Friday, January 29, 2010

Amazon Says Its Not Fazed By The iPad

The market is mixed in early trading, after a stronger than expected GDP report is offset by more profit taking, earnings announcements, worries over China, and a general shift in market psychology away from outright bullishness.

Advance Q4 GDP came in at +5.7%, much stronger than the 4.7% forecast, and well above last quarter's +2.2% growth. Normally this would have boosted the markets more, but the bears are out saying that most of it came from inventory restocking, which is not sustainable, and also that the strong growth will cause the Fed to tighten monetary policy here sooner rather than later.

What they miss is that is exactly the point. We want stronger growth, and the fact that the Fed will eventually start to raise rates is confirmation that the economy is on solid footing and has moved into a self-sustaining phase.

Many of the companies that reported earnings last night are seeing their stocks trade lower this morning (MSFT, SNDK, HON, etc.). But Amazon (AMZN) is up another 2% on its strong earnings report. Management said that they do not fear the new iPad because their Kindle is focused solely on reading, while other products have been engineered to perform a multitude of tasks. I suppose that is true for the truly avid book reader, but I think most people will prefer all of the various functions of the iPad in addition to the fact that you can use the Kindle app on it to read books.

The dollar is higher again this morning, which is weighing on commodities a bit. Gold is lower to $1079, but oil is up a bit to $74.

Among the sector ETFs, tech (XLK) is the weakest, down -0.45%, while materials (XLB) are leading, up +0.72%. Real estate (IYR) is also strong, +0.91%.

Asian markets were lower again overnight, capping off a poor week amid continued concerns over China's moves to curb lending. The 10-year yield is lower to 3.65%, and the VIX is -2.5% lower to 23.12.

Trading comment: It's never a good sign when the market can't even muster a bounce from deeply oversold levels. I still expect more of a bounce next week, and then another pullback from there. If bearish sentiment continues to grow, that second pullback could present a better buying opportunity. Right now confidence simply seems to be waning at every turn. A good jobs report in early Feb. would also help, but that might be asking for a lot.

Right now, I think the best bet is to keep some powder dry. There is always time to add to your favorite stocks when the market begins to shows signs of stabilization.

long AAPL

Thursday, January 28, 2010

Market No So Pleased With Obama Proposals

The market is trading lower again this morning, after Obama made some remarks that were again not too business friendly for American multinational corporations. Specifically, he proposed a tax on large businesses in America that do big business overseas. Unfortunately, all this would do is make our businesses less competitive in the global landscape.

The other proximate cause of this decline are rumors that are swirling of an imminent rescue package for Greece, which is struggling. Investors don't like these rescue packages, and if Greece is lining up for one, who is next? Spain? Portugal? Ireland? Ugh.

This morning's economic reports didn't help any, as initial jobless claims were slightly higher than expected, and durable goods orders were a bit weaker than consensus.

The dollar up a bit today, which is weighing on the commodity complex. Oil and gold are down only slightly, to $73.50 and $1083, respectively.

Among the sector ETFs, tech is faring the worst (-3.2%), after weak QCOM earnings, while consumer staples are holding up the best (-0.1%) after solid earnings from CL and PG.

Asian markets were higher overnight; the 10-year yield is higher at 3.66%; and the VIX is spiking higher again today, up +7.5% to 24.87.

Trading comment: The S&P 500 is pulling back again, and testing this 1080-1085 level. These are important support levels, since this was the area where the market found support in both the November and December pullbacks.

The market hasn't been able to bounce much from these oversold levels, which is not a great sign. And more stocks continue to selloff after reporting earnings (see MMM). So while some things look attractive for a trade, I would not be stepping up to make any big bets until I see more signs of support for the market, leading stocks starting to consolidate and form bases, and bearish sentiment to climb further (its already starting).

Wednesday, January 27, 2010

Additional Thoughts on Apple (AAPL)

I covered AAPL's earnings conference call for the other day. Here is a copy of my comments from after the call:

Apple (AAPL) reported a solid quarter overall, but there is a lot of noise and confusion surrounding the numbers due to the adoption of a new FASB accounting standard that eliminates the old subscription accounting methods used by the company. The new accounting convention changes the revenue recognition rules and thus the company will no longer need to report any non-GAAP figures. Monday's figures are GAAP results. Also, the rule adoption was made retroactively back to 2007, so all prior periods have been adjusted. (I don't have the space to go into it here, but if there is interest that could be a future article).

