway may provide some capital for bond insurers. This would really help.

AAPL is up nearly +10% on news that the company is in talks with China Mobile (CHL) to bring the iPhone to China.

Goldmans (GS) is up +8% on the reiteration that they will not be taking an additional write-down. This is helping the broker/dealer index lead today, +4.8% so far.

And the oil service stocks are starting to bounce, even though oil has been down as much as $4 today.

Another big positive is that the CBOE put/call ratio is still really high today at 1.15. This could be due to the fact that options expiration is Friday, and traders are rushing to take profits on their puts. But this could also help boost the markets into the close.

long AAPL, GS

Market Bounces on Wal-Mart Earnings

The market is getting a big bounce this morning in early trading. WMT topped consensus estimates and its stock gapped higher. But the overall strength this morning is likely due to the fact that the market finally got so oversold.

Goldman Sachs (GS) announced at the Merrill Lynch (MER) conference that it will not take an additional write-down, and that it remains net short the subprime market. That helped push the stock up +6%, and lifted the broker/dealer index.

Oil is down another $2, near $92. But the way these oil service stocks are trading, you would think oil had collapsed back into the $70s. I think two near-term opportunities to add money will be in the agriculture stocks and solar plays, which I will likely due via ETFs.

The RAG triumvirate (RIMM, AAPL, GOOG) is nicely higher. My big concern is just that this is too much, too early. You know how I prefer markets that close strong rather than open strong.

The volatility index (VIX) is falling -16% so far. The Yen is lower also, which is a big positive. So let's see if the bulls have it today, after a 4-day drubbing the likes of which hasn't been seen in five years.


Monday, November 12, 2007

Unwinding of the Yen Carry Trade

I just heard a commentator on CNBC start talking about the unwinding of the Yen carry trade as one of the reasons for the recent market weakness.

Readers of this blog know that I have been harping on this for weeks. A look at the chart above shows just how strong this Yen rally has been. But you can also see that it is now starting to look like it is getting overbought.

As those leveraged traders sell assets to buy back the Yen that they borrowed at low rates, they start by selling their weak holdings. But as things go on, and the market continues to weaken, they always wind up selling their big winners last.

With the drubbing of big cap tech last week, and the selling of the agriculture and commodity stocks today, I think we are seeing the final phases of that capitulation. From a contrarian perspective, this is a good sign in that it usually comes late in the market correction, meaning we should be closer to a bottom.

It has been painful to watch, and I am kicking myself for not taking some big gains when these stocks were higher in October. But hindsight is always 20/20, and if these stocks rebound and finish higher by year-end, it will not have been that big of a deal anyway.

Monday Morning Musings

So, I was looking forward to a nice weekend of Ohio sports to take my mind off the market drubbing last week. Ohio State couldn't get anything going and lost to Illinois, pretty much ruining their shot at a national championship. The Browns stunk in up against Pittsburgh, missing a last minute FG to tie it up. But at least I got to go to the Cavs. vs. Clippers game last night and watch LeBron bring home a win for the Cavs. One out of three, not so hot.

Back to the markets, the financials seem to be shrugging off more bad news this morning from the credit markets, which is a positive. E-Trade said it expects further credit losses to keep it from reaching its prior guidance.

IBM announced it will acquire Cognos (COGN) for $5 billion, but the news is not helping the overall tech sector that much. And oil is down over $2, which is pressuring the energy complex and probably weighing on the overall market.

Asian markets were down sharply overnight, while the Yen is spiking higher overnight. It should be no surprise that the sharp spike higher in the Yen last week was a result of the Yen carry trade unwinding some, and those folks likely were selling stocks in earnest. I think we need to see the Yen come down to reinstate a sense of calm to the markets.

The bond market is closed for Veteran's Day today, so don't look for any clues there. But with the financials shrugging off more bad news, I think the markets can rally today.

Friday, November 09, 2007

Markets Bouncing Heading Into Final Hour

The financials stocks caught a bid earlier, and that likely sparked some short-covering ahead of the weekend. I have to tell you, if I had been short a lot of these stocks, I would be happy as all get out to take some profits ahead of the weekend and enjoy my gains.

Citi (C) is up +3.7%, and Goldman (GS) is up +3.3% right now. And the mortgage insurers are rallying big off their depressed levels. This has helped the S&P 500 climb back almost to positive territory. Let's see how the final hour goes.

As far as sentiment, the volatility index (VXN) for the Nasdaq rose another +5% today to 33, its highest level since August. The CBOE put/call is high at 1.08, and the ISEE is below average at 121. The markets are also now oversold, and due for a bounce.

Here are some stocks that are making strong moves on rising volume today:

long GS, CROX

More Loan Losses In Financial Sector Weigh On Stocks

Two bits of news didn't help the market much at the open. QCOM reported disappointing guidance, which hurt an already weak tech sector. and Wachovia announced a $1.1 billion decline in its CDOs.

