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Buzz Bits: Tuesday, November 22, 2005

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The Buzz of the day...

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O'le I say! - Todd Harrison - 3:13 PM

The more things change, the more they stay the same...and Hoofy is fine with that, thankyouverymuch. I just stepped off the desk to tend to an affair and, as I noodled the recent action, I reminded myself that our war is made up of alotta little battles. And there seems to be a bevy of battles unfolding of late.

As I've mapped out my best laid plans, I've been watching the recent traction in the piggies with rapt attention. I've still got a spate of downside puts in place and, having peeled out of a lot of the tertiary longs (that I had against them), I have a decision to make. I haven't turned to cover--yet--but I'd be lying if I offered that I wasn't a wee bit concerned. I suppose that's why "stops" were created.

I learned a long time ago that losses are a part of the trading game and I strive to avoid rationalization. With that said, I'm still allowing for some room before punting my puts as there seems to be a disconnect between perception and reality. I may be wrong--it wouldn't be the first time--but I'll always be honest. This you know.

Anyway, just thinking aloud as we trek to the turkey and focus on the important stuff. I sincerely hope this finds you hittin' 'em hard and keeping the flickering ticks in perspective. Easier said than done, I know, but that will always be our task at hand.

R.P.

Semi-pro - Kevin Depew - 2:27 PM

The recent action in the Nasdaq has finally... finally... worked its way down to the Semis. The PHLX Semiconductor Index (SOX) will break a spread triple top with a print of 490. If/when. By the way, this is not a leading relative strength group, it's a lagging one.

Hear Ye! Hear Ye! Hear Ye! - 1:59 PM

Minyanville is proud to annouce the addition of Bennet Sedacca as our newest professor.

As President of Atlantic Advisors, Bennet brings more than 26 years of securities industry experience. Providing expertise in the fixed income arena, equity markets, and cash management, Bennet has assisted both individuals and institutions in the implementation of their investment objectives.

From 1981 to 1997 he worked for several major investment banks, specializing in high grade fixed income securities marketing, trading and portfolio management. While working for PaineWebber as a Senior Vice President, Bennet was a member of the Chairman's Council for four consecutive years. During his years with Salomon Smith Barney as a Vice President, Bennet established an institutional fixed income presence in Central Florida.

In 1997, Bennet formed Sedacca Capital Management focusing on portfolio management for high-net worth individuals and small to mid-sized institutions. In addition, Sedacca Capital Management was the investment manager for two hedge funds, Sedcap Partners I & II.

Bennet graduated from Rutgers University in 1982 with a degree in Economics and was a member of the International Honor Society of Economics.

Please join us in making Bennet feel right at home!

Flashback! - Bill Meehan - 1:40 PM

This day in market history...

  • Closing levels 6 years ago as we inched toward Y2K:
    • DJIA: 11,089.52
    • S&P 500: 1420.94
    • Naz: 3392.56
    • Crude: $28.03
    • Gold: $294.30
    • MSFT: $89.81 (or $39.34, adjusted for splits & dividends)

This day in Minyanville history

In other news...

  • Where were you? In 1963, President Kennedy was assassinated in Dallas

Mini-Minyan Mailbag - Todd Harrison - 1:32 PM

"Dr T, Does it matter if the movement in the SOX is MU & INTC today (as a function of their JV_? Just wondering, Minyan Art"

MA,

I don't think so--that would be like saying the movement in the NDX is being skewed by the nets and semis. It's part of the composition so its gotta be factored in. Besides, Texan (TXN) and the semicaps are doing their part as well.

Times Square - Kevin Depew - 1:05 PM

Yesterday the Metro section of the New York Times ran a piece looking back at a 20-part 1955 series on how New Yorkers were looking forward. It was fascinating to read first-hand the problems the city faced as well as the predictions for economic and social trends going forward.

One of the most startling quotes from the series, however, was this rather pessimistic take on Times Square: "Times Square "never got off its knees after the Depression darkened its theaters." Sordid slums endured, "awaiting their day in the light.""

What is remarkable is the fact that the bearish sentiment, still ingrained from the Depression, was still evident, and lingering nearly 20 years later. Not, as well, that it occurred near the beginning of a 16-year secular bull market, and is very similar to Times Square sentiment in the early 80s (also near the beginning of a secular bull market) when sentiment was that the situation in Times Square had grown so dire that more than a few activists seriously recommended razing it and starting over.

Today, Times Square is largely considered to be an urban NYC version of Disneyland. Some even decry the fact it has "lost its edginess." Well, be careful for what you wish.

Herding Discussion - Scott Reamer - 11:47 AM

More on herding. The price of crude oil is down 17.6% from its post Katrina peaks. You will recall that arguments about 'peak oil', supply disruptions, lack of refining capacity, and $4 and $5 gasoline at Christmas time; all were making their way into financial and general media headlines in September.

When everyone believes one thing, that one thing (higher oil prices, higher stock prices, etc.) no longer has any "nourishment" to continue (to use Kevin Depew's terms). Once everyone is committed to a trend, by definition that trend is complete (at whatever degree of scale you are analyzing). Developing a theoretical understanding of why this is so is what we speak about when we suggest Minyans try to understand herding behavior.

Developing tools to measure and predict this behavior is what consumes us.