The company reported earnings of $3.67 a share (not comparable to consensus) on revenue of $15.68 billion. This equates to 47% EPS growth and 32% revenue growth vs. the year-ago periods. Those are pretty stunning growth rates. Gross margins were 41% and I estimate return on invested capital was 37.4%. So it's pretty clear that the company was more profitable and growing even stronger than its previous reporting methods showed.

The reason why I think that the quarter wasn't as strong as I had hoped is that EPS still looks below the whisper numbers, iPhones were light, and guidance looks to be even more conservative than usual. For EPS, the company said last quarter non-GAAP EPS would have been $3.12; so that means EPS grew in the latest quarter 18% sequentially. Now, it's not an apples-to-apples comparison (no pun intended) but the sequential growth that was factored into the whisper numbers under the old accounting methods was north of 20%. Not a huge deal, but maybe that low iPhone figure kept a lid on further upside.

Macs were the highlight of the quarter, coming in at a record 3.36 million units sold, which equates to 33% yearly growth. Management said new features are being well-received and international sales were very strong. Portables grew 16%. Macs have always been the primary driver of EPS, so I think they really carried the ball this quarter.

As I mentioned, iPhone sales were somewhat of a weak spot this quarter, coming in at 8.7 million units. That's still 100% growth from last year, but most estimates on Wall Street were for more than 9 million units, with some looking for as many as 9.3 million. The company added 17 new carriers and now sells in 86 countries. Average selling prices were $620. Corporate clients doubled as more CIOs are warming up to the iPhone.

Second-quarter guidance is for EPS of $2.06 to $2.18 on revenue of $11 billion to $11.4 billion. If you calculate the sequential drop from this quarter, guidance looks to be very conservative, even factoring in normal seasonality. Gross margins are expected to approximate 39% and the tax rate should be steady of 29%. The company also expects to open 40 to 50 new retail stores in 2010 (10 were opened during the quarter).

As I have been alluding to, the stock will now officially appear cheaper relative to consensus estimates due to the accounting changes. I see earnings power north of $12.50 this year, which would put the stock's price-to-earnings ratio at 16 times, and this does not include any contribution from the upcoming "tablet" product. So I will stick by my $300 price target for the stock, and maintain it as a top holding at our firm.

long AAPL

Geithner/Paulson On The Hot Seat

Given the grilling that Treasury Secretary Geithner is getting in front of Congress today, and Paulson will follow, I think it is extremely difficult to expect stocks to rally today. Tonight we will hear Obama's State of the Union, which I'm sure will carry more anti-business overtones in it, even as he tries to push for jobs. Real estate mogul Sam Zell recently said at a conference that it is foolish to believe that Main Street can continue to recover without Wall Street.

Watching these testimonies is frustrating in the sense that the Congressmen are the ultimate Monday morning quarterbacks, second guessing every decision with the benefit of hindsight. I guess they weren't sitting in front of their quote screens back in Sept. 08 when stocks like Morgan Stanley (MS) fell -40% in a single morning for no concrete reason other that the sheer panic that was taking over. I fully understood no solution would be perfect, but anything that renewed calm in the markets had to be better than the alternative (doing nothing).

Now that I got that little rant off my chest, we also have a Fed meeting today, with an announcement on rates/monetary policy later today. Today is also the much heralded Apple (AAPL) event where they are expected to announced their new tablet device.

The dollar is mixed today, but commodities and materials stocks are weak. Oil is near $74.75 and gold is slightly lower to $1091.

Asian markets were lower overnight amid continuing worries over tighter monetary policy in China.

The 10-yr yield is lower to 3.60%, and the VIX is slightly higher to 24.63.

Trading comment: Bearish sentiment continues to grow, a necessary ingredient for a market bottom. Yesterday, the ISEE call/put ratio made a 52-wk low at 67. Today, Investor's Intelligence survey showed that the % of investors expecting a 10% correction hit its highest level (36.7%) since November 1986 - almost 25 yrs!

