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Market Momentum W/E July 4, 2009

2009-07-04T18:42:41Z

Saturday, July 4, 2009
Market Momentum W/E July 4, 2009 - CODE YELLOW
Code Yellow signifies that there is no trend and you must use extreme caution when buying new positions

www.barchart.com Indicators

Line Index -1700 stocks tracked - Slight Downward Trend

Trending BELOW its 20 day moving average
Trending BELOW its 50 day moving average
Trending ABOVE its 100 day moving average
Market Momentum - 5800 stocks tracked - NO trend

61% trading BELOW their 20 day moving average
58% trading ABOVE their 50 day moving average
84% trading ABOVE their 100 day moving average
New High/Low Rations - No Trend

20 day H/L 313/737 - negative
65 day H/L 208/132 - positive
100 day H/L 187/33 - positive
This week all 3 indicators do not show a strong trend. No one will fault you for holding off on entering into any new positions.

http://charts3.barchart.com/chart.asp?sym=$VLA&data=A&den=med&size=b&jav=adv&vol=Y&divd=Y&evnt=Y&grid=Y&sly=N&ch1=066&ov1=918&ch2=066&ov2=021&code=BSTK&org=stk&fix==

Cognitive Dissonance on Wall Street

2009-07-03T18:28:38Z

I have been writing about brown shoots for too long to recount - perhaps since the term green shoots was created by some bull with calls on the S+P - and I have been astounded by the number of analysts, pundits and whatever who bought the argument. Congress is expected to re-write the laws of math but no one else. So why were so many people surprised on Thursday with the unemployment data?

This Thursday's unemployment report should not have been a surprise. I will not waste your time recounting numbers you can see or have seen elsewhere. But the sharp selloff means a) a lot of traders got in on the wrong side of the trade and ran in a hurry and b) there is still a historically high amount of cognitive dissonance on Wall Street. Cognitive dissonance may, in fact, explain the entire rally and is, if you like behavioral psychology, is central to understanding the behavior of markets that fly in the face of economic reality.

To quote part of the Wikipedia definition (a good one, to be found at http://en.wikipedia.org/wiki/Cognitive_dissonance), "Cognitive dissonance is an uncomfortable feeling caused by holding two contradictory ideas simultaneously. The "ideas" or "cognitions" in question may include attitudes and beliefs, and also the awareness of one's behavior. The theory of cognitive dissonance proposes that people have a motivational drive to reduce dissonance by changing their attitudes, beliefs, and behaviors, or by justifying or rationalizing their attitudes, beliefs, and behaviors."

Sounds like the Street to me.

Wall Street does one thing quite well - math, usually reserved for bonus calculations, commissions, fees but occasionally used for analyses - and it knows the consumer is dead and getting deader, suppressing business behavior and employment. But it wants to go long - it longs to go long - and this tension is cognitive dissonance. It removes the tension by reconciling these two ideas with what it really wants--for the market to go up. Otherwise intelligent people go on TV and tell people things are fine with green shoots everywhere - I am not talking about screaming anchors who have traded ideology for intelligence like Larry Kudlow, nor am I referring to corrupted reporters now always optimistic as if they had a patriotic duty to be so - perhaps it is ratings? I am talking about money managers who are mostly long and want to stay that way. They are now telling people to "invest in the second derivative" - a decline in the rate of decline - and their reasoning "green shoots." So if you are going to willfully deceive yourself and resolve cognitive dissonance, you might as well pull some sucker along for the ride.

This optimism extends to individual market segments and companies. In the good old days, pre Bear Stearns, when housing starts hit one million per year it was a "bottom" and time to buy the home builders. We are down to half of that rate with no rebound in sight but pundits are talking up the companies, most of them kept alive by billions in tax rebates that end this year. Not one investment bank, not to mention a major money center bank, has earnings power remotely approaching their capability five years ago but the stocks have risen sharply based on accounting metrics the Street knows are on paper, not the real world. Not to mention all of the money center banks cannot exist without Fed guarantees of their bonds. And within this group, look at Citigroup - worthless balance sheet, some great businesses, but having no real shareholder value and if and when forced to properly (I don't mean legally, what they do with their books is legal) account for assets, they are wroth nothing. And how about GM trading above a buck?

There is another variant to this optimism - honest optimism based on a mis-reading of data. My favorite TV analyst, Ron Insana, a brilliant and painfully honest man, not quite fully pulled back into all of CNBC's mantras about green shoots, thinks we have hit bottom in the market with the overwhelming reason being the amount of liquidity the Fed has injected into world markets. Yet, if you look at the circulation of "new money" - its velocity - how much it circulates - against what the Fed has metaphorically printed you can see the money supply may have actually declined in the past year. No kidding. And even if I am partially wrong, where is the liquidity? It is now showing up in margin accounts of hedge funds or trading desks - it is sitting in bank mattresses, ready to be used to balance out future losses.

