Archive for May, 2008

Quick Note on Solars

Weakness in solar stocks, from Notable Calls,

Merrill Lynch cuts Solar Sector

SunPower (NASDAQ:SPWR) & Evergreen Solar (NASDAQ:ESLR) get cut to Sell from Neutral.

First Solar (NASDAQ:FSLR) tgt cut to $325 from $360. Maintains Buy.

German ruling CDU party says State support for solar power should fall by 30% in 2009 — Reuters

And from Notable Calls yesterday: 
- Kaufman is initiating a bunch of Solars today. My favourite is SunPower (NASDAQ:SPWR) as according to the firm the co is on track to double capacity in ’08 while their models show SunPower exceeding revenue of FSLR in ’09. Sets Buy & $120 tgt on.





GDPhursday

Yay, GDP day – I'm so excited!

I know, "get a life", right?  Well we haven't had much exciting data in a week so this will be fun and I'm pretty sure we'll beat the low expectations for the quarter as earnings were generally on the plus side but this is only a revision to Q1 so it's not exactly a major market mover but an upside move in GDP and a downside move in crude today would be just what the market doctor ordered to put us back on a positive track.

We also have oil and gas inventories at 10:30 with expectations of flat crude, a 300K draw in gasoline, an 800K build in distillates and an 85Bcf build in natural gas.  We noted from yesterday's late action in the oil patch that it looked like the "fix was in" for this morning as many energy names rallied into the close.  These inventories are for the week ending 5/23, LAST Friday so the fix may indeed be in with these low expectations of draws in the days leading up to what was supposed to be the big holiday driving weekend.

Ahead of a holiday weekend one would expect refiners to refine a lot of crude, drawing down oil inventories while shipping pretty much everything they have out to the retailers, drawing down gasoline, while drivers fill up their tanks locally ahead of the weekend (because no one is crazy enough to PLAN to buy gas on the highways at these prices), causing a spike in demand.  This weekend should be, and historically is, a home run for the oil industry.  So what's with these incredibly (as in not at all credible) low expectations?

There are 146M cars on the road in the US and the average gas tank has a 17 gallon capacity.  That's 2.5Bn gallons of gasoline that could be driving around at any given moment and, if we assume that people usually keep their tank half full, then that would be about 1.25Bn gallons which, at 42 gallons a barrel, equals roughly 30M barrels of gasoline.  If just 1/3 of all drivers top off their tanks ahead of the 3-day weekend (and don't forget oil was racing up and many of us filled up just to avoid the price hike), that would be a 10M barrel
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Telling Rift

Here’s another interesting article by Mish,

Telling Rift Over Fed Lending Facility

In mid-September the Fed is placing new restrictions on the Primary Dealer Credit Facility, a swap-o-rama with broker dealers as opposed to banks.

The Financial Times picks up the story in Investment banks split over Fed loan facility.

Investment banks such as Goldman Sachs (GS) that have been less affected by the credit crisis are said to be leaning against accepting any significant new limits by the Fed, while those that have been somewhat more affected, such as Lehman Brothers, are seen as more eager to maintain access to the Fed facility even if it means new limits on risk-taking.

“Then you have people like Morgan Stanley (MS) in the middle saying everyone should just wait and see what the Fed comes up with” in terms of new regulation. None of the banks would comment officially, given the sensitivities and differences of opinion on what should be done.

The Fed initiative, spurred by the collapse of Bear Stearns, allows investment banks to pledge investment-grade securities, including mortgage-backed securities, in return for low-interest cash loans. The rationale for the facility was to ensure that none of the other banks would suffer the same kind of evaporation of short-term liquidity that sank Bear Stearns.

The big commercial banks have told regulators that the investment firms should be subject to the same tight requirements on debt and leverage and that no compromise should be allowed.

Leverage Got Banks In Trouble

It was leverage that got banks and broker dealers in trouble. Now banks are complaining that broker dealers get to use higher leverage than they do. Where would Citigroup, Wachovia, etc, be with higher leverage still?