I continue to think that we could see an oversold bounce shortly, but then the market could come back down at some point in Feb., offering a better entry point for investors.

long AAPL

Tuesday, January 26, 2010

Today's Links

Lackluster Gains For Stocks Despite More Solid Earnings Reports

The market is getting a small bounce in early trading, which is somewhat disappointing in light of the solid earnings reports last night, but not all that bad in light of the weak overseas trading before the open.

There were a handful of solid earnings reports last night, including Apple (AAPL), VMWare (VMW), and Travelers (TRV). JNJ and Verizon (VZ) were also pretty good, but those stocks are down slightly on the news. Apple's earnings report was very strong. I covered the conf call for, and will post my comments here a bit later.

In overseas news, Asian markets were lower across the board overnight after China hiked reserve ratios at certain banks, and S&P lowered its outlook on Japan's credit rating. Europe was down less after news that the UK economy emerged from recession with +0.1% GDP growth.

January Consumer Confidence rose to a level of 55.9, which is nicely above December's reading of 53.6. This is a trend we really need to continue.

The dollar is getting a bounce due to all the overseas weakness, and weighing on the commodity complex. Oil is a bit lower to $74.70 and gold is also lower to $1093.

The 10-year yield is down a bit to 3.62%, and the VIX is another -6.1% lower to 23.85.

Trading comment: The market is getting very oversold, and should get more of a bounce at some point. The put/call ratios are also rising, which is a good sign as it shows us that complacency has been shaken, which has helped us bottom quicker in the recent past. While short-term trades are okay in this environment, I still think a better buying opportunity will come on the next dip, so I am keeping some powder dry.


Monday, January 25, 2010

Monday Morning Musings: Gearing Up For Apple

The markets are getting a nice bounce in early trading, after last week's sharp selloff. This week is also a very busy week for earnings announcement, so expect a lot of news reports and a lot of exaggerated stock reactions to earnings.

Tonight we will hear from Apple (AAPL), who I expect should report a very strong quarter. Some are saying that tonight's earnings don't matter as much as Wednesday's event where the company is expected to announce the much anticipated "tablet" device, but I beg to differ-- tonight's earnings will be market moving.

The dollar is roughly flat this morning, but commodities are getting a lift. Oil prices are up slightly near $74.80 and gold is bouncing to the $1097 level. AK Steel (AKS) reported better-than-expected earnings, and is helping boost materials stocks.

The market remains a bit jittery over the prospect of whether or not Bernanke will get confirmed. It looked a little dicey last week, but I think in the end he will get confirmed. I am surprised how much dissension there is on his confirmation, as I am in the camp that views him as being primarily responsible for helping our country avoid another depression. The last thing I want to see is Congress having more influence on the Fed and monetary policy.

Existing home sales took some of the wind out of the market's sail, falling -16.7% in December after the first-time homebuyer credit expired. The IYR (real estate) etf is flat right now.

Asian markets were mostly lower overnight; the dollar is roughly flat; the 10-year yield is up a bit to 3.61%; and the VIX is falling -6.8% to 25.45 after a record 2-day rise at the end of last week.

Trading comment: The sharp 2-day spike higher in the VIX last week, coupled with rises in most of the investor sentiment indicators shows that complacency quickly dipped last week as fear re-entered the investment equation. This is a necessary ingredient for a market bottom, but that doesn't happen overnight. My best guess at this point is that the market will likely bounce, and then come down again, which will further increase bearish sentiment. That second dip down should offer a better buying opportunity for investors than right now, even as short-term trading opportunities may come sooner.

long AAPL

Friday, January 22, 2010

Correction Still Small So Far, Watch Investor Sentiment

Sorry for the lack of posts yesterday, my 3-yr old had to have his tonsils out and I wanted to be there for the little guy. It figures that the one morning I have other matters to attend to the market would fall out of bed and Obama would make remarks to scare investors.