The Lehman Chief Global Bond Strategist said this credit crunch is worse than Long-Term Capital Management, and that it is the "deepest correction" ever in structured finance. But remember, historically financial crises turn out to good buying opportunities for investors in hindsight.

I see the big culprit this morning as the Yen. You know I have been focused on this currency, and it is spiking higher tomorrow. It is no coincidence that the 3-day surge in the Yen correlates to the 3-day drubbing in US stocks.

Oil is higher this morning, trading just north of $96. And the yield on the 10-year is down to 4.23%, reaching a 2-year low. The bond market continues to signal that the Fed is too tight here, and I hope they step up to add more liquidity to this credit crunch.

Thursday, November 08, 2007

This and That

Here are some additional notes from the Street this morning:
  • Bank of England holds rates at 5.75%
  • ECB holds its benchmark rate at 4.00%
  • RTP rejects a takeover approach from BHP
  • FSLR boost guidance materially; stock up +33%
  • HANS misses earnings estimates; stock down -30%
  • WFC authorizes additional 75M share buyback
  • CIBC says buy CSCO on post-Q weakness
  • Citi upgrades FWLT to Buy
  • Several firms raise price target on SPWR (Morgan Stanley=$175; Lazard=$185; Wedbush=$194)


Bernanke Comments

Here is a brief summary of some of Bernanke's prepared comments for his testimony today:
  • Bernanke: says mortgage deliquencies to rise in coming quarters
  • Bernanke says FOMC in October meeting didn't see robust growth of Q3 sustained in near term
  • Bernanke: Repeats Fed to 'act as needed' on growth, inflation
  • Bernanke: subprime delinquencies likely to rise, more foreclosures may weaken housing, broader economy
  • Bernanke: Fed 'on schedule' for new mortgage rules in 2007
  • Bernanke says inflation pressure from oil may further restrain economy
  • Bernanke says Fed sees 'sluggish' growth in first part of '08
  • Bernanke says U.S. economy remains resilient but financial market volatility, strains have persisted
  • Bernanke: Dollar, Oil, Commodities to spur short run inflation
  • Bernanke says FOMC expects growth to 'slow noticeably' in Q4

Mixed Open For Stocks Ahead of Bernanke

After CSCO lowered its outlook last night, some traders I talk to were predicting a very weak opening for stocks this morning. And while the Nazz is under some pressure from CSCO, the overall market is pretty mixed.

Ford (F) and Morgan Stanley (MS) both reported smaller losses than expected, and the stocks are rallying. The latter is helping prop up the broker index as well. Given that Goldman Sachs (GS) has repeatedly denied any writedown rumors, I am surprised it is not up more. But it's still early.

Oil is up again this morning, topping $97. This is helping the energy complex. But bond yields are lower again, with the 10-year yield back down to 4.30%. Seems to be forecasting more of an economic slowdown.

Asian markets got whacked overnight, following our lead from yesterday. And the retails sales reports that came out this morning were mixed. Also, Bernanke is testifying today, which should be intersting.

long GS

Wednesday, November 07, 2007

Market Closes At Its Lows

The market got a little ugly into the close, as some panic selling surfaced. Measures of investor anxiety were elevated. The volatility index (VIX) spiked another +24%; the CBOE put/call finished at 1.08; and the ISE Sentiment Index was equally depressed at 108.

The financials really weighed on the market today. Congrats to Mr. Cuomo for shouting fire in a croweded theatre with his comments about Wamu (WM). Doesn't Mr. Cuomo get a lot of money from hedge fund contributions? Aren't those funds short the financials? Just asking.

We've seen this volatility all year, and it always ends the same way. The bears overreach until a short-covering rally ensues. Then the market finds its footing and goes back to new highs. As it stands, the Nasdaq is only 2.4% off its highs. And we care more about that index because it has been the leading index all year.

Tomorrow morning will likely be weak again. But Morgan Stanley's write-off after hours was not as bad as many had feared. Maybe that can spark a rally in the financials.

Regardless, I still believe that we will end the year at higher levels, and that this could be the last shakeout of any weak holders before some sort of year-end rally unfolds. I admit I have been a little early, but timing is rarely perfect.

Dollar Concerns and Oil Spike Weigh on Stocks

The market got hit with heavy selling in early trading after a high ranking Chinese official said that China might adjust its foreign currency reserves (read: sell dollars). This caused the dollar to fall, and helped contribute to the rally in commodities.

The Yen spiked to its highest levels since 8/16. You may recall that was the date that the market bottomed in the summer. So this is a significant level. You know that the Yen has been my chief "tell" for the short-term direction of the market. So if you are bullish then you want to see the Yen stop its ascent, and start coming back down. Wishful thinking?

