Archive for February, 2008

Sprint Nextel fallout gathers pace as analysts trim expectations

Today’s tickers: S, VIX, TIE, AAPL, BAC, DELL, DF, NTAP, MF, CTXS & ATHR

SSprint Nextel. There was no hiding the disappointment behind a sizeable broader market sell off. While earnings yesterday were sloppy and accompanied by a huge goodwill write down related to the 2005 merger, analysts today reeled in response to the news that customer defections are at a three-year high with one noting that growth for the company isn’t on the agenda until 2010 at least. In response Sprint Nextel’s share price slid a further 9% to $7.39 and further induced bearish option plays. In the January contract, it appears that the 10.0 strike calls may well have been sold 16,000 times at around a premium of $1.00 in exchange for a hunt for downside reward at both 5.0 and 2.5 strikes. The former traded 11,800 times at 0.80 while the 2.50 strike jumped to trade at 0.25 some 5,100 times. With a worsening in the economy being priced in day after day, the pressure on this telecommunications company at least is reminiscent of the collapse of the sector in the recession of 2001. Option traders apparently are in no mood for a rally.

VIX CBOE volatility index. Option traders in the volatility pit are in no mood for optimism today. Calls on the index in the March contract were bought at all strikes from 25 through 35, while puts from 25 through 20 were unceremoniously dumped. It was a loud shriek from traders that today’s sell off might not mark a one-off decline, but that nasty conditions might be here to stay. Even extending their time horizon to the April contract, investors bought calls at the 32.5 strike at around a premium of $0.90. While the VIX has spent little time actually trading above a level of 30 in 2008, those calls would still appreciate if the VIX even rallied towards 28. The market does feel as if it’s positioning for a sizeable move.

TIETitanium Metals Inc. disappointed investors late Thursday with an earnings-miss and so became the largest decliner in the S&P 500 index Friday morning. Option volume of 27,000 represented around one-in-four of the existing open interest in the stock options with what looks like a sold strangle at play in the April contract. The company specializes in the manufacture of titanium-related products for use in the aerospace…
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Leap Day

Of all the months to have an extra day in it, why did it have to be this one?

This has been a torturous month to play the markets and making us spend one more day in it is just cruel at this point.  I mentioned in last night's post how deeply concerned I am about the dollar's continued decline and when I see things like that I want to go to cash and I very much doubt I'm the only trader who feels that way.  Unless we see a recovery in the dollar, it's going to be very hard to make a good case for US equities as we are down 20% from last year in foreign currency

Of course 20% would be an ideal bounce zone but it's also a terrible level to lose and breaking 12,500 again is a pretty good indicator that we have another bottom test in store for us.  Let's hope we can hold it today as 12,500 is up 100 for the week and we'll take it, but we're not going to like it!

Asia sold off last night as Bernanke's comments yesterday about possible US bank collapses for some reason made investors a little uneasy.  The Nikkei gave up 2% and the Hang Seng dropped just 1% (still 260 points!) and Europe is trading off about a point as the Euro hits $1.52, getting close to a double over the past 6 years!    Now there is ample grist for the rumor mill and AIG's surprising $5.3Bn loss on an $11Bn write-down of mortgage securities is not helping this morning.

We have AIG in our virtual portfolios and we pretty much expected this so we're going to take out our callers and be very happy it was "just" $11Bn and the key phrase is: "AIG said the unrealized valuation declines aren't indicative of the actual losses the unit may realize over time. Any credit losses that do occur in future won't have a big effect on AIG's overall financial condition."

This is why we bought August and sold March!  While it is possible that there may be some more write-downs if the government continues it's do-nothing policies and the housing market continues to collapse, this represents a net $5Bn
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Thursday Dollar Thump

I’ll keep calling the Thursday wrap-up "Thursday Thump" until everyone starts recognizing a pattern!