I don't want to make a political statement, but I think Obama's remarks will turn out to be more bark than bit. When Barney Frank came on CNBC later in the day, he hinted that it is unlikely something like the President is proposing could pass. Nonetheless, the bank index continues to sell off, and brokers like Goldman/Morgan have really taken it on the chin as uncertainty with respect to their business model has entered the picture.

So first we had China tightening monetary policy, which hit the commodity/materials sector. Then we had Obama making comments that hit the financial sector. And in the meantime, we have had a "sell the news" reaction occurring with many earnings reports, and today that is hitting the tech sector.

Google reported a solid report last night, but some investors were looking for more upside to revenues and have decided to sell the news. Ditto for AMD, which is weighing on the overall semi index. On the plus side, Intuitive Surgical (ISRG) reported another strong quarter, and the stock is up +12%. GE had a solid report, as did McDonalds (MCD), and both of those stocks are higher.

I have commented in recent weeks how investor sentiment was growing a bit complacent, and that could result in a correction at any time. That seems to be the case right now, and once again I think we will need monitor investor sentiment to gauge the duration of this selloff. Right now, the S&P has pulled back -4% from its recent highs. It is also testing its 50-day average right now.

So far, this is just a run of the mill pullback. The put/call ratio has been elevated the last 2 days, and the VIX has started to spike also (now 22.75). If the other sentiment indicators follow suit and begin to reflect renewed bearishness, that will help the market bottom sooner. If sentiment remains complacent, then this correction could take more time to play out.

Trading comment: I didn't do any buying yesterday, and likely won't today either. But on further weakness, I would be amenable to adding to many of the tech leaders I often write about, as well as some of the emerging markets (like Brazil) that remain in good shape.


Wednesday, January 20, 2010

Banks Buck General Weakness After Earnings Reports

The market is sharply lower this morning, after some weaker than expected economic reports (housing starts) and more news that China is tightening its monetary policy.

Bank stocks are the lone group that are bucking the early weakness after a batch of better than expected earnings reports. Banks like US Bancorp (USB), State Street (STT), and Bank of New York (BK) all reported solid earnings and their stocks are higher. Bank of America (BAC) reported results below expectations, but its stock is higher also. BAC is my fav of the group, and I think that as earnings begin to "normalize" later in the year, the stock will start to reflect the inherent value in the bank's franchise.

The issue in China is that authorities have instructed some banks to restrict lending for the rest of January to ensure higher capital ratios and avoid an overheating economy. China's stock market fell -2.9% on the news, but overall I think it is a positive. In the short-term, slower growth in China may sting, but longer-term if they can avoid a bubble scenario in their property market that will extend their economic recovery cycle.

In other earnings news, CREE trounced the estimates and the stock has gapped to new highs. IBM reported a very solid quarter (I was on the conf call), but the stock is selling off on conservative guidance. I think guidance will move higher as the year progresses, and I would look to add to my positions on further weakness.

The dollar is spiking higher today, and that is weighing on commodities across the board. Oil is down to $77.50 and gold is all the way down near $1110. I think the dollar stabilization could last a while, and that may continue to weigh on commodity and energy/materials stocks in the near-term.

The 10-year yield is lower to 3.65%, and the VIX is spiking higher by 11% to 19.43. The VIX has been in a long downtrend, so occasional spikes higher should be expected. I expect the VIX to remain rangebound most of the year, and do not have it on my radar right now as a useful trading tool.

Trading comment: It's still early, so we could recover some of this morning's losses by the close. The market is just coming off overbought levels, so these types of dips are not surprising. I still like the market, and would use further weakness to add to my favorite names, which I have mentioned here frequently. Today, I am adding a little to AAPL, which I think will be one of the few stocks that will not selloff after its earnings announcement.


Tuesday, January 19, 2010

Tighter Monetary Policy From China's Central Bank

The markets are nicely higher in early trading, nearly reversing Friday's sharp selloff. Kraft (KFT) has acquired Cadbury (CBY) for a $19.4 billion mix of stock and cash after several months of negotiations.

Citi (C) reported another quarterly loss, but it was roughly in-line with expectations. The stock is slightly higher on the news, and the financial stocks are mostly mixed with banks lower on average while brokers are higher.