So there is optimism from cognitive dissonance, know one thing, think another, reconcile this by sticking with a belief even if you know the belief is wrong. Or you are getting it wrong because you are using historical norms to analyze something far less than normal - today's economy and markets.

I am not complaining - well, I guess I am, sort of, since I live on fundamentals even though I only recommend options position in my service, ChangeWave Shorts - but a day of at least partial reckoning is coming. Either a blow up or a slide that defeats even the hardiest if bulls. And even if I am wrong, based on the history I am trying hard not to use, the economy will inhibit corporate profits and at best keep the market going sideways for several to many years. Even Congress cannot change how the market value corporate profits - and the market is way overpriced based on the next 2-12 quarters of economic and profit growth.

The bottom line? Whatever trades you make, they need to be in the face of an economy that is not bottoming and when it does, facing a recovery that could take as much as a decade. And, seriously, take a look at Citi as a short - if they are forced to move their off balance sheet assets on their books, well, lots and lots of these. Check out page 21 of the town hall presentation they half for employees last November. And if you are long Citi, have a drink before you get to that page, and that can be found at http://74.125.47.132/search?q=cache:xSvJ_3VrNX8J:www.citigroup.com/citi/fin/data/p081117a.pdf+citigroup+november+2008+town+hall+meeting+pdf&cd=1&hl=en&ct=clnk&gl=us&client=firefox-a

Shorting the Obama Health Plan

2009-07-02T11:28:54Z

Barack Obama is proving to be a masterful president just six months in office. I am not talking about policy or legislative initiatives - the first role of any president is to lead and he has led the nation from a sense of panic - perhaps panic itself - to calm - real calm. He has been wildly successful, regardless of what the "paid to scream" pundits in the conservative and financial media may say about him.

And now that calm is here, and his policies and proposals are more rather than less important than his ability to re-assure the American people about their own strengths, it may be time to, metaphorically and literally, short Obama. Specifically his health plan, whatever shape it may take. At least some of the profits can be used to pay the extra taxes we are going to pay for next 25-50 years. (For purposes of full disclosure, I voted for Obama.)

The problem for Obama, and why it is possible to develop a short view of his administration going forward, is his loss of control of Congress. Most Senators and handful of Congressmen know something of money, the budget, deficits and markets. But most members of the House do not - and they are showing way too much influence and power in the setting of policy. That means a make believe energy bill/cap and trade bill, because they don't want the cost of energy to go up; too much support for a housing market that would best be left to itself, to correct itself quickly; and a health care bill that has its heart in the right place and its head up, well, this is a family blog - a health care bill that sets the nation on an untenable course.
And that is where it is best to start looking for short and long opportunities - health care. Health care bill will probably pass; it will probably mandate everyone have or buy health care insurance; it will include thousands of pages of regulations that will not work as planned; it will be based on cooked data about cost reductions that will never happen; and when it all gets too expensive, 12-18 months after enactment, medical care for those dependent on the government will be further rationed and medical care paid for by the private sector will become increasingly expensive as private payors subsidy of government programs increases. And then 3-5 years after that, something will blow, led by the need for Medicare to dip into the general tax fund, roughly around 2016.

Short something that will blow up in 2016? No.

But look at short positions in companies that will be first in line to be seriously squeezed - some with merit, others not.

Who will be squeezed? And when?

The squeeze will begin about six nanoseconds after the health care bill is passed and the remaining responsible adults in Washington - there are a few - take a look around and go "omigod." They will be seeing an obese, aging population unwilling or unable to take care of itself hurtling towards government paid health care with frightening speed. And an industry still used to printing money at will with new products or fees and in control of their local Congressman or Senator. And they will go after the unusual suspects first -- and then some not so usual ones.

So, who gets squeezed?

Big Pharma: I follow the industry more closely than most, used to write a biotech letter, Big Pharma was my comic relief whenever I got too serious. This industry deserves to be squeezed if not on economic principles but everyday idiocy and a total inability to match real consumer needs with their business model and product development. For example, if you talk to doctors, the best proton pump inhibitor around is Aciphex (I take it, it changed my life, no kidding). It runs almost $300 a month without insurance while generic Prilosec costs less than it does to feed someone at Chipotle (well, maybe not my sons). If ihad the best product, I would hire the right people and go head to head with Prilosec. Nope - just jack prices and milk profits until the patent runs out. And this is the preferred mode of business in the entire, traditional Big Pharma industry. And Congress knows this as well - so you can expect a big squeeze on drugs that do not directly save lives. For short sellers, this intersects with the greatest, most cost saving patent expiration ever - Lipitor, November 2010 - so take a hard look at Pfizer. They are facing a revenue downturn of up to $9 billion in Lipitor sales within 12-18 months of patent expiration. That would require 9-10 blockbusters to emerge - and they have none in the pipeline worth mentioning. In my book Sell Short, which is about process, not specific recommendations, the Lipitor expiraton and Pfizer are central to explaining how one can find and use great short opportunities. (check out MichaelShulmanSellShort.com for more info.)

