Buzz Bits: Dow, Nasdaq Drop Lower
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Earnings Report - MV News
- Aeropostale (ARO) reports 1Q EPS of $0.26 vs. $0.25 cons on revs $275.8 mln vs. $285.6 mln cons.
- Gap (GPS) reports 1Q EPS of $0.25 vs. $0.24 cons on revs of $3.56 bln vs. $3.47 bln cons.
Clockwork Orange - Todd Harrison - 4:22 PM
Alrighty then, as I break from my meld with fellow SU alum Don McPherson (we're working on a double top secret university initiative), I emerge to find thy bell that tolls. And from the looks of it, not a moment too soon for the Matador Crowd, who took a sharp right hook to their rally.
We've spewed on the broken S&P trendline, War games into the weekend and China Rider--as well as the early nose scrunch (breadth) and south side tells--so I think we're up to speed on the day that was. As far as what will be, I don't foresee risk accumulation into the weekend (we just sent 17,000 troops into the Persian Gulf in front of Monday's talks) but quite possibly, calmer heads will prevail tomorrow.
Then again, I will be out and, as any old school Minyan will tell you, there's a fairly high correlation between me being out of pocket and the Minx acting up. Either way, what will be will be and as long as our risk is defined and our discipline active, we'll tough out whatever pitch comes down the pipe.
I'm gonna hop to Internfest '07 and see what these kids are made of. I sincerely hope you have a safe and enjoyable holiday weekend and we'll pick this story up fresh and rested on Tuesday.
May peace be with you.
10 year triangle update... - Bennet Sedacca - 12:23 PM
I mentioned a while back that the TNX (10 year yield index) was breaking out of a triangle pattern which was bearish for prices and bullish for yields. I also blabbed that 4.90% was a logical target. Well, I guess I wasn't alone. Guess where 10's stopped today? 4.899%. See the chart here.
If you owned trillions of dollars of US debt, wouldn't YOU defend your positions like Foreign Central banks likely did (I am guessing here). And if you were a hedge fund and had an inkling that FCB's were buying, you would buy too, no?
And if you were a 'prop' desk at a major wire house, you would buy there as well, no? YEP.
Which is likely why 10's stopped dead at 4.90%. Which is why I took the opportunity to lift a dealer out of some Ginnie Mae (GNMA) 15-yr (Midget) 6's at 101 10/32...
Resistance (in yield terms) lies directly overhead in the 4.95-5.05% range, so the trade has defined risk. A pullback could be in 4.65-4.77% range, depending on your time frame.
Why is all of this so important? Because if yields blow through 5.05 and then 5.25%, it could be curtains for Hoofy.
Note to self: Finance Based (Leveraged) Economies Don't Like High Yields..
And oh yeah, the hedgers remain short. The CFTC numbers tomorrow ought to be interesting.
Position in GNMA
Some Morning Thoughts... - Sally Limantour - 10:07 AM
- Many are trying to pin the cause of yesterday's break on Greenspan and while his warning was a catalyst, there are more relevant issues at hand. Also, if the market was going to break on someone's cautious words about the Chinese market I would personally give more credence to May 10th where Goldman Sachs warned of a correction in China "as earnings cannot justify price." Or on May 18th, when I quoted La-Kashing ( one of the wealthiest men in Asia) as saying it was "unsustainable." No, contrary to what the media is saying we did not break on Greenie's words, but rather a series of events.
- In the background inflation is heating up, global interest rates are heading higher and concerns about progress with China are increasing. In the talks recently, at best we heard Ms. Wu say the China-US relations are "complicating."
- The worse case scenario I am afraid came from Mr. Charles Rangel (D-NY), Chairman of the powerful House Ways and Means committee.
- After Ms. Wu and Mr. Paulson did their dance, Mr Rangel said, "We are moving forward" on tariff legislation. He is promoting legislation that will allow the commerce dept. to levy tariffs on Chinese goods coming into the US in order to offset the effect of China's weak Renminbi.
- This was the concern I expressed on May 15th (Who needs protection?) and quoted Stephen Roach as saying, "the protectionist train has left the station."
- Bonds are weak and even a sell off in equities cannot produce a flight to quality run. I continue to stay short and sell on rallies.
- China needs to raise rates to cool their economy.
- The Bank of England is hawkish and here is a pattern change – Since the BOE was granted independence to set bank rates in 1997 it has never raised rates by more than 0.25. Now, with the risk of inflation the question of raising 0.50 is being discussed.
Position in US (bonds)
NBR Recap - Kevin Depew - 9:34 AM
Here's a brief recap of what I discussed on Nightly Business Report last night:
- The bullish percent market indicators are mixed: NYSE, Dow, S&P 500 indicators are positive; Russell 2000, Nasdaq Composite are negative, so there remains a Large Cap bias.
- The bias toward large caps may very well be influenced as much by mechanical issues rather than fundamental or structural issues, since this is the first market cycle we've been through with Exchange Traded Funds.
- ETF's are, like the major indices (excluding the Dow), capitalization-weighted, so large cap stocks will see demand filter through as a result.
- Bank of America (BAC) has been an underperformer versus its peers, but has a positive technical pattern in point and figure terms.
- Wal-Mart (WMT) is a stock that's fashionable to hate; recent forays into high-end clothing lines and organics appear to have faltered as the company has pulled back from both, but it's possible the pullbacks aren't so much management missteps as much as a recognition that consumer discretionary (high-end clothing and organic products are quite discretionary, in my opinion) is in trouble and the company should focus on picking up sales from consumers moving down the line due to slowing economy, etc. Technicals are positive for WMT as well.
- Beazer Homes (BZH) is certainly not a stock to buy, but it is an interesting stock to watch as a tell for homebuilders. The company has been among the more aggressive homebuilders in stating that it is not seeing any resurging demand in housing and no signs of stabilization; it has exposure in every worst market in the country; it's under investigation by the FBI for mortgage lending issues; yet the stock has recently been improving technically. Housing may not have bottomed, but when the worst of the worst in the sector stop going down it's something to be aware of. Again, not a stock to buy, but certainly a stock to watch
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