Healthcare stocks are leading the action amid speculation that a Republican could win the vacant seat in the Massachusetts Senate, which could stall healthcare reform. It's funny that the market really wants gridlock in Congress. Just don't mess things up anymore, huh?

IBM reports earnings after the close, and I think it should be a solid report. I am interested to hear what they say about the nascent tech upgrade cycle, as well as the global economic recovery.

In Asia, the markets were mixed. China's central bank has refueled fears of tighter monetary policy with higher yields on its auctioned Notes for a second week. Even long-time bill Jim Rogers is sounding a cautious note on China. The situation in Japan is the opposite, with the BoJ Govenor pledging to keep monetary policy easy to help pull the country out of deflation.

The dollar is higher today, but that isn't weighing on commodities too much. Oil and gold are roughly flat near $77.85 and $1130, respectively. The 10-year yield is up slightly to 3.71%, and the VIX is down a bit more to 17.69.

Trading comment: Despite Friday's selloff, the market is mostly moving in a sideways fashion while working off the latest overbought condition. This has been the hallmark characteristic of this "stair-step" market, and if the market does make a move to new highs again, I think it will leave a lot of investors on the sidelines who have sounded a cautious note lately.

I agree that investor sentiment has become a bit too complacent recently, so I find myself in the cautious camp as well. I just want to admit that it is a crowded camp right now, and we know the market loves to zig while others are zagging. I think the key will be to keep an eye on leading growth stocks, which have already been correcting, to see if they can resume their leadership or need more time to consolidate.

long IBM

Friday, January 15, 2010

Initial Earnings Reaction: Sell The News

The market is under fairly heavy selling pressure this morning, despite some very solid earnings reports from bellwether companies. Intel (INTC) reported a great quarter last night, but the stock had runup into the earnings announcement, and is being sold today. INTC is currently -2.0%, and weighing on the tech sector overall.

The bank sector is down the most this morning, despite another solid earnings report from JPMorgan (JPM). There were some things not to like in the earnings release, but the company beat profit expectations by a nice margin. I think many of the big financials are buys on this weakness, with BAC and GS being my favs.

In economic news, the December CPI figures were essentially in-line with estimates; capacity utilization ticked up a touch last month to 72.0%; and the Univ. of Michigan consumer sentiment survey also rose a touch from last month to 72.8.

The dollar is higher today, mostly on fears over the lingering problems with Greece's financial health. That is pushing the Euro lower, even as the Yen is firm. Nonetheless, the strength in the dollar is weighing on commodities. Gold prices are down to $1128 and oil is nearing the $78 mark. It's funny that since Gold made its highs back in December, I hardly hear anyone focusing on it on a daily basis.

Asian markets were mostly higher overnight; the 10-year yield is lower to 3.67%; and the VIX is up +6% to 18.65.

Trading comment: I think much of this early weakness has been related to today's options expiration. Despite the market being somewhat overbought at this junction, I am looking for spots to pick away at attractive stocks that I like. Yesterday we added to our GOOG positions, and there are many tech names that have pulled back as well.

long BAC, GS, GOOG

Thursday, January 14, 2010

Back In The Saddle

After a few days of fun and sun away from the office, I'm back in the saddle. I thought I was going to make some blog posts from the road, but alas, it didn't happen. My apologies.

The market is flattish in early trading, with no major market moving news. Intel (INTC) reports earnings tonight after the close, and that should be a big report. The semis have a nice window of profitability ahead of them, and supply and demand sets up nicely for firm margins, and that should show through in Intel's report.

In economic news, retail sales were weaker than expected coming in at -0.3% (vs. +0.5% consensus). But upward revisions to the November sales helped ease the sting of the report. Also, compared to December 2008, last month still showed strong yr/yr growth.

In terms of jobless claims, continuing claims fell to 4.60 million, which was below estimates and continues to move in the right direction.

In overseas news, the ECB left interest rates unchanged at 1.0%. Asian markets were mostly higher overnight, as fears of monetary tightening in China eased off.

The dollar is mixed today, and commodities are a touch weak. The 10-yr yield is lower to 3.75%; and the VIX is also lower to 17.75.