Other candidates? I have a personal bias against the frequently overprescribed Aranesp and Procrit (an anemia drug) from Amgen - way overprescribed compared to Europe, where people typically live longer. Mind you, Pfizer and Amgen print cash, they are simply overvalued and it will take a while for the market to catch up with them. Between the two of them, and hundreds of billions in R&D over the past twenty years, they have produced, I believe, one blockbuster in their labs.

Devices: Medical devices routinely get approved by the FDA - when effective - then a hyperactive sales force pushes them onto the market and patients pay for them. The 10% better widget results in a 100% increase in fees to the hospital or center - endorsed by Medicare, who sets the price for the new procedure that is copied and used as a floor by the private sector. Well, according to Bob Dylan, the "times they be a changin." It is easy to see Medicare and then insurance companies balking at new devices that sell well here, barely sell in Europe and do little to actually improve patient outcomes. This includes services for treatment and for diagnosis. Who look ripe for trouble? Medtronic. Unlike Pfizer and Amgen, this is a well managed company with a great product development organization - but they are in the wrong place at the wrong time and their size means they need a great deal of success with new products to move the needle on sales and continue as a growth company. Other losers are the big imaging players - GE, Toshiba and Siemens - but these huge multinationals are so diversified you cannot consider shorting them based on this thesis alone.

Payors: Stay away - long or short - who knows what is going to happen to them.

Providers: Ditto for providers - price pressures will be offset by increased business and reduced or eliminated bad debt - but a lot of their billing nonsense is going to get squeezed - a friend was just billed $26 for one spoon of Pepto Bismol - impossible to say where this will end up.

Biotechs: If you want to go long, look at the great biotech's will real live saving products and start with Gilead Sciences. Bets managed biopharma company on the planet - by a mile. They own the HIV marketplace and are pushing into pulmonary and also have a promising, high risk hypertension drug. They are also a great stock to hedge - very high premiums on their calls. If there is a buy and hold company left on the market, they are it.

Time to Short Brown Shoots

2009-06-30T12:52:56Z

Green shoots has become a tiring term - clichés in the age of new media really run of out of gas quickly - and I recently took a two week working vacation to dig out green shoots for my readers. Data is nice - but you can get that anywhere and it basically starts arguments. So I told myself to take a hard look on the ground? What did I find? Brown shoots everywhere.

The two weeks on the road were spent in very different economies - the "posh" but understated part of Long Island, the North Fork; Hartford, Connecticut (family); Maine (need to eat some serious fresh lobster); Nova Scotia (gorgeous); Maine again (got to get back home); and then four days in New York City including a book part for my new title, Sell Short.

What did I see? There were two or three other guests in my luxury hotel in Greenport, empty restaurants with great food. We had no problems walking in to one of the most popular restaurants in Hartford; ditto for the most popular lobster in Bar Harbor (I copped out and got a small one but I did manage to ruin my shirt); a near empty hotel in Nova Scotia, one of the three luxury resorts capitalized by the Canadian government and the most popular destinations in prior seasons. And in Nova Scotia, same day reservations for a special whale watching exhibition in a zodiac that only holds a dozen nerdy tourists. Driving back through Maine, I stayed at a Wyndham in Portland filled with airline personnel and no one else, across from the very, very empty Mall of Maine. And I concluded my trip at a very busy Hilton in New York - busy, busy you say? - filled with tourists taking advantage of radically discounted priced rooms, buying what was available at the half price theater ticket booth or just walking the streets. We found same day tickets available for almost all shows, including for Mary Stuart (terrific play) and In the Heights (great musical, hottest dance chorus since Pippin, yes, I am that old). All of this during tourist season.

And a book party with guests from all parts of the economy, all discussing an uncertain future and all pulling in their spending. Except for the teacher at a prep school and the television producer working the Bernie Madoff case.

Are anecdotes worth investing in? Just as Peter Lynch - you can start with these anecdotes - but first you must ask yourself why is Wall Street so adamant about green shoots and the "bottom." Simple - Wall Street is congenitally biased to the upside, we were coming off a very sharp decline in the markets and Obama has a great ability to lead, convincing us and then remind us the world is not ending.

