Buzz Bits: Dow, Nasdaq Head Higher
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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
- Activision (ATVI) reports 1Q EPS of ($0.05) vs. ($0.09) cons on revs of $188.1 mln vs. $150.1 mln cons.
- Gateway (GTW) reports 2Q EPS of ($0.02) vs. $0.02 cons on revs of $919.0 mln vs. $1.01 bln cons.
- Cephalon (CEPH) reports 2Q EPS of $1.46 vs. $0.93 cons on revs of $430.7 mln vs. $396.4 mln cons.
Truck Meets Bear - Kevin Depew - 2:05 PM
- Keep an eye on the BKX, which is edging closer to 112. That would reverse the stock up on the PnF chart and put the index at the top of its four-month range.
- Minyan Richard "Petty" just shot me a quick (very quick) email asking about a handful of wrecked stocks: BSX, STJ and ITRI.
- BSX and STJ look nearly identical. Both have recently completed DeMark sell setups in the context of a larger negative trend.
- ITRI on the other hand has registered a DeMark TD-combo buy signal recently and is today testing the gap lower from July 31. The larger context there is negative as well, naturally, but I could see an upside try to the 51-52 area before the bigger picture again assumes control. The downside PnF price objective is 33.
- This story makes perfect sense.
- Why you should always buy travel insurance.
Fed Watch - Scott Reamer - 10:42 AM
There is much talk about whether the Fed will raise rates next week or not. Quite aside from the important point that the entire exercise of the Fed "managing" the economy is a farce, there are good arguments to suggest that the Fed will NOT pause - and will hike another 25 bps. What is that case?
(1) In all the rate increasing cycles from the peak in interest rates from 1981 to now, the Fed has lagged the actual short end of the curve (represented by the 2 yr.) by anywhere from weeks to 2 months. Which is to say that the Fed was raising rates even after rates on the 2 year were flat or coming down. As we have always said, the Fed doesn't set interest rates, the bond market does. The Fed, being a bureaucratic, political organization (and by definition a herding, trend-following organization), follows the bond market. Up and down. Based on this and the Fed's history, they are still following the most obvious and safest trend: that of increasing rates.
(2) The rational reasons (as opposed to the irrational, trend following ones elucidated above) too are plenty for the Fed to raise rates: the output gap is closed, commodity-pass through remains a fear, core inflation is above the Fed's stated comfort zone, unit labor costs trending higher over the last several months, and that the demand side does not appear to be softening enough to offset inflation concerns. And on top of this incoming data, we have a Fed chairman who is an adamant believer in inflation targeting and who is, by all accounts, more dogmatic than his predecessor. All of the above suggest that the Fed will take - as they usually do - the easy decision.
And raise rates.
Retail Drug Stores: Safe Place to Hide - Brian Gilmartin - 10:24 AM
One of the few safe places to hide in retail seems to be the retail drug store, even with their higher valuations, particularly Walgreens (WAG), partly because as a group they are putting up very good comp's, some of the best within the retail space.
CVS (CVS) reported this morning, and although we don't follow or model the company's financials, results look good, after WAG's strong July comp's reported on Tuesday. It is considered to be more of the value play within the sector.
WAG is the best operator within the group, with the best returns on capital and the best margins, but the group itself looks to be a good safe haven in a tough market.
WAG is less than $1 from an all-time high.
I hate to beat this topic into a coma, but it is worth repeating: these stocks have a combination of attributes desired by the market at this particular point: defensive nature of the businesses, good earnings growth, strong relative comp's, and sector influences (Medicare Part D, etc.), driving near-term results.
Position in WAG
I'm shootin' for 26 weeks like we saw in 1990! - Jason Goepfert - 10:03 AM
The American Association of Individual Investors released their latest survey results this morning showing yet another week of more bears than bulls (of those expressing an opinion one way or the other).
This is now the 12th consecutive week with a bull ratio below 50%, which is the longest streak since August 1993 and the third-longest in the 20-year history of the survey.
As I've noted before, this survey has a small sample size and reflects opinion, not actual money transactions, but it is still my favorite sentiment survey out of the dozens and dozens out there.
I've become quite cautious in the short-term based on the price patterns we've been seeing, and a drying up in ETF volume relative to the volume in the underlying equities, but as long as we continue to see readings like the AAII figures, I have a more difficult time expecting protracted weakness in the intermediate-term.
A Bridge Too Far - Rod David - 9:47 AM
Wednesday's rally was similar to Tuesday's decline. At least, in one critical way: each reversed down from new highs, closing back under multiple prior highs. Last Thursday's pattern also shared this characteristic.
As a timing indicator, the setup is lacking. In fact, of the three instances noted above, only Wednesday's is producing immediate follow-through. But as a landmark, the setup always identifies when a market is under distribution.
The question is whether strong hands have been distributing to weak buyers, or to smarter buyers. Usually it's the former, and a price decline follows. The current pattern has yet to prove who is absorbing the distribution, and the evidence on either side is weighted equally. But if this morning's break were to finish under yesterday's lows, then it will have been weak hands buying all along, and now selling.
Gate Sniffage - Todd Harrison - 9:35 AM
- I nibbled on a bit more metal exposure yesterday (and slapped on trailing stops) and, true to the form of maximum frustration, the Bank of England (unexpected) and European Central Bank (expected) raised rates this morning.
- That is pressuring (pick an asset class) as whiffs of tighter money blow through the monetary breeze.
- I wanna watch how we trade come the 10:00 AM hour and monitor our mainstay tells for guidance. I've been light and tight for the most part (save some sizable "situations") and my intention is to remain opportunistic and disciplined in my approach.
- As discussed in my morning noodle, I'm gonna be out of pocket for much of today. A 10:00 conference call here, a high noon five hour meld there and voila!, my post-bell swell begins. If you missed my opener, I offer some FOMC thoughts (and a potential set-up) if you like to read those sorta things.
- Keep an eye on S&P 1280, NDX 1510 and HGX 202 as frameworks (not solutions) and keep your head up, eyes open and thoughts positive.
- And lest you're feeling overheated or otherwise defeated, take another gander at the mailbag we posted yesterday. This is our journey, Minyans, and we gotta make it count. As our buddy Mohammed Ali once said, "Today I'm 59, tomorrow I'll be 60. Yesterday I was 22. Don't wake up at sixty and wish you had today to live all over again."
- Good luck today!
Position in metal equities
Developing Situation - John Succo - 8:10 AM
Medtronic (MDT) is trading down $5 or 10% pre-open after last night's guidance.
The problem is in ICD sales.
It seems this market is a zero sum game between MDT, Boston Scientific (BSX) and St Jude Medical (STJ) and it seems MDT is the loser.
STJ and BSX are trading down small in sympathy to MDT, but it seems to us they should not.
Position in MDT, BSX, STJ
What you need to know... - Jon Doctor J Najarian - 8:02 AM
EuroFed Watch – OK, so it's called the ECB, in any case we're expecting the central bank to move rates up, but in their case we look for the move to carry rates to 3%, their 4th move in the past 8 months.
Costco (COST) July sales up 11% - The Issaquah, Wash., warehouse-club store chain, reported July sales rose 11% to $4.48 billion from $4.02 billion in the year-earlier month. Same-store sales rose 7% and both numbers were better than street.
Starbucks Revenue Light – New stores helped helped Starbucks (SBUX) push its fiscal 3Q profit up nearly 16% and revenue up 23%, but the rev was at the low end of Street expectations. We had this one on our Red October bearish indicator Monday and I guess the bearish put buyers knew what they were doing! Shares have fallen by 9% so far today in the pre.
Position in SBUX, COST
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