Commodities continue to go crazy, and oil topped $98. It is almost hard to fathom that oil could touch $100. I remember laughing when people suggested that, but it just goes to show you, anything can happen in the markets. Fortunately, gas hasn't enjoyed the same rise. If gas prices shoot up, then I think the consumer will become far more concerned.

A couple of other news items this morning didn't help the cause. GM reported a much larger than expected loss and took a $39 billion charge. The WSJ wrote that Morgan Stanley (MS) may take an additional $3-6 billion write-down, which is reigniting credit concerns.

All of this overshadowed the positive economic data this morning, which showed that productivity rose at a 4.9% rate in Q3. That's very solid.

So I will be keeping my eye on oil and the Yen today. If those two can come off their highs and move lower during the day, then the market could find some solid footing. The last few days the market has been weak in the early part of the day, and stronger into the close. Let's see if the pattern holds.

Tuesday, November 06, 2007

Midday Check

The markets dipped into negative territory after the open, but have since regained their footing and are trading back in positive territory.

There are a lot of stocks moving back towards new highs today, and those are the ones I want to focus on for finding continued leadership into year-end. It's the usual suspects of metals, mining, and agriculture stocks, as well as select tech and a handful of energy names.

I recently wrote that I was adding exposure to the oil service sector, and those stock are beginning to get their mojo back. Can you blame them with oil at $97? The solar stocks are also ripping with oil this high.

Goldman Sachs (GS) has denied for a second day that it has a writedown coming, a la Merrill (MER). Hard to believe that these rumors work day in and day out, but someone is making money shorting the stock off of them.

Here are some other stocks that are showing up on my screen of making nice moves on strong volume:

long GOOG, GS

Market Bounces In Early Trading

The market rallied back a bit yesterday afternoon, erasing a portion of the earlier declines. Volume decreased on the day, which is what you want to see on declining days. This morning, the market is getting more of a bounce on an easing of credit crunch fears.

There were some solid earnings reports from Emerson (EMR) and Valero Energy (VLO). The former saw continued strength in the global economy.

Energy stocks are up the most this morning, as oil is spiking above $96. I am starting to hear some calls for a top in oil, notably from one of the tanker executives who appeared on CNBC the other day. But it sure feels like it wants to hit $100 first.

Asian markets were mostly higher overnight, bouncing back from the drubbing they experienced on Sunday. And bond yields are slightly higher as well. I want to see the yield on the 10-year lift a bit, if only to signal that any anticipated slowdown in economic growth won't be that bad.

I added more long exposure yesterday, adding to positions in GS, WFR, and some ETFs. BIDU is currently reversing lower on the day, which could weigh on the Nasdaq in the short-term. But I believe we are getting closer to the start of a final year-end rally.

long EMR, GS, WFR

Monday, November 05, 2007

Asian Markets Weigh On US Trading

Asian markets plunged overnight, led by a -5.0% drop in Hong Kong on disappointment over a possible delay in a plan to let mainland Chinese invest in the city's stock market. China was down -2.5%. And the Yen is higher this morning, which is public enemy #1 in my book.

Citigroup (C) got rid of CEO Prince, and said that it could have up to $11B in additional write-downs. But even the news of Prince's exit couldn't lift the stock, which is down -4% and weighing on the overall financial sector.

Oil is down again this morning, with crude near $94. This is causing a drag on the energy complex. I may look to add more exposure to the oil service names.

Bond yields are up a touch, with the 10-year yield bouncing off its multi-year low and hovering near 4.33%.

The writer strike here in LA is garnering a lot of attention, and has the potential to put a little sting in our local economy. Stay tuned.

I think the selling pressure this morning looks a bit overdone, and expect the market to bounce back into the close.

Saturday, November 03, 2007

Weekly Wrap

Here is a copy of's Weekly Recap:

U.S. stocks began the week on solid footing, ahead of the Federal Reserve's latest policy decision, but stumbled as the week progressed amid escalating concerns about the beleaguered financial sector and ongoing credit issues.

After trading slightly higher on Monday, based on the belief that the Fed would cut its key interest rate, the major averages fell on Tuesday following relatively disappointing earnings guidance from Dow component Procter & Gamble (PG).

Shares of Merrill Lynch (MER) also fell after the investment bank's chief executive Stan O’Neal resigned – just days after it posted a $2.3 billion third quarter loss and recorded a write-down of nearly $8 billion for collateralized debt obligations and U.S. subprime mortgages.

Meanwhile, a government report showed consumer confidence declined to a two-year low in October, raising doubts about the upcoming holiday shopping season and exacerbating the market's decline.

As widely expected, the Federal Reserve cut both the fed funds and discount rates by a quarter percentage point on Wednesday to 4.5 percent and 5.0 percent, respectively. The decision helped offset growing concerns about the housing market's downturn and the fallout from the summer's credit crisis. Investors cheered the news, sending stocks higher during the session.