Two weeks ago it was the St. Valentine’s Day Massacre that caused the drop as we fell from 12,550 at the open to 12,350 at the close while people talked about how crappy the economy was.  Last Thursday we fell from 12,500 to 12,250 as the Philly Fed Index fell to -24, the lowest reading since 1991.  This week, it was Bernanke's surptising statement that some smaller banks may fail that shocked the markets even though the only real surprise was that Ben actually said it.   That coupled with news that Moody's was downgrading some banks was all it took to send the market down 112 points for the day.

Financials finished the day down 3% and oil finished at $102 after touching $103 and the energy sector gained 1.5% otherwise we could have gone down 300 easily.  The dollar plunged to a new all-time low as Bernanke spoke this morning, closing at a shocking 73.5.  I'm tempted at this point to go back to cash but cash has fallen almost 5% since Feb 10th so I'm not even sure that's a good idea!  While we are having fun with day trades our new virtual portfolios are still in the red.  With gold at $972 it's getting hard to paint a sunny picture here and I'm concerned we are in for another correction befroe we turn the markets around.

I didn't think the dollar would break 75 and a lot of the equations are going to change if we fall any lower as we have to start looking at US earnings from a foriegn perspective and realize that IBM's 14% gain in dollar revenues is a gain zero when benchmarked against foreign currencies.  The dollar is off 14% from Q1-07 so a US company has to make 14% more money just to stay even for an international investor to get his money's worth. 

My premise that our markets would hold the line here assumed some kind of Central Bank intervention to prop up the dollar at 75, followed by an end of Fed easing and a gradual revaluation of our currency.  I'm actually surprised that the reso of the World seems content to let us twist in the wind but, as I mentioned


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GDPhursday

How crappy is our economy?

We find out this morning as we get our Q4 GDP Revision but don't worry, I already have the results (preliminary) and I thought it would be fun to post these up ahead of the actual so don't look if you want to be surprised later:

Contribution to Percent Change In Real GDP

Contribution to Percent Change In Real GDP
             
             

 

Q4-07

Q3-07


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Wednesday Wrap-Up

An Apple a day makes Dr. Bernanke go away apparently!

We have one happy group of traders at PSW as Apple is one of our "core" holdings and we've been loading up on this recent dip.  While we are not yet ready to declare victory (that comes at $150) we are certainly in a very good mood seeing them make a huge turn today.  The big move came after hours today as Tim Cook (COO) made a presentation at the GS Technology Investment Symposium and effectively negated all the BS that's been used to take the company down the past month.

Companies like Apple and Google that have policies of not talking to the press between official releases are favorite targets for hyenas, who have no such restrictions and spread rumor and innuendo with impunity as people like Bill Ackman can be spectacularly publicly wrong in their attacks knowing that they will still be invited on CNBC and treated like an expert the next time they want to assasinate a company they are short on and they can sleep soundly in their beds knowing the SEC is also asleep at the wheel.  Even a blatant fraud like Henry Blodget (who was rated the #1 Internet/eCommerce analyst by TheStreet.com in 2000) is still treated like a venerable analyst by the media but, then again, so is Cramer.

Speaking of CNBC, I love the Fast Money Recap from Tuesday night: "Google GOOG fell today on news that clicks on its site, a source of revenue for the company, were flat or down. Macke predicted that the next CEO will reduce headcount. He added that Apple AAPL hasn't been working. He advocated avoiding the two stocks.  Adami noted that Google at $513 has typically been a good level to trade around. He cited a new algorithm as a potential catalyst and called it a value stock at 18 times forward earnings. Najarian said he'd wait to see institutional money in the name." 