So, are we at a bottom? Perhaps - but my concern, my observations are about the lack of a rebound. And the current market is now beginning to look for signs of a rebound. So brown shoots mean a lot as the market starts looking to Christmas and beyond.
The tricky part is the definition of a rebound. I read this morning about the big turnaround in auto sales - they are "only" going to be down 20% at Ford and call option activity is accelerating (I am long, in my service, Ford calls). Turnaround? A year of 55 million in sales with worldwide capacity to make 100 million cars? The auto industry is representative of the debate - we may bottom at 55 million but when will sales support current stock valuations? And that is true for most if not all consumer discretionary stocks, from Tiffany to the Cheesecake Factory.

So, short term, you can play the short term optimism - as I said, I am long Ford in my service - but what about the longer term?
For a longer term trade, assuming you agree with me and the summer will be a bust, so look to short travel related stocks. And if you sense Christmas will see Santa stuck in the chimney, look to short names that people will continue to trade down from - Cheesecake Factory, P.F. Changs, Macys -- - avoid names people will trade down to - Dollar Tree, Wal-Mart, Darden (Olive Garden). Look for real discretionary spending stocks - Harley Davidson, Tiffanys, Coach, Nordstrom - and look for underpriced products that will see increased demand in the winter - natural gas (the UNG).

Skew that Double Calendar

2009-06-29T20:35:13Z

It seems to me that, for the short-term say 30- 60 days, the market is locked in between about 910 and 940 on the S&P 500. The bulls will use the 880 to 910 as support, and the bears will use the 940 to 960 as resistance, a nice range for us traders to make use of. Additionally the S&P 500 is sitting on its 30 day average of 92. Well if this is true things could be a bit like Palm Springs in the summer, slow and steady. In my opinion it would take something truly dramatic to blow through these levels. Maybe those "green shoots" turning into "brown weeds"? Lets look at imbedding a few strategies together with one click of the TOS platform and skew it to have a little downside protection just in case!

If you too think the above scenario is probable then you may consider using a Double calendar and then tweaking it to suit that scenario. To do this we need to "right click" on the July 91 strike, chose "Buy" go down to "Double Diagonal" over to "Double Calendar" and" left click". The system will automatically populate selling the July -91 call and Put (short straddle) and buy the Aug +91 call and put (long straddle). Ok last step, change the Aug +91 call to +94 call don't touch anything else! Like a young Dr. Frankenstein, look at what you have created "it's alive" the monster lives! The key to trading is that there are trade-offs between potential risk, the probability of profit and the potential profit. The potential risk in this trade is limited, limited to $436, that's your risk. I consider this a high probability trade because there is an approximately 66% probability SPY will close at July expiration inside its present standard deviation of roughly SPY 99- 85. This trade is profitable at July expiration between SPY 94.30-85.40 reflecting an ever so slight downward bias. Incidentally the YTD high for SPY is 96.11 and I don't believe we will test that in July and our downside breakeven price of SPY 85.40 is well below my support and at the very low end of the SPY standard deviation range for July. Presently the position represents almost 16 short deltas, that's what I would consider delta neutral and has a rich positive theta decay of $2.57, all good! Additionally if we factor in the "home run" scenario that SPY settles at 91 at July expiration and this position will produce a $320 profit! That's a 70% ROI (return on investment/risk) in a month all while having a defined risk of $436! I love trading!

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Things to ignore, and things not to

2009-06-26T23:08:02Z

First on my list, is the media. Are they the forebearer or the palebearer? Granted, the news of late, has not been that great, nor the quality of it therein. To listen to the news media, they say this year's stock market recovery is the greatest thing since sliced bread. Yet, they almost refuse to admit, the market is down, in most cases more than the indexes show, not to mention the fact that last year, was devasting for stocks.

My answer on the media, is they are just there for paid hype. They have a job, and that is about the only POSITIVE I see there. They do that fairly poorly, too. But, before I sound too negative, some of the media stocks have been rebounding, of late. Still, a sector I would avoid like a plague.

So, do not listen to the news. Make your own opinions.

If I turn on the boob tube, even some of the educational channels would have you believe, the world will quite possibly come to a near end,, on DEC 21, 2012. How many times, have we heard predictions, that the world will end,, and not had it come true. Most recently, for the year 2000. And that was not even a small blip on the radar. Yet, we have people who BELIEVE, that NOSTRODAMUS, who lived centuries ago, is "the God of the future". Maybe,, but I am more
inclined to believe in geological history, than some soothsayer, from several centuries ago.

So, if you want something to worry about, I am going to give you quite a list. And, if you believe there will be life hereafter, I may give some proof of that too.