One problem is the Fed should not be lending to broker dealers at all, regardless of leverage issues, not that the swap-o-rama should have a level play field. For more on this topic, please see Big Brother Monitors Investment Activity.

For a quick recap of the alphabet soup of lending facilities please see Fed Is Not King Midas.

Previously, the ECB Expressed Concerns Over Swap-O-Rama Exit Strategy, so perhaps restrictions are a sign the Fed is looking for an exit strategy. Then again, perhaps the Fed is simply seeking ways to exert more influence over broker dealers.

Goldman is resisting.

That Lehman is more willing to go along with new


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Wednesday Wrap-Up

The markets held up well today.

We were playing for the bounce in oil and we got the bounce in oil ahead of tomorrow's inventories but it was pretty much a commodity rally and we hate those.  We did get a nice move up by the Transports, who weren't buying the "bounce" in crude and neither should you because there was nothing driving it other than the urge to paint $130 on the NYMEX.

RL had surprisingly good results and boosted the retail sector but that doesn't matter ahead of the GDP tomorrow so we kept playing it close to the vest with not too many picks,  We shorted RIMM and FSLR into the close as both seemed irrationally exuberant as the rally based on oil, materials and agriculture stocks puts us right back to where we were near the end of April, when tech (and RIMM) were struggling. 

On the whole, it looks like the Nasdaq is simply consolidating under the 200 dma at 2,500 and as long as we hold 2,400 we can remain bullish.  We MUST have Nasdaq leadership to confirm a healthy rotation pattern out of commodities but, as we were discussing in member chat yesterday, I'm still looking for a pullback ahead of Q2 earnings in July as I think those are going to be the real catalysts on which we base our summer rally.

Corn fell to it's lowest price in more than a week after the U.S. government announced plans to allow livestock grazing on protected land, reducing demand for grain in animal feed.  About 24 million acres held in the Conservation Reserve Program will be available later this year, U.S. Agriculture Secretary Ed Schafer said yesterday. The move may add as much as 18 million metric tons to feed supplies, the Department of Agriculture said. “The corn crop is already late, and that means we will need to have cool weather this summer for pollination and an extended growing season'' to boost yields, Schultz of Gottsch Enterprises said. “Anything that threatens the crop will renew the rally.''

Meanwhile the dollar hit a two-week high against the Yen, this should be good for our TM play this morning as well as our SNE and other Japanese exporters (see, I told you not to worry).  You…
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Mish on Speculation

Here’s Mish‘s take on

Commodities Speculation Symptom Of Larger Problem

Definitely worth reading….

With a tip of the hat to Michael Masters, it is possible to Quantify Commodities Speculation. Here is the key chart:

Commodity Index Investment vs. Spot Prices

Chart One shows Assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260 billion as of March 2008, and the prices of the 25 commodities that compose these indices have risen by an average of 183% in those five years!

What To Do About It?

If speculation is the problem, then the question is what to do about it. Masters proposes three solutions as follows:

Number One:
Congress has closely regulated pension funds, recognizing that they serve a public purpose. Congress should modify ERISA regulations to prohibit commodity index replication strategies as unsuitable pension investments because of the damage that they do to the commodities futures markets and to Americans as a whole.

Number Two:
Congress should act immediately to close the Swaps Loophole. Speculative position limits must “look-through” the swaps transaction to the ultimate counterparty and hold that counterparty to the speculative position limits. This would curtail Index Speculation and it would force ALL Speculators to face position limits.

Number Three:
Congress should further compel the CFTC to reclassify all the positions in the Commercial category of the Commitments of Traders Reports to distinguish those positions that are controlled by “Bona Fide” Physical Hedgers from those controlled by Wall Street banks. The positions of Wall Street banks should be further broken down based on their OTC swaps counter-party into “Bona Fide” Physical Hedgers and Speculators.

The problem with Masters’ solution is that commodity speculation is "A" problem, not "THE" problem. A still better way of looking at it is that commodities speculation is symptom of a much larger set of problems:

  • Fractional Reserve Lending
  • Past monetary inflation
  • The Fed’s willingness to blow bubble after bubble
  • Loose lending standards by the Fed
  • Carry trades in Japan
  • Runaway spending by Congress

All of the above points pertain to other central bankers and foreign governments as well.

