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Buzz Bits: Dow, Nasdaq Continue Slide

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



Earnings Report - MV News

  • Aeropostale (ARO) reported Q1 EPS of $0.15, including $0.01 in stock based compensation, vs $0.15 cons. Revs came in at $246.3 mln vs $243.6 mln cons.
  • Brocade Communications (BRCD) reported Q2 EPS of $0.10 vs $0.06 cons on revs of $182.7 mln vs $160.7 mln cons.
  • Dell (DELL) reported Q1 EPS of $0.33 (in-line) on revs of $14.22 bln vs $14.21 bln cons.
  • Gap (GPS) reported Q1 EPS of $0.28 vs $0.27 cons on revs of $3.44 bln, which the company reported on May 4. Q1 comps were (9%).



They are not called smart money for nothing…..It is starting to happen. The long bond is starting to run…. - Bennet Sedacca - 2:43 PM

We have talked here many times about the monstrous long position that hedgers had built in the long bond contract. They reduced by a tiny amount last week, but their position is still HUGE. They buy early because they are large accounts and they usually buy, as you can see by this chart that they buy into yield peaks and sell after rates fall.

Long rates are already quietly down 20 basis points over the last week or so and the curve is flattening quickly to 13 basis points (2 to 10 year) from nearly 20 basis points recently.
They are also leaning hard against the S&P, the most in quite a while. And note what the S&P has done lately. This is why we call them 'smart money.'

We are just about to enter positive seasonality and after having been very negative on bonds since February, we have been adding duration now to portfolios. Yes, we could be a little early, and we have plenty of powder dry (we did about half of our planned swap) but I continue to believe we are going to see economic weakness and have already seen or are seeing peak earnings. It is why I don't find stocks 'cheap' at a 1.85% dividend yield.

Positions in various long-term bonds and bond funds


Too many tryin' to get in thru the out door? - Kevin Depew - 1:46 AM

Having a conversation offline with a sharp guy who noted the VIX is now stretched 15% above its 10-day simple moving average. "I have a hard time fathoming the market going much lower with the VIX stretched," he writes.

I agree that in relative terms (relative to the past six months at least) the VIX is stretched. But what about longer-term for those of us who don't trade every slip and slide and nuance of the market? Looking thru a few vol charts I see two higher lows since July 2005 and the first new "breakout" on a PnF (1x3) basis for the VIX since April of last year. Also, we now have a definitive break of the downtrend line for the VIX that dates back to October 2002.

All the indicators I use - PnF, DeMark - say we have reached a point where the probabilities are higher than they have been since 1999-2000 that we move significantly lower. Right now people are still conditioned to want to go in thru the out door, buying weakness, because it's worked well for more than three years. But the biggest money is to be made where the fewest people are looking. I believe few people are looking for a significant decline.



The Real Skinny On Sensex Walloping - Adam Warner - 1:36

The key reason the Sensex got hammered was the following:

Late Wednesday evening (in India), the government of India said that they planned to issue guidelines that would separate market participants into two categories, traders and investors, who will then be taxed differently with the former paying slightly more taxes.

The market assumed that would include FII's who would then pull money out of the markets if they were taxed as traders. However, the government was only referring to local Indian investors.

Here is what the Indian Finance Minister had to say, "No FII has been assessed as trader but as an investor because they have no permanent offices in India

He added, "I think there is a lesson for everyone in this. Reacting to uninformed reporting is not a very desirable thing."

Profit from the ignorance of the herd!

Look for a bounce there tomorrow.



"Well, the traffic was murder, you know. One of those manure spreaders jackknifed on the Santa Ana. Godawful mess. You should see my shoes." -Irwin Fletcher
-Todd Harrison - 11:33 AM

The Minx slinks back to flat as traders wait for the big splat. We've been expecting a probe and, consistent with the earlier discussion, vibed that the sooner it arrived, the more constructive it would be. Alas, the clock continues to tick towards lunch and the action is decidedly undecided. What would Fat Sam do?

As Chief Karlin decides our collective fate, a quick check of my eight screens finds:

  • Market breadth somewhat sticky at 3:2 positive.
  • The dollar paring its losses (-33 bips)
  • Relative traction in the all-important financials.
  • Europe sitting on the ursine side of today's flat line.
  • Slippage in the energy and metal equities, although select situations like Schlumberger and Ultra Petroleum are gigglin' green.
  • The S's (under 1280) and the N's (under 1634) danglin' below recent support and current resistance.
  • An unspoken tension and angst that may facilitate a counter-trend rally but pales in comparison to legitimate (big wanted) fear.