Trading comment: The market looks like it experienced a very mild pullback, market more by group rotation than overall selling. Tech (and materials) looks like the group that saw some profit taking, but money also flowed into defensive sectors like consumer staples, healthcare, and utilities.

With the news that it may pull out of China, Google (GOOG) has pulled back to its 50-day for the first time since last July. This could offer a good spot to add to the name. I also like AAPL ahead of earnings, PCLN on a test of its 50-day, and still like RIMM in general.

In terms of sectors, the financials look to be stabilizing, and may be attractive again. Among emerging markets, Russia and India look to be holding up better on a relative basis than China and Brazil.


Thursday, January 07, 2010

Same-store Sales Come In Mostly Better Than Expected

The December same-store sales reports for retailers look mostly better than expected, and the stocks are reactive favorably. The overall market is lower, but the retail sector is in positive territory.

Here are some of the better-than-expected reports I saw, and how much sales rose for each:
  • Aeropostale: +10.0%
  • American Eagle: +7.0%
  • Children's Place: +4.0%
  • Costco: +9.0%
  • Kohls: +4.7%
  • Nordstrom: +7.4%
  • Saks: +9.9%
  • Target: +1.8%
  • TJX: +14.0%

In economic news, the jobless claims were again better than consensus estimates, raising hopes that tomorrow's jobs report will be a good one. The Monster Employment Index also showed the most modest rate of decline in recruitment activity in the last 18 months.

Asian markets were lower overnight, after China's central bank unexpectedly raised rates there. The Shanghai Composite fell -1.9% on the news.

The dollar is bouncing today, and that is keeping a lid on commodities. Both oil and gold are lower, but not by that much, following yesterday's gains. Oil is near $83 while gold is still hovering around $1131.

The 10-year yield is flat right now at 3.80%, and the VIX is slightly lower to the low level of 18.97. I think the VIX is poised to spike higher in the near-term, but I also feel that over the next several months it will spend most of the time trading in the teens, which will confound many of the bears who will claim it highlights too much complacency.

Trading comments: The market is showing its resiliency again by not giving back too much of Monday's gains over the last couple of days. I have mentioned the overbought condition, but it is possible to work off that condition by going sideways as well.

AAPL and GOOG have been correcting this week, and while some may point to that as a sign of weakness for the overall market, I think it is a good think. I don't want these stocks to runup too much ahead of earnings, and I think a pullback here offers a decent entry to add to these positions ahead of what I expect to be very good earnings reports for both.


Wednesday, January 06, 2010

ADP Report Shows Job Losses Moderate In December

The market was flatting around the open, and is fractionally higher right now. The ADP Employment Report showed 84,000 jobs were lose in December, which was a bit more than expected but a drop from November's tally of -145,000 jobs. So hopefully the direction here will also be reflected in the govt. jobs report on Friday.

Also, the ISM Services Index came in at 50.1. This figure is also a bit below consensus, but up from November's reading of 48.7. So the trend here shows continued improvement in the all important services sector.

In corporate news, fertilizer company Mosaic (MOS) reported earnings that were short of estimates, but the stock is higher this morning. I think this is reflective of the general sentiment that fundamentals in the agribusiness industry have stabilized, and with recent price negotiations for potash out of the way, more people are turning bullish on the group.

The dollar is mixed today, but commodities are mostly higher. Oil prices have dipped ($81.75) due to the inventory report this morning, and gold prices are higher again near $1128.

Among the sector ETFs, materials are leading the way (+1.23%), followed by healthcare (+0.77%); tech and consumer staples are the laggards, both down -0.30%.

Asian markets were mostly higher overnight; the 10-year yield is higher to 3.82%; and the VIX is falling to new lows for the year (18.85), actually the VIX is at its lowest level since August 2008.

Trading comment: The market remains overbought, the VIX is at new lows, and investor sentiment is creeping into complacent territory. This looks like the type of setup where you could see a quick 2-3 day slide in the market, which would be a better buying opportunity that chasing things at current levels.

long GLD, MOO

Tuesday, January 05, 2010

Apple Continues To Hum Along

The market is roughly flat in early trading, despite a very weak home sales figure. Pending home sales fell -16% in November, which was quite a bit worse than the consensus. As I have said, I don't put too much weight on any one housing datapoint, as the monthly data can be lumpy, and it is the overall trend that is more important.