Yes, by all means, don't buy until everyone else does!  With advice like this it's no wonder traders are losing their shirts this month.  If you listen to the media when they tell you to panic on the dips and wait until everyone is back on the bandwagon
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March call-holder gets wary after Delta-Northwest talks hit snag

Today’s tickers: NWA, NRG, XLNX, CSCO, PHM, TOL, NOC, FNM, FRE, XLB, ADSK, JEF, NSM

NWA – Shares in Northwest Airlines skidded nearly 7% to $14.92 in afternoon trading on news of a snag in its merger talks with Delta. The road bump concerns talks with both carriers’ pilots’ unions over job seniority after the integration of the airlines. The development looks to have spurred at least one major holder of those infamous March calls (“pegged” by option traders since last fall as a likely timeline for airline consolidation) to sell out at the 17.50 strike for 25 cents – a substantial discount from yesterday’s levels – and possibly roll the position into a more moderate call-spread position in the June contract between strikes 15 and 17.50. If this is indeed a bullish trade amended into a long call spread, as we suspect, the trader would have bought the June 15 calls for $2.65 while selling the 17.50 calls for $1.60, opening the transaction with a $1.05 debit that renders profit for the buyer if Northwest shares reclaim the $16.05 mark – but selling the upper strike means capping the upside. The rollover of this single position sent option volume in Northwest to 36 times the normal level.

NRG – Earnings are due out from diversified energy company NRG Energy tomorrow, and it’s in anticipation of those earnings and a 2% decline in share price to $40.52 that we find options trading at 53 times the normal level. While NRG topped the Wall Street Journal’s list of stocks bought on weakness today, it looks like option traders took the opportunity to sell off the equivalent of nearly all the open interest in March 40 calls. These were sold for about $2.20 apiece as premiums came off by about 25% in value due to the share price decline. Most of the open interest here was opened at $2.80 on January 8, so closing with a sale now would yield a loss. We also observed put-buying in the January 2010 contract at $1.15 – a striking move in an out-of-the-money put with plenty of time value but a tiny delta suggesting just a 7% chance that NRG shares will lose half their value over the next 2 years.

CSCO – Shares in Cisco bounced 3% to $24.81 following “buy” recommendations of the company’s stock by Wells Fargo and Citigroup. The move…
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Worrisome Wednesday

It’s up to Ben Bernanke to save the markets!

If that statement doesn’t inspire you with confidence, you’ll understand why, at 3:05 yesterday, with the Dow still at 12,700, I said: "Good time to pick up DIA $127 puts and QID $50s for overnight protection. XXX"  Hopefully we won’t need it as badly as the futures are indicating but it sure is nice to have isn’t it?

Durable goods orders fell 5.3% in January, a big recessionary signal but, like the PPI, this is a snap-back from an unbelievable 4.4% increase in December, when the government was pulling out all the stops to punch up the Q4 numbers.

Durable goods reports are insanely volatile and the WSJ points out that the ISM numbers were up from 48.4 in December to 50.7 in January, a much more likely indication of a bottoming move.  Shipments of durable goods ROSE 0.1% for the month (a GDP component) so we are down but not out…

As a corporate manager, given the fear and panic we were subjected to in January, don’t you think you might have held off a little when you were asked to consider making major equipment purchases?  The Dow plunged from 13,550 at Christmas to 11,634 on Jan 22nd (down 25%) and Durable Goods orders ONLY fell 5.3% – sounds like a market overreaction to me!

[chart]Of course we also have the stunning (but expected) decline in home prices as the average American home lost 8.9% in value from the previous year but don’t worry, George Bush is going to send you $600 to make it all better!  As we’ve mentioned before, the administration’s "Free Market" solution is a total disaster as all they have managed to do is allow the Banks to increase their mortgage "crack spreads" from 1.5% last year to 3.5% this month, more than doubling their profits per loan.  Conforming loans are the same price now as they were when the Fed Funds Rate was 5.25% and Jumbo loan rates have actually gone UP almost a full point – good luck with that refi when your home is down 10% in value and rates are up!

While I’m furious at this administrations handling of this mess, I’m just as mad at Clinton and Obama after last night’s debate for their utter failure to steer the debate towards something substantive.  NAFTA and national security…
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Tuesday Top Off – Europe Ascending

All right, now we're making some progress!

