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Buzz Bits: Dow and Nasdaq End Lower


Your daily Buzz & Banter highlights.

Editor's Note: This is a small sample of the content available on the Buzz & Banter.

Why Do Buybacks Matter? - Kevin Depew - 2:13 PM

Going over the Macy's (M) call transcript the news is, as one would expect given the stock down 4.4%, rather grim. But what is grim is less the anticipated slowing retail sales enviornment, but other comments related to credit markets, corporate buybacks and the ability to generate EPS growth without the buybacks.

The following comments during the call on Macy's share buyback program from Karen Hoguet, Macy's CFO, are telling:

"Given the current condition in the credit markets, we are carefully evaluating our options with respect to the timing of completing our remaining $1 billion authorization. As a result, some or most of that $1 billion could end up being deferred into next year. While we are optimistic about our prospects, and we believe the stock today represents a great value, we do need to balance this with the benefits of preserving access to all financial markets during these volatile times in the credit market."

Remember, there is a specific reason companies repurchase shares of their own stock. And this is another untold consequence of the credit market problems. Without corporate buybacks it is impossible for many companies to get EPS growth! That is where we are in this economy!

Karen Hoguet, CFO, in response to pushing back the billion dollar share repurchase authorization:

"T]he truth is that's why we give a range of estimate. If we don't buy back the billion dollars, obviously the operations are going to have to do better to get to the same earnings. But that is part of the reason we give a range. You know, it's not as precise as you all think to estimate earnings going forward. So we do the best that we can as we provide guidance."

Yes, if companies such as Macy's don't buy back a billion dollars in their own stock, they are going to have to do better operationally to get the same earnings.

Apple Swing - Jeffrey Cooper - 1:41 PM

A 10-min. chart of Apple (AAPL) for the last two sessions shows two swings down with the second swing verging on a test of Tuesday's highs.

Click here to enlarge.

It looks like a 1-2-3 swing to a test of the 170-171 band could play out today, i.e. I am looking for another swing down towards 170ish or an undercut of today's lows.

Position in AAPL.

Dell Meets Sun - Sean Udall - 12:14 PM

Editor's Note: On news of Dell agreeing to license and build computers based on Sun Microsystem's Solaris software, Professor Udall offered us his thoughts.

Interesting note here and Dell (DELL) seems to be getting their old product development groove back.

This partnership should be a net positive for both companies but probably favors Sun Microsystems (JAVAD).

Market seems to agree as it is sometimes quite difficult for a stock to trade higher after a reverse stock split.

Pin Jam in Lane 1 - Adam Warner - 11:26 AM

Lots of chatta as always about option pinning, so just a quick reminder.

Pins are most probable when open interest on a particular strike is high, and volatility is relatively low. But the higher volatility in a way is the more significant variable. Volatility translate to an estimate of the daily range. If it is low, and a stock is already near a strike, then the likelihood becomes greater that it hovers near the strike anyway. That effect is compounded when open interest is high relative to average stock volume, and option owners are scrambling to offset their daily decay via flipping the stock up and back around the strike.

If the option owners are market makers, all the more likely they are in there flipping as they tend to aggressively hedge their deltas as they move.

What you have this cycle though is clearly the reverse. Stocks are very volatile. And until yesterday, volatility had pretty much trended higher all cycle. Which makes it more likely market makers are short some option paper and exerting the reverse effect in spots and selling weakness and chasing strength.

Everything's a case by case basis, so surely the General Electrics (GE) and Microsofts (MSFT) of the world can always nestle near a strike and sit there. But by and large, it is not likely to be a pin-fest this go around.

No positions in stocks mentioned.

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