Apple (AAPL) is bucking the weakness so far, and touching new highs this morning. The company seems to be letting out hints about its highly anticipated tablet that is expected to be released this quarter. Here is an article that talks about the upcoming tablet. Additionally, Apple said that 3 billion apps have been downloaded so far from iPhone and iTouch users. That is an astounding number, and one of the reasons why it's hard to see any competitor catching up.

Speaking of competitors, GOOG is set to release its own phone today (the Nexus One), which some may say is a shot at AAPL. I think it could be a nice evolution to GOOG's overall mobile strategy, but I don't see it as a true threat to the iPhone. I would be far more worried if I were one of the other tertiary handset makers like Motorola, Palm, etc.

The dollar is lower again today, which is bolstering commodities. Oil prices are higher near $81.75, and gold prices have topped $1125 today.

Asian markets were higher overnight; the 10-year yield is lower to 3.77%; and the VIX is also lower again, down to 19.68.

Trading comment: Surprisingly strong day yesterday, and a very solid start to the year. Today mostly looks like money is still being put to work, but with the market now solidly in overbought territory, I don't want to chase things here.

If you can find a stock/etf that is breaking out, that is okay. But lots of stocks look extended here, and I think waiting for a pullback is prudent at this juncture. The stair-step market is still intact, so I would step in quickly. I don't see the imminent 10% correction that many are looking for.


Monday, January 04, 2010

The 6th Annual 'In The Money' Investor Poll

This is the 6th year that I have been conducting an investor poll. There are numerous polls taken each year, where the Wall Street strategists make their predicitons for the year head, but I wanted to see how the group of portfolio managers and traders that I speak with on a regular basis stack up in terms of their outlooks.

In most of the years past, our pollsters have been fairly subdued in their forecasts. From 2005 - 2008, the average forecast for the group as a whole was for the market to rise in the low-to-mid single digits. Last year (2009) was the first time the group's average forecast reached double-digits (+14%), although it still proved conservative.

Last year's winner was the astute Rob Fraim, who forecast the S&P 500 would finish the year at 1111 (it closed at 1115). Rob win's dinner at one of LA's hippest establishments. All he has to do is come out to LA to collect. (Hope to see you soon)

This year (for 2010), the group is back to their relative conservatism. The average forecast in our poll is for the S&P 500 to finish the year at 1200 (+7.7%). This compares to the average Wall St. strategist forecast (compiled by Bloomberg) for the S&P 500 to finish at 1223 (+9.7%). The range of forecasts I got are from SPX 952 on the lowside all the way to 1477 on the high end.

I also asked participants to give me their prediction for where the yield on the 10-year T-Note would finish the year. The average forecast there was 4.48% (with a range from 3.00% to 6.00%).

Congrats to our winner, and thank you to everyone who participated.

Good luck, and happy trading in 2010!

HNY: Stocks Start 2010 On A Positive Note

Stocks got off to a strong start in early trading, with some positive economic reports driving the bullishness. Thursday's late day selloff looks like it was just some sort of sell program by someone who successfully took advantage of the thin trading.

The ISM Manufacturing Index came in at 55.9 for December, which is higher than the 53.6 reading from November. The report follows two similar positive datapoints out of China and the UK, that both showed increased factory production in those countries.

Commodities are very strong this morning, as the dollar slips. Oil is trading above $81, while gold prices have spiked above $1120. The IMF issued a forecast that commodity prices are expected to rise this year as the global economy expands in 2010.

Among the sector ETFs, energy and materials are leading the upside (+2.7%), while consumer staples are lagging (+0.8%). But all sectors and indexes are nicely higher so far. The emerging markets etf (EEM) has also gapped to a new high this morning.

The 10-year yield is flatting near 3.82%, and the VIX is -4% lower to 20.72 following that large spike higher on the last trading day of the year.

Trading comment: No change to my near-term thesis. Today's rally is likely new money coming in at the beginning of the year and being put to work. I remain in dip buying mode in here. The market is slightly overbought, so I don't want to chase today's spike higher.