Not with the indices, who cares about them – I'm thrilled that we chased 23M people out of Google today.  In what may have been their busiest day since their IPO, 10% of Google's shares were sold and, shockingly, bought as close to 10% of the float changed hands.  Google is 80% owned by institutions and, as we noted last night, they weren't selling

Also significant is Google's bottom today at 299.99 – Euros, that is.  That's the point at which buyers starfted swarming in, just another indication of how the dollar, even as it relates to stock prices, no longer matters in International trading and technical traders better learn how to do their conversions if they want to get a clear picture of what's going on with a chart.  You can't analyze a stock if you base it on an unstable currency!

If you look at the chart of the S&P in real money, you'll see that the trend line has been far from baffling as we've simply been following the 50 dma lower and lower since our October highs with a very brief breakout attempt in December (courtesy of the Fed).  What looks to be, in dollars, a surge in the S&P back to the 50 dma at 1,392 over the past 3 days is merely a flatline to Europeans.  The good news is we are nowhere near our Jan 22nd lows and have put in a fairly orderly consolidation since then, staying in a tight 4% range, almost half of the 7% range we've seen as measured in dollars.

So it's no surprise the VIX is coming down hard, volatility washed out weeks ago – we're just the last ones on Earth to get the message!  I'm not saying we are unbound by US technicals but let's keep in mind that, as we drift lower and lower as an economic power, the power of our charts to sway International investors diminishes as well.

The Dow, meanwhile, stopped dead at the 50 dma of 12,688 today as gold and oil both gained about 1% ahead of Helicopter Ben's testimony tomorrow.  We're touching $1.50 to the Euro and that is just…
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Ambac alleyoop sparks another rally…

Today’s ticker: LNG, LOW, ABK, XLF, WB, GTXI, QCOM, NTAP, DNA, TTWO

LNG – Shares in Cheniere Energy, the developer of onshore liquefied natural gas (LNG) terminals, gained 7.5% to close at $28.87 today. Earlier today the company said it was exploring a possible sale of its 92% owned Sabine Pass terminal in Louisiana to “enhance value for its shareholders.” Not surprisingly, option volume powered to 27 times the normal level as calls traded on their heaviest volume in our records today. Implied volatility also rose in step to reflect about 34% more price risk to Cheniere shares than they have shown historically. Option traders are eyeballing the September contract for some resolution to this possible terminal divestment, with what may be long call spread positions between strikes 35 and 40. The trader in this instance would position for upside by buying the September 35 calls for $2.10 while controlling trade costs via the sale of 40 calls at $1.00. The remaining debit means the trade generates profit for the buyer once Cheniere breaks past $36.10, but the sale of the upper-strike call creates a ceiling on the upside – in other words, today’s trader isn’t looking for the sale of Sabine Pass to result in a break of the standing $41.99 high anytime soon. Shares in Cheniere Energy were down 11% for the year to date heading into today.

LOW – Shares in Lowe’s, the world’s second-largest home-improvement retailer, bounced nearly 5% higher to $24.74 today, despite reporting a one-third decline in its Q4 net income. The company’s CEO said he did not anticipate a recovery in the housing market until next year. Option volume advanced to 6 times the normal level, with a largely bearish bent to equities trading second-guessing that counterintuitive move higher in share price. It appears as though some traders may have looked to enter long put spread positions between the 22.50 and 25 strikes, selling the lower strike for 30 cents toward the purchase of the 25 strike at $1.30. Elsewhere the July contract was in focus as traders looked to sell volatility, possibly going short the 25.00 strangle while calls one strike higher traded to the middle of the market at $1.05.

ABK – News emerged this afternoon that a consortium of leading banks has struck a deal to rescue municipal bond insurer Ambac, good news reinforced by S&P’s decision to maintain the…
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Testy Tuesday Morning

Ho-hum, another day another 250-point move in the Dow

 

Wouldn't it be nice to string two of these together without the seemingly obligatory 250-point dip in between?  We sort of had two consecutive up days now as we came off the floor at 12,100 on Friday and finished almost 500 points higher yesterday but I don't like anything that comes in 250-point chunks at this point as it seems to be the new UNIT of movement, as easily reversed as it is gained.

