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business newsEventful Days for Iron Mountain, CSC, Timberland, and Itron as Market Remains Overbought
By
Fil Zucchi
Dec 14, 2010 12:20 pm
The lack of new highs is worrisome, but despite overbought conditions, the broader market simply doesn't seem to want to go down.
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In the "penalty" box: the 30-year Treasury bond has been bouncing in "The Box" for the last five trading sessions. "The Box" is what Dennis Gartman refers to as the price area around the 62% retracement of a prior price move. Many technicians view "The Box" as the line in the sand below which a price should not fall if the existing primary trend is to remain intact. To further support the bond price around these levels are a number of DeMark indicators suggesting that the selling which began in early October should be exhausting soon. I continue to think that the long bond has entered a primary bear market which will take yields higher than anyone can imagine at this point. But for the here and now, I am buying protection against a rally in price (lower yields). If bond yields were not to stabilize at these levels, our esteemed Fed chairman may rue the day he ever thought of QE2.
Click to enlarge
An eventful couple of days for many names mentioned on these pages before. In no particular order:
Iron Mountain (IRM): Yesterday it announced a 200% increase in its dividend; the stock gapped above its 200-day moving average and is continuing higher this morning. It is the kind of high-cash-flow-generating company that seems very much in vogue these days, despite its sluggish growth profile. I continue to think it has room to just under $30.
CSC Corp. (CSC): It announced a 33% increase in its dividend and increased its buyback authorization by $1 billion. Another company that generates tremendous cash flow.
Timberland (TBL): Precinct.com reports that the company may be in the crosshair of French consumer products company PPR. There are two possible takes on this: If Timberland gets a lowball bid from PPR, it could attract other bidders. In a prior life there were reports that Nike (NKE) had gotten very close to acquiring Timberland. So forbearing traders there may well be upside in getting involved for a buyout. However, if a takeover does not materialize, Timberland seems fairly priced at these levels. Considering I was fortunate enough to get involved at much lower prices, I am now keeping just enough exposure to keep it "fun" to follow this thing;
Itron Corp. (ITRI): Lest you think I am cherry-picking names that have done well, Itron is becoming more and more troublesome by the day (see Investing in Water Stocks: Potential Plays in Japan, China, and US.) The company is dogged by the notion that the growth in its smart metering business is about to fall off the cliff. Yesterday JPMorgan put the company on its focus list and the stock opened up more than $3. I have not been able to see the JPMorgan report, but the simple fact that the stock closed near its lows speaks volumes for the idea that sellers are lined up to dump this name on any rally. I am staying with it until February when my protective put options expire. But all things being equal, I cannot imagine fighting this kind of price action.
One final comment about the broader market: It is as overbought as it has been in a long time, and the lack of new highs is worrisome. On the other hand, despite the overbought conditions, it simply does not seem to want to go down. I am getting less long in a number of names, but I am not inclined to take meaningful short positions except for nibbling at long-dated index puts which at a VIX level around 17 offer insurance at prices that are tough to argue with.
In the "penalty" box: the 30-year Treasury bond has been bouncing in "The Box" for the last five trading sessions. "The Box" is what Dennis Gartman refers to as the price area around the 62% retracement of a prior price move. Many technicians view "The Box" as the line in the sand below which a price should not fall if the existing primary trend is to remain intact. To further support the bond price around these levels are a number of DeMark indicators suggesting that the selling which began in early October should be exhausting soon. I continue to think that the long bond has entered a primary bear market which will take yields higher than anyone can imagine at this point. But for the here and now, I am buying protection against a rally in price (lower yields). If bond yields were not to stabilize at these levels, our esteemed Fed chairman may rue the day he ever thought of QE2.
Click to enlarge
An eventful couple of days for many names mentioned on these pages before. In no particular order:
Iron Mountain (IRM): Yesterday it announced a 200% increase in its dividend; the stock gapped above its 200-day moving average and is continuing higher this morning. It is the kind of high-cash-flow-generating company that seems very much in vogue these days, despite its sluggish growth profile. I continue to think it has room to just under $30.
CSC Corp. (CSC): It announced a 33% increase in its dividend and increased its buyback authorization by $1 billion. Another company that generates tremendous cash flow.
Timberland (TBL): Precinct.com reports that the company may be in the crosshair of French consumer products company PPR. There are two possible takes on this: If Timberland gets a lowball bid from PPR, it could attract other bidders. In a prior life there were reports that Nike (NKE) had gotten very close to acquiring Timberland. So forbearing traders there may well be upside in getting involved for a buyout. However, if a takeover does not materialize, Timberland seems fairly priced at these levels. Considering I was fortunate enough to get involved at much lower prices, I am now keeping just enough exposure to keep it "fun" to follow this thing;
Itron Corp. (ITRI): Lest you think I am cherry-picking names that have done well, Itron is becoming more and more troublesome by the day (see Investing in Water Stocks: Potential Plays in Japan, China, and US.) The company is dogged by the notion that the growth in its smart metering business is about to fall off the cliff. Yesterday JPMorgan put the company on its focus list and the stock opened up more than $3. I have not been able to see the JPMorgan report, but the simple fact that the stock closed near its lows speaks volumes for the idea that sellers are lined up to dump this name on any rally. I am staying with it until February when my protective put options expire. But all things being equal, I cannot imagine fighting this kind of price action.
One final comment about the broader market: It is as overbought as it has been in a long time, and the lack of new highs is worrisome. On the other hand, despite the overbought conditions, it simply does not seem to want to go down. I am getting less long in a number of names, but I am not inclined to take meaningful short positions except for nibbling at long-dated index puts which at a VIX level around 17 offer insurance at prices that are tough to argue with.
Positions in ITRI, TBL, CSC, IRM, JPM, US Treasury.
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