Things to WORRY about. Tops on my list, is a planetary collision, or a SEVERE volcanic eruption. Neither of those is likely, and both are possible. My guess is if either does happen, how much money you have, or don't will not matter one iota. Bend over, and kiss your cookies good-bye. But, let's assume for a minute, it is not THAT bad. My next list of worries is FUNDS, and the GOVERNMENT. Those are the most DANGEROUS things to your finacial health. Not, the stock market. Ok, I call a SPADE, a spade, (in a deck of cards). The government, is your WORST enemy, if you live in the US. Only a COMPLETE IDIOT, would bailout HUGE companies for making BLUNDERS, beyond belief. I can think of health care reforms, and economic stimulus packages, that would have TRUE benefit, that would not have SOAKED the taxpayer, the way OBAMA plans to. PEOPLE, get this STRAIGHT. OBAMA, is SOCIALIST.
Socialism DOES NOT WORK. That said, I will quickly move to the OTHER worry, which is FUNDS. Much like the government, they don't work. Big enough to solve a problem, but far more likely to cause one. It does not take a genius to see the fraud related to this. Pick a Ponzi, Maddoff, or others. But, that is the LEAST of the problem. Fees, mis-management, and greed, will rob you faster than most want to admit.

So, how do you get ANY sleep at night? Well, you need some faith in the future. And let me REMIND you of some other facts. Just a little over a year ago, the DOW, was over 14000. It is barely over half that now. Think it might get back there in time? Dollars to donuts it will. Ok, to hear the MEDIA, it will take a long time. And, based on the number of CROOKS, it may take longer. And, based on the INCOMPETENCE, of the government, you can bet, it will be a slow recovery. But, recovery, is in the cards, despite all of this.

To have a market recovery, you need to do a few simple things. ONE, is stop ALL short selling.
If you own stocks, and don't want them, sell them. NOBODY will stop that. TWO, abolish FUNDS. This WILL hurt, and I promise that. Too many refuse to accept responsibilty for their future, and this was a plan (LOOPHOLE) to help them. It only created a nightmare, to make the rich richer, and to RAPE, the rest of stockholders, not to mention open the door for GIGANTIC FRAUD.

Historically, INDIVIDUAL stockholders do a GREAT job, of determining market value. We do not NEED, a ton of Wall Street analyst.

Ok, we could maybe do with A LOT more unemployed. Start with the MEDIA, and get the GOVERNMENT in the act as soon as possible. Swing and SLASH the ax, and let heads ROLL.
And, pick your favorite market ANALYST, and include them in the list

Now, before I go on, I will add one more thing, and it too, is a positive. No matter how BLUNDERING, Obama and his ideas are (and they are REALLY out there), he has done ONE THING, I have not seen done, in MANY, MANY moons. He has actually put CONGRESS to work. Something they have not done in years. Does that restore my faith, in Uncle Funny (formerly Uncle Sam), or Congress (the court jesters). Not in the least. I COUNT on them. To make a MESS of anything they touch. But, it is good to see them work, no matter how POORLY, they do the job.

But, I do believe in TIME, and COMPANIES, and PROFIT. All indications say this is NEAR a bottom, if not an actual bottom.

A few indications say there will be life ten years from now. If there is a future, this might be a GOOD time to plan for it. If there is NOT to be a future, will it matter anyway?

And, there is this too. You can't fight the government,, and win. Right now, the government,, favors banks. Yes, you might make a TON of short term money there. I still bet against them both.

In short,, I believe in PEOPLE. I believe we have more good ones, than bad ones. I believe bad, will be VERY BAD. We could stop a lot of that. Unfortunately, we might need the GOVERNMENT to help with that. From there, God help us ALL!

I think, there will be a tomarrow, and a next day, and a next year, and years to come. I may not see all of that, but I BELIEVE in it. And, if you do, and you do not INVEST, for the future, Then ,, the FUTURE,, should happen to YOU.

A Pullback for a Better (Entry Price) Tomorrow

2009-06-22T17:58:03Z

Over the past few months, these articles have discussed inflation and commodity pricing increases. Rises in commodity prices and currency pairs have certainly budded; however, now we are facing a potential pullback.

The potential pullback is based on the Morgan Stanley Commodity Related Equities Index (CRX). As shown in Figure 1, the CRX has been very bullish while commodity prices have risen. Commodity price increases line the pockets of companies that benefit from mining, processing, selling or are otherwise involved in commodities and represent economic health driven by commodity prices. The CRX trended up more than 50% from March lows before breaking trend this past week. When a consistent trend breaks, a correction that equals the size of the trend channel and a conjunction with Fibonacci levels usually follows.

