Buzz Bits: Dow, Nasdaq Close Lower
Your daily Buzz highlights...
D-Fence! - John Succo - 3:12 PM
With everyone wondering whether there will be a pause or no pause (if there is a pause is everyone waiting to buy stocks or for the "next guy" to buy stocks?), we are still working.
CACI International (CAI), a defense technology company, is down 5% today and down 22% from it recent high of $68. The stock is being driven down by worries of cuts in Federal spending.
Today the market is particularly nervous about upcoming earnings. You see, the management of this company is very conservative. They normally understate and outperform. The momentum players do not like this. They like companies that promise the world, manage earnings, and buy back stock.
Of course we don't think like that. The options are significantly rich and we sell volatility (options) in a controlled way in companies where we have done our homework: present a "good" value and has a sensible management (you will not find any "option issuance" problems at this company.
Position in CAI
Context - Kevin Depew - 1:45 PM
I''ve written before about the monthly DeMark sell signals across most of the major indexes. Another interesting view of those signals is to look at the progression of monthly DeMark TD-Sequential buy and sell signals across a series of months in specific stocks in those indexes.
Going back to March 2006 via the Thomson One DeMark Indicator platform I use, in the Nasdaq this is how many TD-Sequential buy/sell signals for individual stocks we were seeing:
- March 2006 Buy Signals: 2
March 2006 Sell Signals: 49
- April 2006 Buy Signals: 2
April 2006 Sell Signals: 59
- May 2006 Buy Signals: 17
May 2006 Sell Signals: 32
- June 2006 Buy Signals: 10
June 2006 Sell Signals: 22
- July 2006 Buy Signals: 12
July 2006 Sell Signals: 12
On the S&P 500 it looks like this:
- March 2006 Buy Signals: 0
March 2006 Sell Signals: 5
- April 2006 Buy Signals: 3
April 2006 Sell Signals: 10
- May 2006 Buy Signals: 3
May 2006 Sell Signals: 9
- June 2006 Buy Signals: 1
June 2006 Sell Signals: 2
- July 2006 Buy Signals: 2
July 2006 Sell Signals: 4
You can see the progression of DeMark buy/sell signals has evened out on the Nasdaq to flat in July while on the SPX it remains skewed to sell signals as it has since March.
This paints a clear picture of negative context to me. At some point this picture will change, but until it does it suggests to me that there is greater risk in buying stocks than selling them.
Is the toga party over? - Fil Zucchi - 10:30
Before I head out into one more glorious Vail day, a couple of quick anecdotes regarding commercial real estate, which, as most of you know, continues to remain a darling of private equity and virtually any other kind of liquidity looking for a "sure thing."
- The Blackstone Group has been marketing the entire CarrAmerica (CRE) / Washington DC portfolio since before the acquisition closed. In a change of character from the mojo that has defined commercial real estate for the last 2-3 years, buyers are actually pausing at the cap rates implied by Blackstone's asking prices. That does not mean that buyers ultimately won't pay up, but if the excitement that they were feeling until recently for the privilege of overpaying is being replaced by bouts of nausea, then "cha . . . cha . . changes" might be at hand.
- Moving way down the quality scale, Asset Capital Corporation (ACCI), a smallish REIT of B'ish quality properties has pulled its IPO citing "market conditions." This was an aggressive deal marketed by an "aggressive underwriter," and it is not surprising it ended this way. However, it's probably fair to say that the outcome might well have been different had the offering come late last year when the S-1 was initially filed.
The Usual, Joe, With a Twist - Rod David - 10:23 AM
For nearly two weeks, S&Ps have been probing higher highs intraday, often closing back under one or two prior intraday highs. Friday's failed opening surge was no exception. But this one was different, closing under a third prior session's high, and also under a fourth - June's prior high, which the morning's surge probed for the first time since it printed two months ago.
S&P futures actually extended slightly higher after Friday's cash session close, but this morning's open rejected it. In fact, this morning's open has so far rejected two near-term bullish signals that should have produced another (failed) surge: First, the Friday Factor triggered when both Friday's opening and closing momentum trended higher, making Monday's opening momentum also likely to trend up. Meanwhile, Friday's internal ratios diverged positively when less NYSE up volume than down volume produced more advancing issues than decliners, and the session closed negative, obligating today's market to reward Friday's buyers for their relative productivity.
