Buzz Bits: Dow, Nasdaq Continue Higher
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Earnings Report - MV News
- Microsoft (MSFT) reports 3Q EPS of $0.49 vs. $0.46 cons on revs of $14.4 bln vs. $13.89 bln.
- Broadcom (BRCM) reports 1Q EPS of $0.10 vs. $0.09 cons on revs of $901.5 mln vs. $896.9 mln cons.
- KLAC-Tencor (KLAC) reports 3Q EPS of $0.76 not comparable with $0.78 cons on revs of $716.2 mln vs. $709.3 mln cons.
- Rackable Systems (RACK ) reports 1Q EPS of ($0.13) vs. ($0.05) cons on revs of $72.0 mln vs. $73.59 mln cons.
- Baidu.com (BIDU) reports 1Q EPS of $0.37 vs. $0.36 cons on revs of $35.7 mln vs. $34.3 mln cons.
Bell Buzz - Todd Harrison - 3:46 PM
- Through objective eyes, there's no arguing that the action is impressive. Particularly with today's stronger dollar and the not-particularly impressive breadth. I don't particularly agree with it but I certainly respect it.
- Rolling stops on active longs make all the sense in the world. They don't, however, protect you from overnight gap risk.
- Why can't I stop thinking of Peter Keating?
- Do you believe in Miracles? YES! We know--the Miracle in Manhattan Event, in which the RP Foundation will benefit, is on MAY 23. Regardless, it should be a fun event with alotta Minyans so feel free.
- Boo and his buddies are grasping for levels to lean on. I told him that BKX 118 is relatively tight but a rally straight into S&P 1530-50 would be the highest probability fade.
- I feel like a Foreigner song lately but I've also been doing this long enough to know that sometimes you're gonna be the windshield and other times you're gonna be the bug. I also understand that a step back typically lends perspective, which is why I don't feel that guilty about next week's respite.
- Fare ye well into the bell, Microsoft and, in my case, my collision course with a BLT popover!
Dangerous Times for Copper - Sally Limantour - 2:13 PM
Copper has been in a major bull market since making its lows in 2001 and has had the greatest percentage move of all the commodities with a gain of 588%. Like crude oil, copper has also had some violent declines followed by sharp rallies.
As an industrial metal copper has been the poster child for China's demand for "stuff" to build "things" and is a bell weather for how the world is perceiving China's growth. As we have witnessed before markets get jumpy when anything threatens to slow down their demand. While all signs indicate continued growth corrections are part of the game and we need to be aware of both time and price.
Seasonally, this is a dangerous time for copper as it has the same historical tendency as the stock market where you "sell in May and walk away." While this is not 100% accurate there is a high seasonal correlation. When we look at a copper chart we see that since last February the market has rallied off the lows by 54%. As mentioned this morning the weekly chart was looking ominous and the daily chart was starting to show a series of lower highs. Tuesday produced the pop and drop where it made a high and failed, thus producing a potential short or at least a message to liquidate longs( or aggressively move up stops on long positions).
While the fundamental background is strong and copper stocks continue to decline a break below the previous week's low and a close under the 21-day moving average should keep copper on the defensive. After riding this recent bull trend in futures I am now out and long July copper puts for now. Still holding long positions in stocks.
Positions in FCX, PCU, PD, copper puts
Tumblin' Dice - Jeffrey Cooper - 11:10 PM
Hats off to Prof. Zucchi on his post regarding the two sided risk on F5 Networks (FFIV).
I looked at it as well and couldn't find an edge in the pattern. Ditto for Nutrisystem (NTRI).
If you don't have an edge you might as well be rollin' the dice, and as we all know if you don't know when it's time to pass and walk away from the table the House will eventually take your money.
I did play Apple (AAPL) in front of the earnings because of the bullish cup and handle pattern and the recent sign of momentum was telegraphing a potential move higher wherein I judged that if the reaction to earnings was poor the same buyers would step in at support. See the chart here.
Likewise, the chart on Amazon (AMZN) was picture perfect in front of earnings---a picture of strength with a first tight wedging pullback in front of earnings. Print that chart out and put it in your memory bank.
About That River In Egypt - Fil Zucchi -9:59 AM
Credit default swaps on many financial names have shrunk significantly over the last couple of weeks, as the notion that we are in an unassailable state of permanent prosperity percolates the airwaves. We could argue ad nauseam whether the collapse in CDS spreads was the cause for the equity ramp, or whether the equity ramp caused bearish speculators to abandon their speculative bets against CDS', but I'd rather not. The fact is that the two are moving in lockstep.
That brings me to the homies, many of which have, or imminently will be reporting their quarterly losses. While the group is now considered irrelevant and its impact on the economy completely discounted, it is worth noting that the CDS of many homebuilders have recently blown out not only in terms of "percentage change," but also in terms of absolute spreads. Here are some samples:
As a point of reference, the CDS' of companies widely regarded as being directly exposed to further consumer/housing credit problems – Capital One Financial (COF) and WaMu (WM) for example – only reached spreads of 40-65 bps, at the peak of the recent sub-prime fears. (This meant that to insure the bonds, the CDS' sellers were demanding 0.4-0.65% of the face value of the bond per year.) With homies' spreads now in the 200 to 300 bps, the relative stability of the equities seems... odd?
On a related note, this Bloomberg piece reports something that I've been hearing through the legal grapevine for some time, which is that large law firms are once again beginning to bulk up their insolvency/reorganization groups.
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