Stock and Options Trades points out that we have critical tests on the Dow at 12,600 and the S&P at 1,380 but I've already moved on to 12,750 or bust as my outlook for the week and I want to see us finish ABOVE 1,400 on the S&P this Friday or we'll be shorting into the weekend.  We have to get past today's PPI report, but we also have Consumer Confidence at 10 with Durable Goods acting as tomorrow's wild card.  Tomorrow we also get oil inventories as well as Ben's first day of testimony to Congress so don't expect too much today with all that up in the air for later in the week.

Tomorrow we also get the Preliminary GDP report for Q4 but expectations are so low (0.6%) that is would be shocking if we disappoint there.  Friday is the PCE Inflation and Chicago PMI and, again, there is so much doom and gloom anticipated that I see most of these numbers as a reason to rally.  Bernanke is the wild card this week, along with random statements we can expect from other Fed Governors.

8:30:  Holy Cow!  PPI up 1%, "core" PPI up 0.4% – that is HUGE!  That is the biggest one-month gain in 26 years!  Inflation, inflation, inflation, inflation…  how will the market react to this?  Answer:  Probably not well.  This is, in part, a snap-back from the 0.3% DROP in PPI in December, which we thought was nonsense at the time.  Analysts missed this one by a mile generally looking for 0.4% and I didn't expect a number this big but with energy up 5% for the month, it was hard to avoild some undeniable inflation.

On top of that, the Case-Shiller Home Price Index shows that housing prices fell…
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Zero Hedge

Explosion Hits Russia's Largest Virus Lab Which Houses Plague, Smallpox, Ebola And Other Deadly Viruses

Courtesy of ZeroHedge View original post here.

A sudden explosion at a Siberian virus research center on Monday reportedly left the facility engulfed in flames, according to several Russian news outlets. 

Firefighters and other emergency personnel were dispatched to the "Vector Institute" located several miles from Novosibirsk - an emergency which was upgraded "from an ordinary emergency to a major incident," a...



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Phil's Favorites

The future of work will still include plenty of jobs

 

The future of work will still include plenty of jobs

Even though the future is unknown, Canada’s employment rate has risen steadily from 53 per cent in 1946 to more than 61 per cent today. (Shutterstock)

Courtesy of Wayne Simpson, University of Manitoba

There is now widespread anxiety over the future of work, often accompanied by calls for a basic income to protect those displaced by automation and other technological changes.

As a labour economis...



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Lee's Free Thinking

Is The Drone Strike a Black Swan?

Courtesy of Lee Adler

Pundits are calling yesterday’s drone strke a “black swan.” Can a drone strike on a Saudi oil facility, be a “black swan.”

According to Investopedia:

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.

I seriously doubt that no one expected or could have predicted a drone strike on a Saudi oil facility.

Call Me A B...

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Insider Scoop

New Relic Cuts 2020 Sales Guidance, Announces Changes In Management

Courtesy of Benzinga

New Relic (NYSE: NEWR) has reaffirmed its second-quarter guidance and cut its sales guidance for fiscal year 2020 from $600 million-$607 million to $586 million-$593 million.

The company’s chief technology officer, Jim Gochee, and chief revenue officer, Erica Schultz, have resigned. New Relic also named board member Michael Christenson as its chief operating officer. Christenson joins from his ...



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The Technical Traders

Metals are following downside sell off prediction before the next rally

Courtesy of Technical Traders

It is absolutely amazing how the precious metals markets have followed our October 2018 predictions almost like clockwork.  Our call for an April 21~24 momentum base below $1300 followed by an extensive rally to levels above $1550 has been playing out almost like we scripted these future price moves.

Now that the $1550 level has been reached, we are expecting a rotation to levels that may reach just below the $1490~1500 level before attempting to set up another momentum base/bottom formation.  And just like clockwork, Gold has followed our predictions and price is falling as we expected. Just look at our October 2018 chart where we forecasted the price of gold...



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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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