Perhaps buyers' problem is volume's pace, which declined Friday. Buyers could also be inhibited by Friday's Key-Reversal, in which the open's gap up to new highs resolved in a close in negative territory, and also under the morning's range. But while buyers haven't (yet) responded to the bullish factors, sellers haven't produced any meaningful selling. Soon it will be too late for a break under Friday's low to be sustained, at least until noon is just minutes away.
Should I stay or should I go now? - Neal Dingmann - 9:37 AM
Oil is currently up $1.18/Bbl at $75.95/Bbl this morning and has been as high as $76.67/Bbl as British Petroleum announced on Sunday that it has begun to shut down 400,000 b/d of crude oil production (around 8% of total US oil production) from the Prudhoe Bay oil field, the largest producing oil field in the country. My best guess is that the shut-down and stabilization takes the better part of this week and then the fun begins. Once you start looking for trouble, you are bound to find it and we can assume that this remediation/repair process will take a long time - likely longer than anyone imagines at this point. From a global perspective, that doesn't sound like a lot of oil BUT, remember, the "margin" (excess capacity above demand) is somewhere in the 1,000,000-2,000,000 Bbls/d range. 400,000 here, 700,000-800,000 in Nigeria and a few other little trickles and - all of a sudden - you erase the entire cushion. Finally, remember, shut-ins like this can be dangerous as you don't know what will happen to the field when you try to restart.
In addition, this weekend a story reported that gunmen killed five Nigerian oil workers contracted to a Royal Dutch Shell Plc venture and left three injured in the Niger River delta. The men, who were staff members of Survicom Services Nigeria Ltd., were attacked and killed on Aug. 3, Shell, Europe's second-biggest oil company, said in a statement. Nigeria accounts for around 3%-4% of total world oil production and reserves, so any continued disturbance in the region could have an impact on the price of oil.
Bed, Bath & Beyond (BBBY) to return to life - Phil Erlanger - 9:22 AM
One of my firm's favorite publications, Crains NY, wrote this past week that Bed, Bath & Beyond (BBBY) was the next in line replace Home Depot (HD) as a lagging retail stock. We note that seasonality is about to turn up (chart) for the remainder of the year and the shorts are adding to their positions.
Our Techncial Rank has returned to neutral at 50 and the ETD has given the all clear signal (chart). Our friends at Ford rate BBBY's Intrinsic Value at 0.32. A value of 1 is fair value. The value crowd should be acquiring these shares if they are doing their job.
Corporate Earnings: Not Too Shabby - Brian Gilmartin - 8:18 AM
Reviewing the Thomson Financial First Call data this weekend on S&P 500 earnings, the results are in and - drumroll please - 2nd quarter earnings growth is not too shabby.
Consensus eps forecasts for 2Q '06 were projecting 11% y/y growth for the S&P 500 as recently as June 2nd, and as of Friday's update, 2nd quarter earnings have actually increased 16.1% y/y, and rose from 14.8% or 130 bp's in just the last week.
Energy is still the top sector in terms of year-over-year growth at 41%, while consumer staples is the sector with the lowest rate of growth at just 6% year-over-year.
Telecom and utilities showed the sharpest week-to-week increases with telecom earnings growth jumping to 19% this past week, from 8% as of the end of July, and utilities increasing 15% versus the 9% one week ago.
As always, the market is a forward looking indicator, thus the 3rd and 4th quarter 2006 consensus of 15% y/y growth each quarter is looking pretty good.
From an earnings growth and quality perspective, the market looks pretty healthy, and we'll leave it at that.
Position in S&P 500 index fund
What you need to know... - Jon Doctor J Najarian - 8:09 AM
BP (BP) Shuts Down Biggest Oilfield Over Leaks! This will be the most significant issue facing markets today, as the oil giant has indefinitely shut down the nation's biggest oilfield after finding a pipeline leak! This takes about 8 percent of oil production offline and has crude oil trading up $1.68 to $76.44.
Apple (AAPL) Fights Back – Shares rallied back over $68 after a backdating story fails to help the bears, so I'll be VERY INTERESTED to see how the worldwide developers confab goes in SFO and whether Steven Jobs gives us a look into what's coming on the computer front. The power Mac and Intel (INTC) chips should be the focus, as this will be the most powerful Mac ever.
Ford (F) & Rover To Be Packaged? According to published reports (The Sunday Times of London), Ford has held exploratory talks about Jaguar alone with Renault Hyundai and an unnamed Russian car firm, but the talks didn't go anywhere, the report said. Packaging the profitable Land Rover with Jaguar would sweeten the deal for any buyer, but losing the most profitable line (Rover) makes this a dumb move.
Positions in AAPL, F
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