Buzz Bits: Dow Gains, Nasdaq Dips
Your daily Buzz highlights...
Alcoa (AA) reported Q2 EPS of $0.90 vs $0.86 cons on revs of $7.96 bln vs $8.14 bln cons.
Inside Job - Kevin Depew - 3:44 PM
- Investors's Intelligence tracks insider buying and selling at a fraction of the cost of a Bloomberg terminal for those who would like updates on it.
- The most recent update on July 6 showed that, indeed, insider selling has "slowed" but that is all... it has simply slowed. It is still heavily skewed to the sell side, continuing the action of the past few years.
- Investor's Intelligence says the recent slowing in insider selling activity may be a short-term help for the market but that "it remains long-term bearish," although it is only one factor in constructing their market outlook.
- CNN headline says "Letters Reveal Einstein's Love Life." Apparently, Einstein may have been quite the ladies man, although if I understand his Theory of Relativity correctly, it is possible that if each of the so-called "affairs" were carried out in a unique space-time continuum it would ensure that, technically, no one was being "cheated on" due to the way in which he demonstrated that time "bends" and folds in on itself as each unique "event" would have transpired separately in a non-overlapping individual curved space-time dimension.
- Man, that's a whole lot of physics just to avoid telling the wife what you did last Thursday night!
Integrity - John Succo - 2:08 PM
A Minyan sends me this information.
Apparently in 2005 the new chairman of the SEC Chris Cox changed the mission statement from:
"The primary mission of the U.S Securities and Exchange Commission is to protect investors and maintain the integrity of the securities market."
"The mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation"
It seems the importance of integrity (the official definition being "soundness, unimpaired condition, honesty and the unofficial being "the strength to do what is right") in markets has been replaced by the importance of liquidity. And I didn't know "capital formation" was the responsibility of the government.
This I think reflects the socialization (or is "theocracization" a better non-word?) of markets that I have spoken about.
I watch every rally as if it is the last spurt of speculation borne of egregious money supply growth (credit is still being offered easily even as the cost of credit rises) and every failure of those rallies as smart insiders reducing their stock holdings.
Municipals no longer a value-back to fair value - Bennet Sedacca - 1:20 PM
Back in late 2005, I wrote that municipals were trading at ridiculously cheap levels relative to Treasuries. We also bought them back in November-December time frame and exited before our bearish call on the market in general began in February (that may be changing on 10's soon as we already have our position in 2's).
Believe it or not, I was buying municipal bonds back then in the 100-105% of Treasury area, which was a first for me in my long career. And I was buying quality, not garbage, as is our style, to stay with quality. Well, according Ned Davis Research, municipal bonds are now trading at 86.9% (20 year bonds) of Treasuries versus a 50 year average of 85%. Keep in mind there were tons of tax rates along the way to change the percentage.
This sort of action is not unusual as munis usually outperform in bear markets and underperform in bull markets. We are also in a seasonally strong period for them. Negative seasonality starts soon as supply picks up and we will look for opportunity again in the autumn.
You should note that the front of munis is closer to the 70% to Treasuries range and we favor Treasuries there or agencies. Not advice, but hopefully helpful to show you what we see.
Positions in 2's/10's and various municipals
Department of Redundancy Department - Adam Warner - 12:59 PM
So I bet you are wondering whether the volatility sisters have gotten less......volatilile.
The answer is that they seem to have, but it has not worked its way through the numbers yet. This chart measures the 30 day historical volatility of the VXO. There are no options listed, so the blue line is simply the volatility of the calculated number itself, as if it was a stock.
Anyway, it remains at all-time highs, although it has not budged much in 3 weeks, which leads me to think it just a matter of working a few insane days out of the system until we see a better reading. Think of it as a volatililty chart on a stock that gapped big one day, and thus has an outlier in the calculation.
So given that no one really knows for sure what this "volatility of volatility" portends, it will be a moot point in a few weeks anyway.
Chip chatter and other randoms - Fil Zucchi - 12:05 PM
- Following up on Brian's comments on the semis, no disagreement here that the Phila. Semi Index (SOX) is at very important support levels, providing defined risks for those inclined to play. The question I have is whether the chippies are broadcasting a broad economic slowdown. That being said, I am dipping my toe in the group, adding Broadcom (BRCM) and Marvell (MRVL) to my positions in Intel (INTC) and Vicor (VICR). A low conviction effort for now that accounts for plenty of potential downside risk.