The break in the CRX trend could see price dip to retest the 38% Fibonacci level, near 570, or further to the 50% Fibonacci level, near 540, without ending commodities' bullish sentiment (see Figure 1). If this pullback continues and bounces off a support level, as it appears it may, then commodity-sensitive currency pairs might see a similar pullback, which may signal an opportunity to enter into the long-term trend at a lower price and with better money management.

Although the pattern isn't identical to the CRX, the GBP/JPY pair has experienced a similar end to a bullish trend and may be showing signs of further potential pullback. The pair could form a head and shoulders pattern within the next four to five days, placing the pullback almost perfectly at support, near 151, within two weeks. If the pair reaches support near 151 and the CRX bounces off a support level at the same moment, this would further confirm the expectations of a continued bullish run. As shown in Figure 2, price is near 159, which is almost a perfect shoulder height if price rolls over. A break below 156 could see the pair reach the 151 level and if it does, there is a great shorting opportunity. However, if the longer trend and fundamentally based trade bounce off the bigger trend's support level, the probabilities of success may increase.

The short, or long-term bullish, position can be traded in the forex spot market or by properly combing futures, which in this instance, for the GBP/JPY pair, would be buying British pound futures (/6B) pair and selling yen futures (/6J).

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BAC: Ken Lewis and Bank of America

2009-06-21T14:49:16Z

I've really tried to pay attention to this whole Ken Lewis - Bank of America saga. I'm really more confused then ever. I'm not sure what to believe and need your help. Please give me your opinions.

1. Ken Lewis is one of the smartest CEOs ever. He has weathered the storm and bought both Country Wide and Merrill Lynch for a song and got the Feds to pay for it all. He should be Time Magazine's Man of the Year.

2. Ken Lewis has knowingly lied about everything and has committed securities fraud. Not only is he as bad as Madoff and Stanford but his Ponzi scheme is a lot bigger. Indict and arrest him for fraud.

3. Ken Lewis and his Board of Directors have misled the stock holders, the Fed, the SEC, and the press. Because of their lies and deliberate misinformation stockholders have lost billions. Sue them all for every cent they have.

4. Ken Lewis is the stupidest CEO ever. Because he was clueless he made and packaged bad loans that destroyed the American economy, bought Country Wide and Merrill Lynch without even the least due diligence. He isn't smart enough to be a teller in one of his bank locations. Fire him without a severance package.

5. Ken Lewis? Who cares?

Please give me your opinions.

Jobless Claims Fall

2009-06-18T14:30:15Z

We finally had a week of falling jobless claims. This breaks a streak of 21 straight weeks of higher claims; 19 of those weeks were records. I don't know if folks are finding jobs or if they've exhausted their unemployment benefits.

The market is modestly higher in this morning's trading. Both J. M. Smucker (SJM) and Winnebago Industries (WGO) are higher on stronger earnings. I currently rate both stocks as Hold. After the bell, Research In Motion (RIMM) reports. I also rate that stock as a Hold.

FedEx Drops on Lousy Guidance

2009-06-17T17:41:52Z

One year ago, I listed FedEx (FDX) as a stock to sell immediately. Since then, the stock is down about 35%, and I don't see things getting much better any time soon.

The company just announced earnings for its fiscal fourth quarter (ending in May). The earnings report was pretty good--64 cents per share compared with Wall Street's consensus of 51 cents a share. The problem, however, was the company's future guidance.

Wall Street was expecting earnings of 70 cents per share for the current quarter. Instead, FedEx said that earnings will range between 30 cents and 45 cents per share. The company also failed to give full-year guidance for this year.

CEO Fred Smith said that economic conditions are the worst they've been in the company's history. I continue to rate FedEx a Sell.

Baby Steps

2009-06-17T14:15:05Z

We here at thinkorswim officially became part of Ameritrade this past week. We are little guppies swimming in a much bigger pond and there is a great deal of excitement for most of us with the prospect of a larger customer base to assist in investment strategies. I bring this up because I believe this is the same sentiment many traders experience when they foray into new products like options or futures from the world of stocks. There is excitement, but of course a little trepidation as well. As long as we don't lean too far over our skis initially, we will absorb some knowledge and make some strides. But it is so important to resist the urge to get ahead of ourselves.

This is our ongoing lesson to the legions of folks who are taking control of their investments; baby steps, baby steps. You can always grow trading plans down the road, but it must come in a gradual manner and not in gulps or you could choke.

So on your first venture into options, start with one contract and get some familiarity and gains. It is very easy to trade up, but much harder to reduce size because you can get slapped down. The lesson is short and sweet, but it is a simple lesson everyone must heed.

Steve Quirk

thinkorswim, Inc. and its registered employee, Steve Quirk, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.

thinkorswim, Inc. is a wholly owned subsidiary of TD AMERITRADE Holding Corporation.