Adding to the positive tone, government data showed strong underlying trends in the economy, with third quarter GDP rising a stronger than expected 3.9 percent and the GDP deflator (inflation measure) up at just a 0.8 percent annual rate. The data also helped offset a disappointing read on regional manufacturing activity, as the Chicago PMI dipped to 49.7 from 54.2 in September. A reading above 50 indicates growth.

Reversing the previous session's gains, stocks ended sharply lower on Thursday, with the Dow Jones Industrials plunging more than 360 points on renewed concerns about the fallout in the credit markets.

For its part, Swiss banking giant Credit Suisse (CS) reported large write-downs during its third quarter and a CIBC analyst downgraded shares of Dow component Citigroup (C) due to capital concerns that she said could lead the bank to cut its dividend.

Also, Exxon Mobil (XOM) reported a 10 percent drop third quarter profit and missed analysts' expectations by four cents. Separately, the Institute for Supply Management's manufacturing index came in at a lower than expected 50.9 for October, piquing concerns about sluggish manufacturing growth.

While investors remained cautious about the outlook for the economy, stocks closed higher on Friday in choppy trading following a stronger than expected employment report and amid continued concerns about the financial sector.

The Labor Department reported non-farm payrolls rose 166,000 in October, compared with economists' forecast for an increase of 80,000. The September increase in payrolls was revised slightly lower, but does not negate the strong October gain. The unemployment rate remained at a low 4.7%

Friday, November 02, 2007

Market Shrugs Off More Solid Economic Data

Yesterday's GDP report was stronger than expected, showing the economy hasn't slowed all that much yet. And we know that jobs growth is among the most important factors. So the bulls cheered this morning when the October payrolls report showed a gain of +166k jobs (vs. consensus of +80k).

But the enthusiasm for stocks quickly waned, and the market sold off as quickly as it had run up. Since then, we have been bouncing around in early trading. Tech is hanging in well, while the financials are under heavy selling pressure.

Oil prices are back up above $94, and most of the energy stocks are higher. The oil service stocks have all pulled back, and look extremely attractive to me. I am looking to add exposure there. Ok, Greg?

Asian markets got spanked overnight after the selloff in the U.S. and the distress on our big financial companies. The Yen is a touch lower today, but I would like to see it fall under its 50-day support to unleash another rally here.

Keep an eye on bond yields also. The 10-year yield hit 4.29% this morning, a fresh 2-year low. That is a sign bond traders are worried about the economy. So I want to see longer-term yields remain firm, even if shorter-term yields are coming down.

Thursday, November 01, 2007

Citigroup Rumors Spark Wildfire-like Selling

The markets were simply ugly today. The started down early, and hardly bounced at all. I thought we might see some type of rally attempt late in the day, but the selling pressure intensified and the indexes basically closed at their lows for the day.

There were the usual signs of panic selling. The ARMS Index hit 2.90, a very high level. And the volatility index (VIX) spiked fully +27% as fear reared its head.

Breadth was atrocious today. The advance/decline line was as bad as its been since July, and downside volume on the NYSE was 95%. That is enormous lop-sidedness. On the bright side, the last time we saw a 90% down volume day was Oct. 19th, and market a short-term bottom for the market.

The financials were down over -5.3% today, which pretty much made it impossible for the market to lift. While the bears will again point to today as the first day of the next, new bear market, I think today is just more noise to keep the majority off balance.

Tomorrow is the jobs report, which could go either way. But I think this weakness will subside in the near future, and the areas that have been showing bullish trends will resume their uptrends into year-end.

Back In The Saddle

Nice morning to come back to. The market behaved nicely while I was gone, and then this. Is someone playing a joke on me?

I was not surprised at all by the 25 basis point interest rate cut yesterday, but I was very surprised by the strong market reaction. I wonder how the reaction would have differed if this Citigroup (C) rumor came out yesterday?

The talk this morning is that Citi is experiencing a shortfall, and may have to cut its dividend. I view this as unlikely. But it is weighing on the financial sector and the market in general.

Asian markets were mixed overnight, and the Yen is higher today. You know how the market has been unable to rally on days when the Yen is moving higher.

After topping $95, crude prices have reversed lower today. XOM reported lackluster earnings, and its stock is off -2%, while RIG reported strong earnings and is helping the oil service stocks.

There is still a lot of time left in today's session. A handful of stocks are bucking the weakness, including ISRG, GOOG, BIDU, SNDK, CME, MA, etc. On a percentage basis, the declines in the indexes are all that bad. But let's see if the market can firm into the close.

4 days in Vegas is a long time, but it was fun. Steve Wynn gave a great opening ceremony speech. His one quote that sticks in my mind, is when he was describing the Chinese and what is going on over there. He stated simply, "They're us, man!!"