- Regarding Sandisk (SNDK), Miller Tabak reports chatter out of Avian Research of an impending pre-announcement. Notable that over the last several weeks Digitimes has reported a number of fabs shifting production away from DRAM and other IC's to NAND flash.
- Also from Miller Tabak, strength in Gap Stores (GPS) is being attributed to a very nice "back to school" line to be previewed tomorrow by Lazard.
- Amylin Pharma (AMLN) continues to be a relative strength juggernaut as it threatens to bust through the $50 mark. With almost 10% of the float short, it would not surprise me if a violent move is afoot here.
Position BRCM, MRVL, INTC, VICR, AMLN
Chinks in the Armor - Rod David - 9:55 AM
S&Ps rallied overnight to test ESu 1280'00. This was also the pattern's corrective bounce target published after Friday's close, and it was just fulfilled during regular trading hours. But Monday's opening sequence would need to be exited under Friday morning's lows of SPX 1269.25 (ESu 1277'50) to confirm that the bounce is complete and that momentum has reversed down.
Speaking of Friday morning's lows, that was the last time S&Ps held the prior Friday morning's lows as support. Having done so throughout last week, S&Ps remained likely to fill the gap back to last Monday's close. The Employment report's reaction filled the gap, neutralizing its magnetic attraction. The negative reaction was plain to see, but Monday's open is trying to reject it.
If Friday morning's lows were to fail again as support, then Friday afternoon's drop would have been a warning shot across the bow at buyers. And the same probably could be said for June's drop, as well.
Takeover Talk - Herb Greenberg - 8:50 AM
Will Imclone (IMCL) be bought? Won't it? I don't have a crystal ball, but if you want to know why anybody would be short the stock in front of a possible deal, here's what one short tells me:
Something that has generally gone under the radar other than recent SEC filings is the 2003 lawsuit by Yeda Research and Development. The Israeli company claims its scientists invented the key patent for Erbitux; Imclone licenses the patent from Aventis. The case went to a non-jury trial on June 5. The final hearing is in two weeks; it's unclear when there will be a decision, but there are some who believe there will be a swift ruling and the overhang of this case may be behind a holdup. If Yeda wins, says one school of thought, Imclone may have to share anywhere form 20% to 50% of its profits – making it less appealing to a potential buyer (at least at current levels). Imclone already shares profits in the U.S. with Bristol Myers (BMY), which has been rumored as a potential buyer.
Also worth noting, from this same short: Amgen (AMGN) acquired its partner, Abgenix, to gain full control of Panitumumab, an Erbitux competitor. The FDA have given Amgen a priority review for its application, which was last month. That cold put approval by December. "Given that Amgen is very bullish, they will for sure put a dent in the growth of Erbitux," the short says. "In addition, Erbitux is currently priced aggressively. Amgen management has indicated they may price below Erbitux given the current concern about high prices for oncology drugs. This would be troubling for any potential acquirer." (Oh, and if you're thinking: There go the shorts again: It's always wise to know why smart people are on the other side of the trade. Sometimes they actually know what they're talking about!)
What You Need To Know Before You Go - Jon Doctor J Najarian - 8:05 AM
GM Agrees To Talks with Renault & Nissan – Score round 2 for Kerkorian, as General Motors (GM) has agreed to engage in exploratory discussions with Renault and Nissan to look into aligning with the two automakers.
Kraft To Acquire United Biscuits – I've never heard of them either, but apparently United Biscuits control brands like Ritz crackers in Europe and at $1.1 billion for biscuits and crackers, it had better work. The deal also gives Kraft (KFT) control of brands like Triunfo cookies in and HobNobs in Spain.
Pirate Booty Tops Record Take – Nobody was surprised to see the sequel do well, but to top Sith and Spider-Man, that's noteworthy. Pirates took in $132 million for the three days, easily beating Spidy's $115 million record and its one-day take on Friday did in the record of Revenge of the Sith.
Position in DIS
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