Don't Believe the Inflation Headlines

2009-06-17T14:07:08Z

This morning, the government reported on consumer inflation for May. The Labor Department said that consumer prices rose just 0.1% last month which was less than the 0.3% expected by Wall Street economists.

So that means inflation is under control? Not at all.

This represents what has happened not what we're going to see. In my opinion, inflation will steadily climb as the economy recovers. Expect to see higher commodity prices.

The news that's being reported is that the year-over-year inflation rate is at the lowest level in 60 years. That's correct but it's not what's important for investors. Instead, investors should be looking at the long-end of the Treasury bond market. Here's a look at the yield on the 30-year T-bond.

You can see that investors have been dumping long-term bonds because they're worried about the threat of inflation. Unlike today's news, this is forward-looking and it will tell you more about what the future holds than any government report.

Looking Ahead to Earnings Season

2009-06-16T18:56:15Z

The second-quarter earnings season is shaping up to better than many analysts expect. Not too long ago, the S&P 500 was forecast to have its second-quarter earnings decline by 20%. But thanks to a decaying U.S. dollar, plus some economic "green shoots," the second-quarter earnings are now expected to decline by 12%.

My favorite Blue Chip Growth stocks should post even stronger earnings. The weaker dollar will especially help us. For the first quarter, our stocks posted earnings growth of 60% compared with a decline of 35% for the S&P 500.

EnCana (ECA), which was one of my favorite Blue Chip Growth stocks, stunned Wall Street with a tremendous 82% earnings surprise. First Solar (FSLR) jumped 23% in one day when it reported outstanding earnings.

Investors should continue to focus on fundamentally superior stocks that are growing sales and earnings.

Fed Gov Warsh Warns of Long Slump

2009-06-16T18:05:13Z

At 2 p.m., the stock market is down again. The Dow is currently down by about 80 points. Federal Reserve Gov. Kevin Warsh threw some cold water on hopes for a strong recovery. He said he expects business and consumer spending to remain weak for several quarters, and unemployment to remain high.

Warsh explained that there's a difference between the economy pulling out of its tailspin and a truly robust recovery. He said that the global economy may be in for a prolonged period of slow growth. Warsh said, "given the serious misallocations that marked the onset of this recession, there is good reason to believe that the period of reallocation will be deeper and last longer."

Best Buy's Profits Drop

2009-06-16T13:53:51Z

It's no secret that retailers are having a tough time. Best Buy (BBY) just reported that its earnings dropped from 43 cents a share in last year's first quarter to 36 cents a share for this year's first quarter. Sales rose 12% to $10.1 billion.

The stock is selling off this morning but I think it's a good buy for investors. The company actually gained market share thanks to the demise of Circuit City. Also, when you exclude restructuring charges, BBY's earnings came in at 42 cents a share which was eight cents higher than Wall Street's consensus. I think this indicates that the company will do well once the economy begins to recover.

Today's Economic Reports

2009-06-16T13:43:09Z

There were three major economic reports this morning.

First, wholesale prices rose 0.2% last month. Most of that was due to higher energy prices. If you look at the "core rate," which excludes food and energy, producer prices fell 0.1%. Even with the 0.2% gain, the year-over-year rate is showing its steepest decline since 1949.

Speaking of the 1940s, industrial production dropped 1.1% in May which brings the year-over-year drop of 13.4% to its lowest level since 1946. May's report was a tad more than the 1% drop Wall Street was expecting.

Finally, housing starts surged by 17.2% in May. That's coming after a big 12.9% drop in April which brought housing starts to their lowest level since the late-1940s.

Shift in Boomer TV Habits

2009-06-15T21:01:05Z

By Paul Carton
June 15, 2009

A couple of decades back it was the Baby Boomers driving new waves of consumer demand, but are they still at the forefront of today’s media and technology transformation?

Surprisingly so, according to the latest ChangeWave survey of 1,660 members of the Baby Boom generation. The benchmark survey of business professionals between the ages of 45 and 63, completed in early May, focused on TV viewing habits vs. home Internet usage.

The results point to a powerful shift occurring among Boomers away from traditional TV towards new types of online services and entertainment. Importantly, this transformation is affecting lifelong habits.

In the first major finding, Boomers now spend more free time online (12.9 hrs per week on average) than they do watching traditional TV (11.8 hrs per week on average).

What’s more, by a five-to-one margin Boomers are watching less traditional television than they did a year ago. Among this group, 62% say it’s because they’re not as interested in what's on TV these days, and another 26% say they’re spending more time surfing the web.

Social Networking Not Just for Teens Anymore

One place that Boomer professionals are spending more time online is with social networking sites – where 51% say they currently maintain one or more profiles.

