Buzz Bits: Dow, Nasdaq Rally Again
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Hello...is there anybody out there? - Bill Meehan - 3:45 PM
Darker skies are beginning to creep up on Wall St as we edge toward the closing bell (which can't come soon enough). A check of the screens finds a lot of green as the three major indices look to close slightly higher for the week.
On the day, markets are higher across all industries, but some notable names in red for the session include GE, GOOG, AAPL, MSFT, HAL, MCD, CSCO, TXN, BUD, FNM and PRU.
Natural gas fell to a 15 month low intraday following inventories reports this morning.
After the long weekend, we'll arrive for a four day week and earnings from ABS, BOL, CIEN, COST, DG, FRE, HNZ, HOV, MLS, NT, TTWO.
At the microphone next week will be Fed's Geithner in NY at a Financial Services Forum, and Moskow speaking in Chicago on U.S. economic outlook.
Have a great Memorial Day weekend, and we'll see you back in the 'Ville on Tuesday.
Fear and General Motors - Bernie Schaeffer - 1:52 PM
Some fear has been generated by the market action of the past few weeks, as well as some additional respect for risk. But to put the current level of fear and loathing in the market in some perspective, it might be instructive to take a look at what the sentiment at a major bottom might look like.
I'd like use General Motors (GM) from earlier this year as my prototype, as the stock has been quite strong this week in the face of a couple of major upgrades.
I outlined the ingredients for a bottom in GM in a piece I wrote on February 13, and they included:
1. A magazine cover story that was gloomy beyond description. In fact, "The Tragedy of General Motors" was the single most negative magazine story I'd ever read about a non-bankrupt corporation.
2. A continuous recycling of a litany of bearish arguments. As I stated about the Fortune story: "There is absolutely nothing that was revealed in this somber and extensive cover piece that has not been thoroughly documented and discussed on numerous occasions in numerous other media forums."
3. A complete dismissal of any bullish possibilities. In the case of GM, there were already signs that their new SUV's were going to be a big hit and Jerry York's addition to the GM board might have been interpreted as a positive.
4. An over-the-top bearish stance by short sellers and Wall Street analysts. Millions of GM put contracts had been opened, short interest was huge and, at the time of the Fortune piece, 15% of Wall Street analysts had "buys" on GM and 47% had "sells".
By no means does such an extreme cluster of bearish sentiment guarantee a bottom. But I can guarantee you that the slides in WorldCom, Enron (also in the news) and Tyco were not accompanied by anything close to this level of doom and gloom. And the next time someone points to sentiment on the stock market as "bearish in the extreme", you might point to GM in February and say: "It depends on what the meaning of 'extreme' is."
Not a recommendation.
Position in GM
Why is it that when everyone is staring at the same level either it never gets there (there is supply there) or it blows right through? - Bennet Sedacca - 1:21 PM
Take SPX 1280 for instance. Can you imagine how many folks wanna sell there and how many stops there are just above it? There is additional major resistance at 1290-yeah I know I'm a 'bond guy.'
My point? Take a look at the VXO and VIX plummeting like no one has a care in the world. Just a short two days after the world was gonna end. A sheer guess, and I am NOT positioned for it as we are a long only shop, is that 1280 may not be seen. If it is the stops go off, we hop to 1290, the VXO visits 12 and we start the decline anew.
Incidentally, since the decline began note that XLV and XLP have been outperforming like champs-staples and health care. Like after most other cyclical peaks. Not advice, just some stuff I noticed on this slow Friday.
Position in XLV, XLP
Index Led - John Succo - 1:12 PM
More of the same...
Yesterday and now today markets have returned to their previous form of the ETFs and futures leading the way.
We trade a lot of individual stocks. What we notice is that the stocks are heavy with supply by sellers in particular names. But the futures and ETFs (indexes) are where the buying is being done. These are "people" who don't care about stocks, but want exposure to the "market."
Their buying of indexes eventually leads to arbs selling those futures at fat prices and then scooping up individual stocks electronically through programs.
The indexes are consistantly stronger than individual stocks. There are several legitimate reasons why this may be the case (foreign inflows allocating dollars to the U.S. for example) and one big illegitimate one.
Fixing the VIX - Adam Warner - 11:23 AM
Just got pointed towards a fascinating article dealing with the subject of these VIX options, and really the VIX itself. I can't link to it, but here are some takeaways.
- "Simply stated, the VIX does not accurately reflect the implied volatility of the S&P." The reason is that every non-zero option on the S&P goes into the calculation (although theoretically near-money options should have great enough weight to offset overpriced cheapo puts).