The Fed openly encouraged speculation in the wake of the dotcom crash. Greenspan was


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Swing trading virtual portfolio – Optrader

New post-May 28th

 





Inaction at Anheuser Busch leaves traders weighing their options

HSY– Hershey Company – Confectioner Hershey saw its share price rise 7.5% to $39.16 during the session as unconfirmed bid-mongering did the rounds. Options traders sent implied volatility up 88% – the biggest on today’s market scanners – to 42.8%. In the June, July and September contracts option traders went screaming into the 40.0 strike calls like kids running into the candy store. Premiums paid rose sharply across the gamut with the June calls rising from $0.10 to $1.50, while in the September contract some 20,000 calls at the 40.0 strike traded as high as 2.10 from Friday’s closing price of $0.45 per contract. There seems little if any news on the subject that we can find today, although the options activity at 32-times its usual pace guarantees that options traders have the bit between their teeth. Today’s options action is neck-and-neck with existing open interest on Hershey’s.

PWE – Penn West Energy Trust Units – the options activity at this royalty trust energy company from Canada is also in-line with its open interest. That’s largely thanks to one sizeable call trade at the Jun 30.0 strike. Shares in the trust are down alongside the rest of the energy sector today standing at $33.72. Call volume of 50,000 contracts at the June 30 strike compares to existing open interest of 11,110 lots. The trade went through at a premium of $4.00. Option implied volatility rose marginally from 23-25% on the deal.

BUD– Anheuser Busch– Shares in Anheuser Busch are flat after the long Memorial Day vacation without any sign of a takeover or merger announcement over the weekend. All of Friday’s euphoria is being left to ferment and it’s hard to say that the story has lost its fizz just yet. Reuters reports that talks could start this week although InBev is keeping quiet about its plans despite Friday’s FT report noting that a financing package had previously been put in place. In the options market, it would appear that traders don’t want to be caught out in the cold and seem to be rolling up the strike in June, July and September calls, where existing positions at lower strike calls (50 and 55) are being sold in exchange for the higher 60 strike calls. Notably, traders seem to believe that the current share price buoyancy surrounding BUD is likely to remain in vogue. That means that seem prepared to…
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Consumer Confidence

Here’s an article on consumer confidence, courtesy of Alan Brochstein, AB Analytical Services

Consumer Confidence Plunges:  Buy!

Falling consumer confidence tends to lead to a falling stock market, but once it is "low", it tends to signal a buy opportunity. Take a look at the 30 year history of the Consumer Confidence Index. You will see that yesterday’s print of 57.2 is the lowest level since the early 90s and represents a decline of over 42% from a year ago.


The top panel is the index itself. The middle panel is the one-year percentage change in the S&P 500.

It seems pretty clear to me that a year after a spike down in confidence, stocks have offered positive returns. Note that the last big drop occurred after the bottom of the bear market bottom in late 2002. Confidence was weak in the early 90s, but note that returns were positive shortly after the indicator first breached 60. Looking back at the early 80s, confidence plunged in 1980 but didn’t seem to hurt the market. As the indicator fell in 1982, the market was crunched. While I don’t think we are sowing the seeds again for the greatest bull market in our lifetime (1982-2000), we all know that 1982 turned out to be a great time to buy.

I put the last panel on the chart to show how useless the index is: It repeats the obvious. Note the high correlation between the 1 year change in stock prices and the 1 year change in confidence. Is it surprising that people lose confidence when stocks are declining? It’s not a perfect fit and certainly not the only factor to explain consumer sentiment, but stocks are a great leading indicator.





Swing trading virtual portfolio – Optrader

New post-May 28th

 





Giant Pool of Money

"I think you can appreciate why the housing mess will not resolve for several more years. Prime mortgages have been sliced and diced and repackaged endlessly with subprime in order to raise the ratings on the entire pool, then these packages have been sold, repackaged, sold, repackaged, etc. etc.