Nearly three-in-five (57%) of these Boomers report they use the networking site LinkedIn, while another 55% have a Facebook profile – the site normally thought to be most popular among teenagers.

But Boomer interest in social networking has its limitations – 77% of users say they would not be willing to pay a subscriber fee for social networking. Of all the services, LinkedIn is the most likely to attract paid subscribers – but only 7% say they’d be willing to pay a fee if it was no longer free.

A Closer Look at Traditional TV vs. Alternative Programming

Among traditional TV viewers, an astonishing one-in-five (20%) say they’re likely to downgrade or cancel their current TV service package in the next 6 months. The likelihood of canceling is highest among Cable (22%) and Satellite subscribers (22%), and lowest among fiber-optic TV subscribers (7%).

We also asked Boomer respondents to tell us which one paid subscription they’d be most willing to give up, and again its TV Service (44%) that appears most vulnerable – scoring significantly worse than any other subscription service.

Adding fuel to the fire, Video-over-the-Internet now clearly represents a significant threat to traditional TV viewing. Better than two-thirds of Boomers (69%) say they’ve watched video content on their computer over the past 90 days. Even more ominously, 48% of respondents say they’d be willing to pay a monthly fee for a Video-over-the-Internet subscription if it provided the same programming currently available on their TV service.

Top TV Websites. YouTube.com (79%) is the leading online website Boomers use to watch video, followed by TV Network Websites (39%), Hulu.com (16%) and iTunes (11%).

As a follow-up, we also asked respondents how willing they are to view advertisements when watching Video-over-the-Internet. And while Boomers clearly want to see fewer ads than they do with conventional broadcasting, more than two-thirds (68%) do say they are willing to view at least some ads online.

Winners and Losers

The shift among Boomers towards Video-over-the-Internet is a long-term trend that bodes poorly for traditional TV service providers, as they face a triple whammy of challenges:

• 20% of Boomers are likely to downgrade (or cancel) their current TV service in the next 6 months – mostly among Cable and Satellite users

• 44% say TV service is the paid subscription they are most willing to give up

• 48% said they’d be willing to pay a monthly fee for a Video-over-the-Internet subscription if it provided the same programming currently available on their TV service

At the same time, there appears to be a huge market opportunity for companies that can successfully package a paid subscription model for Internet TV.

Update for readers from yours truly :)

2009-06-15T18:45:03Z

Dear readers of my sk.com blog. As many of you have noticed already- I've stopped updating my blog regularly back in March. Things have been quite crazy here with my fund ( all good - new clients, first year track record with high single digit positive return vs 35% negative for markets etc)... However, that has also left me with very little time to do the writing...

Sorry for keeping the lights shut for so long but here are some good news- I am getting ready to restart both my MSN and SK endeavor within days so stay tuned !

Wall Street Down In Early Trading

2009-06-15T15:19:50Z

The stock market is currently down 200 points this morning. Selling is across the board in many different industries. What's been doing well recently is doing poorly today. Oil, gold and other commodities are down.

The Treasury Department said that demand for long-term financial assets dropped in April. Net buying by foreigners was $11.2 billion in April, down from $55.4 billion in March.

Tim Geithner and Larry Summers had an op-ed in this morning's Washington Post. Here's part of what they said:

Our framework for financial regulation is riddled with gaps, weaknesses and jurisdictional overlaps, and suffers from an outdated conception of financial risk. In recent years, the pace of innovation in the financial sector has outstripped the pace of regulatory modernization, leaving entire markets and market participants largely unregulated.
That is why, this week -- at the president's direction, and after months of consultation with Congress, regulators, business and consumer groups, academics and experts -- the administration will put forward a plan to modernize financial regulation and supervision. The goal is to create a more stable regulatory regime that is flexible and effective; that is able to secure the benefits of financial innovation while guarding the system against its own excess.

Geithner and Summers focus on five key problems.

1. Existing regulation focuses on the safety and soundness of individual institutions but not the stability of the system as a whole.

2. The structure of the financial system has shifted, with dramatic growth in financial activity outside the traditional banking system.

3. The current regulatory regime does not offer adequate protections to consumers and investors.

4. The federal government does not have the tools it needs to contain and manage financial crises.

5. The actions we take will have little effect if we fail to raise international standards along with our own.

Navellier Seminars

2009-06-15T14:06:55Z

I'll be speaking in Atlanta, Georgia tomorrow at the Renaissance Waverly Hotel and Austin, Texas on Wednesday at the Renaissance Austin Hotel.

You may attend at no cost, but please call 800-454-1395 to register. I'll review the current market outlook and answer any questions you may have.