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Buzz Bits: Friday November 4, 2005


An evening taste of the daily Buzz.


What's on tap? Budweiser...Oh, you mean next week?

Look out for earnings from the following companies as the parade begins to dwindle down.

Monday: ADRX, EP, MWY



Friday: n/a

Bullet points, literally - Kevin Depew 2:35 PM

  • Google (GOOG) has now risen 17 straight boxes on a point and figure chart, basis 4x3 scale, without pausing since breaking a triple top at 324.
  • Last night I went to see Tom DeMark showcase his new product developed in conjunction with Thomson Financial. I'm using the new Thomson-DeMark product right now. It can run numerous scans, and includes features that used to be time-consuming to program and run, if possible at all, with other DeMark-related vendors.
  • It's easy to scoff at people whose beliefs are different from our own. And I guess that's what I like about it, that it's so easy.
  • Now that the US Dollar Index (DX/Y) has broken out above the 91 level, the next resistance is at 92. The longer-term price objective remains 99.
  • I bet in the Old West, a lot of people who were considered quick-on-the-draw gunslingers were actually just nervous, jumpy types. After the first "kill" they just kind of fell into that gunslinger niche and decided to go with it.

My ½ a cent on dividends and buybacks - Fil Zucchi 1:57 PM

I don't know that there is a right or wrong conclusion on the dividend/buybacks benefits, or lack thereof, to shareholders. The many scenarios described by Red, John, Scotto and TV Jeffmacke © all have their pros and cons, and the value creation attribute may ultimately rest in the eye of the share-beholder.

I do want to point out though an ever more common practice on Wall Street, and something that the Iron Horse alludes to on a regular basis as a possible driving force behind higher stock prices: many buybacks, if not dividends, today are funded with cheap debt. IMHO, these types of operations are nothing short of outright stock-price manipulation. Taken to its extreme you have situations like Pre-Paid Legal Services (PPD), an old nemesis of mine, which yesterday announced a new $160M credit facility to be used for share buybacks and dividends, in a never ending quest to crush the shorts. There is little doubt that PPD shareholders' equity, as well as its business, will ultimately disappear (PPD's EPS growth has been coming down for years and this year will likely show an outright decline from 2004; this is despite management's constant buyback efforts), and this type of financial maneuvers will likely accelerate the process. But there is also no question that PPD's management can walk the stock up while the business goes the other way.

I recognize that many Minyans understand the difference between debt funded buybacks/dividends and those undertaken with free cash. But this distinction is certainly not being highlighted in the mass media and the risks of such financial engineering go well beyond the discussion of whether dividends / buybacks are a good/bad use of cash.

Under the hood - Kevin Depew 1:44 PM

A quick check under the hood on the market internals shows that more net new buy signals than sell signals today. Meanwhile the Building and Real Estate sectors are the laggards, and among the few sectors showing more net new sell signals than buy signals. The overall market context remains negative, however.

Meanwhile, among individual stocks, Vitaliy has been writing about Becton Dickinson (BDX) lately, and the stock today has given a new double top buy signal with the move above 57. This is the first buy signal for the stock since March. Support from here is in the 52-53 area.

And speaking of deals . . . - Fil Zucchi 12:39 PM

Nary a mention by the analysts of the potential impact of Mister Softee's (MSFT) plan to roll-out web based applications and OS, no doubt to compete with Google's (GOOG) plan to offer an online version of a freeware "office" suite.

No Minyans, I am not talking about MSFT or GOOG analysts, I am talking about analysts that cover Akamai (AKAM). Does anyone figure that these online apps. will have to be delivered from the edge of the network? And that the amount of content that will be flying around will become somewhat mind-bending?

And did anyone notice Viacom's buyout of College Sports TV? Yep, you guessed it Minyans, CSTV uses AKAM to deliver its programming.

None of these by themselves may mean much, put them together and look past modeling the next quarter and . . . .

This concludes today's shameless book-talking portion of our programs.

(Position in AKAM, GOOG, VIA.B)

Gimme my Greenback! - Todd Harrison 11:12 PM

Watch the dollar, cookie, as it's now above our aforementioned resistance. This is a pretty big breakout and, not surprisingly, the metals have been waxed in kind.

Could this be the beginning of the washout that the Savvy Seer of Sautville vibed? Sure, it very well might be (it meshes with some other annecdotal evidence shared on yesterday's Buzz). Still, and while I respect the potential for some meat to this smelting, I've got some core exposure and will look to scale into more as a function of price (rather than "sell to buy back.")

How you approach this juncture is a function of your particular approach (and time horizon) but that's how I'm choosing to view the dew.

Mini-Minyan Mailbag: Copperhead - Kevin Depew 10:37 AM


Can you please look at charts of Phelps Dodge (PD) and Marriott (MAR)?

Is MAR churning under resistance with potential downside... interested in your thoughts.