Myth Debunking, by request - Jeff Macke - 11:43 AM

  • Prof. Miller, TiVo's (TIVO) head seems lodged pretty much where it ever has been. It's relatively cheap. The Street remains confused. I'm not convinced the stock is going anywhere soon but I haven't sold it (most likely because I'm not as smart as my massive bald head would suggest).
  • Target (TGT) in no way "planned" to be missing sales forecasts for November. Wal-Mart (WMT) caught Minnesota's finest flat footed (see "D. Bobick v. Norton").
  • Mike Tyson: Not a top-10 all-time heavyweight. Not even close.

Position in TiVo

Lock Arms - John Succo - 11:20 AM

Guidant (GDT)/Johnson & Johnson (JNJ) stock prices continue to slide. GDT is going down more than it should, so the spread is widening.

Someone just sold 10,000 GDT 1/60 puts at 1.52. We are also short these puts.

We think the deal has a 97% chance of completing. If it does, the GDT 1/60 puts consist of $33.25 in cash plus one-half share of JNJ stock.

JNJ would have to go to $53.5 in order for these GDT 1/60 puts to have any intrinsic value ($33.25 + ( 53.5/2)).

We have been buying the JNJ 1/55 puts for $.2 and selling the GDT puts at $1.50 on a ration to capture this.

Position in GDT and JNJ

Precious (Metals) vibes from "Snoop" Tony Dwyer of FTN Midwest Research: - MV Respect - 11:17 AM

"Gold may lose some luster over coming weeks. At this point everyone has seen the rally to new highs and talk is of Gold moving over $500/oz.

The reasons for the sharp run higher in Gold range from Russian Central Bank buying to a sign of pending inflationary pressures that will cause the Fed to raise rates much further than people expect. The rally has become extreme, whatever the reason for it.

We found that since 2001, anytime (other than the buildup to the Iraq Invasion) the 10-day Rate of Change (ROC) indicator reached an extreme level... [i]t was followed by an average drop of 6.95% over 32 days... [o]ur argument isn't [that] the trend or fundamentals are poor --- quite the contrary --- our argument is that buying on spikes historically hasn't been the right move, especially when the upside appears so clear."

Mini-Minyan Mailbag - John Succo - 10:58 AM

Prof. Succo -

One would think the continuous climb in gold would give equity investors pause, no?

Minyan Neal

MN -

That is not what a herd does.

A herd wants satisfaction. When the herd is rewarded it does more of what it was doing. The herd only cares about higher stock prices.

This is exacerbated by the "other people's money syndrome." Mutual fund managers do not pause in buying stocks because gold is going up and "telling the market something." If fund managers have cash, they are buying.

And foreigners who long the dollar and wanting to diversify out have found there is no place to go, so they buy U.S. stocks with it. Of course, this is in large part central banks, which is crazy.

Topping processes consist of this, the herd taking more and more extreme points of view because they are rewarded for their behavior.

Fun Fact ... - Jason Roney - 10:37 AM

This week has a big up bias, of course, which we talked a bit about last week. But now have had four weeks without a .5% drawdown in the Dow! This week would make five, and five seems likely after yesterday gains.

We have only seen four weeks without a .5% drawdown seven times before: Nov. 1992, Aug. 1993, Jan. 1994, Dec. 1995, Dec. 1996, July 1998, and Dec. 2003.

Occurrences of five weeks without a .5% drawdown only happened four times before, and the longest streak is six (at the end of 2003 and beginning of 2004).

Bud, the wiser? - Kevin Depew - 10:22 AM

News this morning in the Wall Street Journal outlining the extent of Berkshire Hathaway's (BRK) accumulation of Anheuser Busch (BUD) stock; BRK now has a 5.8% stake in the company.

Talk about quiet accumulation, at least from a technical standpoint. The chart of BUD last gave a point and figure buy signal (basis .5x3 chart) in June, 2004 at 54.5. It has since given nine conseuctive sell signals and is now testing resistance at 44, with more resistance overhead at 45.5. The first point and figure buy signal would not occur until 46, and would still be below trendline resistance.

Say what? - Kevin Depew - 8:31 AM

A look at commentary, opinion and analysis from around the world:

  • Bloomberg columnist Caroline Baum says conspiracy theorists and Europeans are pretty much the only ones mourning the loss of M3 reporting. What an insult. I may be a conspiracy theorist, but at least I'm not European!
  • Ok, so anyone mourning M3 loss is a conspiracy theorist or a European. What about people who fear a crippling pulse from space? What are they, mutants? No, not mutants, helpers! They're just worried and trying to help, says the Washington Times. It's about setting priorities, people!
  • Ok, we would like to apologize for allowing the recent stock market breakouts to distract us from commenting incessantly about the looming U.S. real estate bubble. It's still looming, we just haven't said much about it. To get back in the groove, check out Euro Pacific Capital's Peter Schiff writing about Real Estate, and why "This time it really is different."
  • Today the Financial Times takes a look at the generic onslaught against branded drugs. The growth rate of generics is nearly double that of branded drugs in the U.S. Suddenly, I'm getting an image of American priorities: Clothes? Gotta have the right label, has to be branded. Prescription drugs? Eh, whatever you got is fine, the cheaper the better.
  • Brett Duval Fromson, manager of the Margin of Safety Fund, writes in the Wall Street Journal that stiffer SEC regulation of hedge funds strikes him as a solution in search of a problem. Of course it strikes him that way. He runs the "margin of safety fund"! But what about the dude running the "precipice of disaster fund"?
  • Roy Kheng writing for the Business Times of Asia looks at China's digital revolution. China will soon have the most number of Internet users in the world... also, soon the most number of "accidental" porn surfers. "I had no idea, honey, it must have been a pop-up ad!"
No positions in stocks mentioned.
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