They can’t even figure out who owns the mortgages anymore because each mortgage has been sliced into parts and repackaged. So there is nobody you can go to in order to re-negotiate your mortgage. It is like trying to renegotiate the value of your shares of GE with the owners. There are millions of shareholders, so who do you talk to?"

For an insider view of things from the standpoint of the participants on all sides, listen to the Giant Pool of Money, when you have time, it’s about an hour (click on "full episode" on the left of the page).





 
 
 

Phil's Favorites

Legal cannabis celebrates its first anniversary in Canada: What's next?

 

Legal cannabis celebrates its first anniversary in Canada: What's next?

Montrealers hold up a Canadian flag with a marijuana logo on it outside a government cannabis store in the city Oct. 17, 2018. THE CANADIAN PRESS/Graham Hughes

Courtesy of Michael J. Armstrong, Brock University

This week marks the first anniversary of Canada’s recreational cannabis legalization. It’s an appropriate time to review what happened last year and consider what’s coming next.

Legalization brought big changes for some folks. About 9,200 employees now work at cannabis producers, with ...



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Zero Hedge

Pork-Panic Sends China CPI To 6 Year Highs As Factory Deflation Deepens

Courtesy of ZeroHedge View original post here.

China's producer prices deflated for the 3rd straight month, slumping 1.2% YoY - the biggest deflationary impulse since July 2016 - but, thanks to the explosion in pork prices (as 'pig ebola' spreads), Chinese consumers are facing the worst inflation since 2013.

  • China Sept CPI +3.0% YoY (2.9% exp and 2.9% prior)

  • China Sept PPI -1.2% YoY (-1.2% exp and -0.8% prior)

...



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Chart School

Review of Andrew CardWell RSI with Wyckoff price waves

Courtesy of Read the Ticker

RSI measures relative strength of price action of a set period versus prior set periods. It helps review the price swings or waves, the power of each price thrust into new ground, or lack of it. Price thrust like many things relies on energy, and energy is not a constant, it has a birth, a life and a death and relative strength helps us see that cycle. 

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Kimble Charting Solutions

Banks Should Send Critical Message To Stocks This Week!

Courtesy of Chris Kimble

Bank earnings could go a long way to impacting the broad market in a big way this week. Wells Fargo, Goldman Sachs, Bank Of America, JP Morgan, Morgan Stanley all announce earning the next couple of days.

As these earning announcements are to take place, the Bank Index (BKX) finds itself facing a key breakout test.

The index remains inside of bullish rising channel (1), as it has created a series of higher lows and higher highs over the past 8-years.

The index has little to brag about over the past 20-months, as it has created a series of lower highs and lower lows inside of falling chan...



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The Technical Traders

Daily Market Analysis and Trade Setups

Courtesy of Technical Traders

CLICK HERE TO GET REAL TIME TRADE ALERTS!

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Insider Scoop

22 Healthcare Stocks Moving In Tuesday's Pre-Market Session

Courtesy of Benzinga

Gainers
  • Reata Pharmaceuticals, Inc. (NASDAQ: RETA) stock surged 45.2% to $146.07 during Tuesday's pre-market session. The market value of their outstanding shares is at $2.8 billion. The most recent rating by Cantor Fitzgerald, on October 15, is at Overweight, with a price target of $180.00.
  • Aphria, Inc. (NYSE: APHA) stock increased by 18.6% to $5.16. The market value of their outstanding shares is at $1.8 billion. According to the most recent rating by CIBC, on July 26, the current rating is at Underperformer.
  • ...


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Digital Currencies

Zuck Delays Libra Launch Date Due To Issues "Sensitive To Society"

Courtesy of ZeroHedge View original post here.

Authored by William Suberg via CoinTelegraph.com,

Facebook is taking a much more careful approach to Libra than its previous projects, CEO Mark Zuckerberg has confirmed. 

“Obviously we want to move forward at some point soon [and] not have this take many years to roll out,” he said. “But ...



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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...



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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

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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:

 

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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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