    R.P.


Position in financials, upl, energy, metal equities



Buzzlets, morning edition... - David Miller - 10:24 AM

  • ASCO abstract books hit the shipping docks Friday for weekend delivery. Expect the initial move, if any, to hit in afternoon trading Friday as some hedge funds traditionally get copies right off the docks.
  • 'Tis packing day for yours truly. 24 hours from now I'll be winging my way to Atlanta for a week at the American Urological Association conference. Then I'm home for a week and back to Atlanta for ASCO June 1-6. Apologies in advance if you don't see much of me whilst I'm traveling.
  • GPC Biotech (GPCB) and Spectrum Pharma (SPPI) are busy today as the market tries to figure out why the DSMB watching the satraplatin Phase III trial wants an interim survival analysis. Bulls say it's because there are indications of efficacy and the DSMB wants to allow rollover. Bears say it's because there are serious toxicities reported and they want to make sure there is a benefit. Three past safety analyses have resulted in the DSMB advising continuation, including one recently. Should be interesting to watch over the next few weeks.
  • Remember, the NBI rebalances as of Monday morning.
  • It seems like every time one of "our" stocks gets a head of steam, management triggers a financing. While this is par for the course in dev-stage biotech, it's happened often enough lately to where we wondered if oversupply might be a contributor to the slide. Average float in NBI stocks is up only 13,000 shares in the last month. It's up 1M since the end of last year. Both are slower than the early 2005 pace.



Have No Fear, Deflation Ain't Here - William Fleckenstein - 9:47 AM

The inflation genie has been out of the bottle for quite some time. I have always felt that (1) inflation would be the outcome of the policies pursued in this country (hence, my motto on the masthead), and (2) if we were ever to experience deflation (something I'm doubtful of), it could only happen after inflation had been tried, the dollar collapsed, and all of that fed on itself -- an outcome that we would see far down the road. Everyone who's been fretting about deflation for the last five, 10, or even 20 years has been dead-wrong, though if they expressed that viewpoint by being long bonds, they made money until recently, despite being wrong in their central thesis.

Nevertheless, the fear of inflation is an idea whose time appears to have come. I think it's particularly ironic that one of the very fiddles that suppressed inflation while housing prices were screaming (i.e., owner-equivalent rents) has now turned and is going the other way -- pushing up inflation at a time when home prices are starting to flatten and head south.

Rents are going up because more folks are choosing that option. And, more importantly, the price of everything is going up, forcing/allowing landlords to raise said rents. In fact, businesses are tacking on fuel surcharges everywhere, and people are paying up. Thus, the inflation process is well under way, and has been well under way.

The interesting question is: Why have people been so complacent about it for so long? After all, it's just been in the last few months that the bond market has woken up to this fact. But, as I said earlier, ideas catch the mind of the market and the crowd only when they do. Inflation is something that has certainly grabbed center-stage, at last.



Minute-to-minute - Rod david - 9:16 AM

Our "Fat Lady" setup is generally a reliable signal. It is triggered upon closing back above the morning's low in a session that printed a new trend low. Its product is a non-permanent higher high. Wednesday's second-to-last minute bounce had fulfilled all of the setup's elements, which last-minute weakness eradicated - S&P Cash closed under the morning's low, S&P futures continued dropping to print new lows. One or the other was an aberration. Gapping up Thursday above Wednesday's last-minute high would be bullish. Remaining under Wednesday morning's low would not.

So it is interesting that overnight price action has tried to recover the last-minute drop, even recovering all of a 5-1/2 point dive within an hour of its origin. The bounce in reaction to the Jobless Claims surprise was muted, and has so far held a retest of the overnight high. This easily supports Scott Reamer's claim here yesterday that CPI was unjustly scapegoated for the S&Ps violent reaction. A relief rally that quickly reaches another bifurcation level would be vulnerable at 10:00am ET, when the LEI report can then be scapegoated, too. Regardless, the decline didn't bottom Wednesday, and the chances for a "10-sigma" crash event were increased exponentially by Wednesday's performance.

The only question seems to be how much of a refueling bounce the decline will require Thursday before resuming.


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