Minyan Scott

MS -

PD just registered a TD-Sequential (TM) 13 on a daily chart, but that is occurring in a strong trend and on a point and figure chart the stock has well defined support in the 116-118 area. Meanwhile, when I look at the most active chart of Copper, the pattern is similar, but the metal itself is showing some interesting divergences that are indicative of a topping process, in my opinion. Not advice, but I see more downside potential with copper than with PD based on their current patterns.

As for MAR, the stock has some room up to 65, but the near-term context is negative and the pattern weak. The long-term positive trendline is in the 52 area and I expect the stock may want to move toward that area longer-term based on the downside price count.

Winnie the Pooh? - Jeff Macke 10:35 PM

In order to distract my mind from further pondering of Todd-O's nibbling "appetites" I'll draw your attention to the SF Chronicle's Seven Part Series arguing on behalf of the construction of a suicide barrier on the Golden Gate Bridge.

So, for the hypothetical SF resident, if you were driven into bankruptcy and depression by the artificially high-prices resulting from SF's so-far effective protection of Mom & Pop's Constitutional right to charge $6 for a 12-pack of Coke (KO) by thwarting Wal-Mart's (WMT) evil, price-cutting invasion scheme you will no longer be able to throw yourself capriciously off the Golden Gate. At least not if Herb Greenberg's old employer has their way and we put up those fences.

Sorry... I shouldn't have had that third coffee. And, hey, what's a little off-topic ranting between friends on a Friday?

What's happening, Rerun? - Kevin Depew

Jeffmacke© just pinged me demanding to know what Activision (ATVI) is doing up a meager 2 cents. Easy, killer. On a point and figure basis the chart is a standout; a completed "buillish" shakeout pattern resulted in a triple top break at 17.5. It just needs a bit of a rest. The stock could slide back to 14.5 and remain technically sound.

Level Lore - Todd Harrison 10:10 AM

Keep tabs on NDX 1630-1635. It's the '05 highs and the level we failed from last December. There are likely some pretty good 'stops" on the other side of that ride.

Conversely, if you're feeling particularly furry, fading (read: selling) 'em here with a stop above that level is mighty defined risk.

Watch out for the Payroll spin - Scott Reamer 9:29 AM

Here is a chart of average hourly earnings MINUS inflation (CPI). This is "real" wages: note that this -2% number is making a 14-year new low and has not been this bad since March 1991 when we were in recession. The 56K adds in employment is bad, but this is THE stat to watch, in our opinion, and confirms both the portentous savings rate and unit labors costs data we have seen over the last few months.

This is why we are so negative on consumer discretionary and, by extension, financial services.

But will it sell in Asia? - MV News 8:59 AM

The NY Post reports that Microsoft's (MSFT) Xbox 360 is already sold out on the Wal-Mart (WMT) website and the company is telling people to go to its stores the night of the release, Nov 22. (AMZN) said Xbox 360 is unavailable in the U.S. and is warning U.K. buyers that it may not arrive in time for the holidays.

MSFT has said it plans to ship 4.5-5.5 mln units by June.

The Vibe from Lehman Scribe Jeff DeGraaf

"Trend indications actually improved with the recent move of the SPX through 1209. That leaves 3 of 5 positive, officially no change from the previous reading, but incrementally neutral with a positive bias. When we examine the equity line on our various trading systems, trend has (for the second year in a row), not been the call, it's really been momentum. At this point momentum is positive and still reflective of a long bias.

There are, however, points when momentum and volume spike and indicate a potential momentum climax. This is one of the few indications we have to alert us to potential trend reversals without distribution. The NASDAQ registered one of those days yesterday with volume and price deviations. We are less inclined to believe this indication here because price measures are looking volatile compared to past price volatility."

Mini-Minyan Mailbag: C.R.E.A.M. - Scott Reamer 8:43 AM

Prof. Reamer,

Please tell me what you think about this article on the dollar.

Minyan Neal

I remain intermediate term bullish the USD, a stance unchanged from November of last year. It has some more room to run in my view notwithstanding the very real possibility of a few months of choppy decline that finds support and pivots up (if that doesn't happen immediately).

"It hardly needs mentioning that the outlook for gold and silver, if the dollar breaks down from here as expected, is very rosy indeed." says the article you attached. This is nonsense, a point that I simply cannot make enough. Yes there is a strong negative correlation from 2003 to present (-71%) but from 1986 to 1996 there was a -14% correlation and from 1995 to 2000 a -27% correlation.

How will we know when the currently strong correlation will revert back to the old non-correlation? We can't and won't. Which is why it is massively dangerous to make a gold call based on the dollar call. Read "The Golden Constant" by Roy W. Jastram and you will come away with a profound appreciation for just how gold "acts" during inflations and deflations. It's not how you think. Say What? - Kevin Depew 8:18 AM

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

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