- Even when the VIX read 19, the June near-moneys traded at roughly a 15-16 volatility. I can't confirm that since I avoid them, though I do trade SPY options, and the ATM's did indeed change hands in this range as the VIX printed much higher.
- The VIX options/futures peaked in this same 15-16 range. The take is that they accurately reflected the volatility in the S&P itself, while the VIX did not. In other words, they were always priced correctly, it was the published VIX that was amiss.
Position in SPY
Here "4 Sale," There "4 Sale," Everywhere 4-Sale-Sale - William Fleckenstein - 9:36 AM
Existing-home sales were about as advertised yesterday, but danger lurks beneath the headline number. To give just one example: Inventory, as measured in months-of-supply, is exploding -- with houses for sale up 46% year-over-year, and condos up about 73%. A five-year view of the chart is breathtaking, as months-of-supply has rocketed from less than four months (a year and a half ago) to six months today. I would suggest that it's headed much higher, as supply (the numerator) is increasing and sales (the denominator) are in the process of slowing down.
When Pot 'o Gold Turns to Mold . . .
After stabilizing around midday yesterday, the market spent the rest of the day grinding higher, before closing on the highs (thanks to a decent-sized spurt near the end of the session). It's my expectation that with each day that the rally continues, bulls will get more excited about the "fact" that the selloff was just a correction, and now we're clear to go much higher -- when, in my opinion, this break was the start of the resumption of the bear market. In the last two days, I reduced or hedged out a lot of the shorts I'd put on a few weeks ago. My plan is to get aggressively short again, once the bulls have concluded that the Fed is set to pause (though I may have to change my strategy as events unfold).
Gee, mom, I wanna go home... - Jeff Macke - 8:39 AM
After a full week on the road culminating in two days of the Big Muggy Apple I'm more homesick than Dennis Kozlowski during shower time.
Adding to my discomfort is a long position in Coldwater Creek (CWTR). The catalog-come-retail concern was down over 5% yesterday after announcing a restatement of 2005 results due incorrectly booked "non-refundable marketing fees received from its credit card issuer in conjunction with its co-branded credit card program." More fundamentally, the company reported .12 per share, 47% gross margins and a 53.5% increase in retail sales for the first quarter ending April 30.
Buying previous CWTR dips has proved a winning strategy in the past and I suspect, without advising, that opportunistic buys will remain a better-than-average idea as long as retail operations remain intact (which they seem to be).
Position in CWTR
Gold Deja Dandruff? - Fil Zucchi - 8:29 AM
After Wednesday's shellacking and yesterday's inside day, gold futures have me pondering if/when the next (and perhaps last, but possibly most vicious) move down will appear. Charts are a tool for gaging risk/reward, not a predictor of things to come. Looking at this 30-min. chart of gold, the risk playing the short side can be narrowly defined by the two trendlines overhead. The reward is the height between the top of the "Head" and the neckline of the "Shoulders" or roughly 40 pts, below the $635 neckline. $595-600 is the area from which gold took off in early April for its vertical move.
If this next leg lower materializes, I am inclined to think it will overshoot down to the $580-585, where there is somewhat better support, and by which time the RSI should be in oversold mode. Beyond that is even more guessing than usual, but my visual is for the price to bounce around until the 200 DMA catches up to it.
This concludes the fortune telling portion of today's program.
Position in gold
Zis and Zat - Todd Harrison - 8:09 AM
After suddenly finding a spate of mojo late Wednesday and leaning long into the Thursday blur, I parcelled out of some "overage" into yesterday's liftage. Why? Well, A) S&P 1280 (resistance) is a kitten's whisker away and B) while I don't mind luggin' some "metals and energy vs. financials" through the long weekend, I prefer to have paired (and tighter) risk as I'm out the door at lunch and will be away from the 'Ville on Tuesday.
In particular, I made partial sales in Goldcorp (GG), Apple and other "trading" merchandise, while rolling some Weatherford into late '06 (deep in the money) calls. I didn't touch the Golden Star (GSS) (other than a lil' nibble when it ticked red the morning) and, given my little epiphany Wednesday night, I swapped my SunMicro common into some January upside calls (this way, I've got leverage if it pops and protection if it drops).
I'll be back in two Fribbles of a lamb's tail--thanks for sharing your Memorial Friday with us.
position in energy, metals, financials, gg, aapl, wft, gss, sunw
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