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Buzz Bits: Dow and Nasdaq Head Upward


Your daily Buzz & Banter highlights.

Editor's Note: This is a small sample of the content available on the Buzz & Banter.

Schnitz and Giggles - Todd Harrison - 3:20 PM

I've gotta flip lids and juggle struggles into the close---meaning, I've gotta turn my attention towards my ample to-do list--but, before I scoot, I wanted to offer the first five thangs that come to my mind.

  • Man, those homies trade heavy. The sharpest rallies are occur in the context of a bear market but jeez, Louise, these names couldn't find love in Amsterdam with... nevermind, I'm self-editing.

  • Volatility tends to roll through asset classes as a function of the (upwards of $500 trillion of notional value in) derivatives. As such, note the motion and movement in energy and metals and ready yourself for a wild ride. It's coming.

  • If this is how Citigroup trades on good news, I don't wanna be around when the next shoe drops. I'm not, mind you, and that's alright. Whenever I feel emotionally involved with a stock, it's a sure fire sign to find another vehicle. And yes, this does have a Countrywide-Bank America feel to it, just much bigger with entirely broader implications.

  • Clowns to the left of us, jokers to the right. Yes, this is a very important close.

  • Sometimes I focus so hard on the destination, I fail to enjoy the journey. That, along with helping children and celebrating kinship, is why I'm so looking forward to Festivus next Friday as much as I am. We've got over 300 Minyans gathering in the big city for BBQ, bands and banter. It's long overdue---we haven't gathered since the CCA--and I, for one, can use some attitude alignment into the holidays.

Fare ye well into the bell and have a mindful Tuesday night!


Staples Appreciates the Feedback - Kevin Depew - 2:10 PM

Staples (SPLS) is up more than 11% today after reporting earnings that beat analysts' awful expectations. Fair enough.

Take a look at the chart, however, and you'll see that today's movement is more of the same trend of lower lows and lower highs stretching back for months. More on that in a moment.

The conference call certainly didn't paint any pleasant macro pictures. Same store sales were down 3% for the quarter. Customer traffic was "slightly negative" and average order size was lower.

COO Michael Miles said, "We have experienced a real slowdown in the purchase of durable goods, which seems to be driven by some of the general economic trends, particularly in the housing market. Furniture has been weakest, which is a category of retail that is disproportionately skewed toward residential customers with that hardware and even computers also down in the quarter."

Overall, for Staples the message was somewhat mixed. The company performed well in terms of margin and particularly against their competition. But as Miles noted, Q4 is the most important for the company as most of their money is made in January. The company has built in a relatively soft view with their guidance, but there are risks because, even with lower comps, any macroeconomic recovery is a second half 2008 story, not first half, the company said.

Last but not least, there was one interesting question on the call that hits directly at corporate risk aversion. SPLS has $1 bln in cash on their balance sheet. Heading into today the stock was at 2005 levels and is on an absolute PE ratio cheaper than it's ever been on a valuation basis, so why hold onto all that cash? CFO John Mahoney said, "We've seen many occasions when companies have regretted large share buyback programs and as a result we think that slow and steady is going to win the game in the end."

But, since SPLS bought back 180 mln shares in the current quarter, which is 720 mln annualized, Colin McGranahan from Bernstein pressed the issue further: "That's not even using your free cash flow, let alone deploying the excess $1 bln in cash. So it seems like slow and steady is maybe a little too slow here." Mahoney's reply? "We appreciate the feedback."

Watching WFR - Quint Tatro - 1:35 PM

The markets are drifting along at highs for the day but it sure doesn't feel like we're up over 200 points. Breadth is positive and there is some decent action underneath, but if you were to poll the average trader I would guess that just about each and every single one of them is yawning over today's move and considering what they will do when the market falls into the abyss in the afternoon.

Yesterday had a much different tone. Early strength was sold down quickly and it got worse all day but today it is almost as if we are all waiting and watching, assuming something will take place. However, each and every hour we tick by and we don't drop, the odds of a strong move into the close improves.

I am one of those yawning at today's move but I am also adhering to my contrarian instincts that say this may actually be a nice move that lasts through the bell. I have my SPY and QQQQs, have started Osi Pharmaceuticals (OSIP) and am watching closely one of my favorite solar / semi stocks Memc Electronic (WFR) for a move over yesterday's high on volume for an add.

Of course to balance this all off, I am waiting for a little Potash (POT) to burn but so far it is moving higher and may stop me out. I also am milking an AT&T (T) short and eying a few others.

It's a balancing act today but I like my positioning and feel flexible enough to play either side.

Position in: SPY, QQQQ, OSIP, WFR

Charting a Path for Gold - Lance Lewis - 11:35 AM

The XAU/gold ratio hit 0.20 again yesterday. The last time the ratio dropped to this level was two days off the August lows. In other words, despite the shares being just off of recent all-time highs, due to general equity fears, the stocks are trading at a discount to gold nearly equal to the panic levels back in August.

Conclusion: whenever the stock market catches a bounce for more than a day, look for the golds to explode in order to close the gap with gold.

Click to enlarge image

Click to enlarge image

Position in Gold and Gold Shares.
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No positions in stocks mentioned.

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