Buzz Bits: Dow Closes Up, Nasdaq Down
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Earnings Report - MV News
Flashback! - Bill Meehan - 3:40 PM
This day in market history...
This day in Minyanville history...
In other news...
"Paulie may have moved slow, but it was only because Paulie didn't have to move for anybody." Henry Hill, Goodfellas - Todd Harrison - 2:14 PM
Contra-hour begins in the 'Ville with the flickering ticks standing still. Sure, there's some motion under the hood--one pup is looking up (XAU +4%), another dog is looking down (SOX -1.25%) and the broader averages are saying "Whataya want from me?" What do I want? Volatility, baby, and something tells me that we'll see plenty of it after Boom Boom steps to the stage tomorrow.
While I dabble in some individual situations--most of them defined and some, like SunMicro, a longer-term gig--my mind continues to wander towards the FOMC meeting. My sense is that Bernanke will stick to the script--25 bips with a data dependent policy--and one of two things will happen. Either Hoofy will view this as he did the employment report (whew! now that we've got that out of the way, lets run!) or Boo will wake up and smack the bulls who are holding their breath on the end of the rate cycle.
As discussed of late, the technicals point higher and there are structural elements (the dollar) that can't be ignored. However, given the toxic two-way nature of this particular juncture (and some non-confirmations that exist), I would be very careful with blind bets (and yes, that includes the metal arena). We often discuss the mechanics of the swing being more important than the results of the at-bat. It sounds great, Minyans, but unless we practice what we preach, they're just words.
As always, I hope this finds you well.
Position in sunw
Let's Play Telephone - Sanjay Somaney - 1:39 PM
Mahanagar Telephone Nigam (MTE) and its sister company BSNL have fired opening salvos at each other. MTNL decided to switch from BSNL in the National Long Distance (NLD) business because MTE claims that they are being overcharged by BSNL. Management at MTNL says that they will save about $112 million/month if they give their NLD business to private players who will bid to provide the NLD portion of MTE's business.
In turn, BSNL says that they will only do business with MTE if MTE gives all its business to them and will not do partial service. BSNL is also claiming that MTE owes them $175 million in NLD charges for FY06. BSNL currently charges MTE about 1.5cents/minute for carrying NLD traffic.
MTE says that it is BSNL who has not paid MTE for termination of calls. The MTE bill shows that BSNL does owe MTE money. MTE says they can get that 1.5cents/minute rate cut in half if they go with the lowest cost bidder.
Position in MTE, MTNL
Minyan Mailbag: The Fed and The Homies - Fil Zucchi - 12:30 PM
In your opinion, what effect will the Fed have on HB stocks tomorrow. I am short on a lot of these stocks and am wondering, if I should cover today.
Thanks, Minyan Arun
Since we don't do advice in the 'Ville, let me non-answer your question this way. Unless the Fed tomorrow starts lowering rates and signals that it will continue to do so, I am not sure that the prospects for the housing market will change much. Can the stocks pop? Sure, a lot are oversold. But the housing bubble is done. The speculators that drove prices and sales for the last two years are either "all-in" (and drowning) or looking for the next asset class. It is rare, if not unheard of, that a specific asset bubble can be re-inflated. And I think it is even less likely in an asset class such as housing where getting in and out is time consuming and costly. Moreover, if you listen to the Oracle, housing-related loan problems for banks are fast approaching. If he can see it, the banks can see it, and the drive by-appraisals and 125% LTV, option ARMS "you don't really have to pay me back" loans are disappearing fast.
Dominion Homes (DHOM) and WCI Communities (WCI) were out with numbers yesterday and today. At the current pace DHOM better hope that its land inventory does not need to be re-valued, or they got serious "issues". WCI's orders were down 50% y/y.
IMHO, (which most loyal Minyans know was "early" by about two years so use it carefully), if the housing implosion were a baseball game, we are in the top of the 1st inning.
Position in homebuilders
Back to the Future - Adam Warner - 11:30 AM
Rumors abound that the PHLX plans to close their physical options floor within two years. The fact that the rumor emanates from the chairman of the PHLX leads me to lend credence to it, lol.
Since the inception and huge success of the all-electronic I.S.E. six years ago, this day was inevitable. The CBOE and P-Coast went "hybrid" a few years back (half physical/half electronic), and the AMEX announced plans for such a structure as well but it remains to be seen whether there is a need for any physical floor. I would argue "no".
The ostensible remaining rationale for a floor is for spread markets, but there is no particular reason they can't be negotiated/traded online like basic options. Frankly, most spreads nowadays are "crossed" upstairs before they ever hit a floor anyway.
I was an AMEX member from 1988 to 2001, so I am not happy about scribing the above. But it is the simple reality of the biz.
Dell Nearing Long-Term Support - Brian Gilmartin - 10:53 AM
The two attached charts on Dell (DELL) indicate that the stock is nearing long-term technical support from both the 1980's and 1990's as well as the bear market correction from the early 2000's.
Dell has been one of my long-term favorites given that I like owning the low-cost manufacturer in any tech hardware space, but Dell has clearly been a disappointment as it has guided down three times since last August, and has struggled providing quality support and being the low cost price leader.
In addition, coming off the 2002 - 2003 bear market bottom, I thought Dell could successfully spread the direct model into the consumer electronics space as it began to offer HD and plasma TV's. Like WalMart (WMT), Dell's direct model is transferable into any number of tech hardware related areas (like printers, and storage, etc.) since ultimately these businesses are commodotized, but for whatever reason, Dell has not found enough growth to offset the decline in growth in PC and server related areas to move the needle for a company with a $60 bl market cap and $55 bl in annual sales.
Dell's valuation is getting quite reasonable at 1(x) price to sales, and with the direct model, cash flow and free-cash-flow is healthy. At the end of the January '06 quarter, Dell was generating $2.50 in q4 trailing cash from operations, which means, like Intel (INTC), Dell is now trading below 10(x) cash from ops.
It is hard to ignore these valuations.
See the charts here and here.
Position in DELL, INTC, WMT
Just because I'm paranoid doesn't mean they aren't watching me. - Rod David - 9:48 AM
Maybe Monday's complacency was justified. Dell's (DELL) warning after the close did send S&Ps and NDX futures back to Monday's lows. And S&Ps dug a little deeper momentarily overnight. Sometimes the only way to take someone out of a funk is to show them how bad things aren't. The real test will be whether this morning's knee-jerk selling is absorbed to the point of rallying intraday. And not just rallying - but on volume, to new highs. New highs that stick.
The overnight drop held our pullback limit, and the open is trying to repeat. A sustained drop is still unlikely at this point in the pattern, despite three pieces of unfinished business at lower levels. A deeper pullback here would be bullish longer-term, and new highs first would only increase the speculative premium. Yesterday's optimistic ranging at Friday's highs and this morning's tepid selling on DELL's bad news suggest that it will be new highs first.
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