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Double Top Testing Tuesday – 8,900 or Bust!

Whee, what fun!

We got the S&P stick that kept us well and truly above 946 into the close.  If we hold it for a couple of days, we won't be calling it a "stick save," we'll be saying this was the day that 946 turned from resistance to support – a good chartist needs to travel to the future, look back at today's charts and think about them in context of the follow-through move they expect.  Looking further back in time, however, what we have so far is a double top on the S&P at the upper end of our primary range on very low volume.  956.23 was our June high and that still needs to be both taken out and held (preferably at decent volume) in order for us to don our rally caps for the next leg up

I'm encouraged this morning that we may be able to do it though – CAT had great numbers, beating estimates of .22 by .38 per share, that's very impressive for what was a $35 stock yesterday.  Fellow Dow component KO had a nice beat as well as did DD, MRK and UTX,  That's 5 Dow beats in one day and yesterday we finished at 8,848 which is why I'm saying 8,900 or bust today.  If we can't add 52 little points on these earnings, then surely the rally into these earnings was overdone.  If, on the other hand, we can hold 8,900 and build from there – then perhaps we are ready to move 8,650 to the bottom of our range and look to make a 10% move over that to 9,500, a mere 32% off the highs.

I'm excited because it's almost time to pull out a brand new Big Chart with all new targets – if only we can prove this move is real.   Let's not get too ahead of ourselves but I was already very pleased with last night's eanings when all 20 reporting companies beat estimates with PKG and TXN raising guidance of all things!  This morning we also have both ICSC and Redbook Retail Sales reports and Bernanke gives the old Humphrey-Hawkins address to Congress against a very pretty market background which will hopefully overshadow TARP Czar Neil Barofsky, who will be reporting to Congress under the shadow of his "leaked" report that shows that the government's POTENTIAL exposure under TARP is now $23.7 TRILLION.  To get to that figure, Mr. Barofsky combined direct spending with all the government guarantees and programs and assumes the "gross exposure" the government could face if all the programs were tapped to their fullest potential.   It's funny but I don't recall Paulson asking Congress for $700Bn so we could assume $24Tn in debt obligations…

 

It kind of puts California's $26Bn debt in perspective as that's just 0.1% of the TARP obligation but, unlike the US, California seems to have finally reached a deal to get their budget under control.  The deal, reached by legislative leaders after two months of frequently acrimonious negotiations, would slash spending for schools, public works and welfare programs amid the longest recession since the 1930s. If approved by the full Senate and Assembly, the agreement will also siphon money from municipalities, force companies and individuals to pay income taxes sooner and make it more difficult to receive state aid.  “We came to a basic agreement, a budget agreement,” Governor Schwarzenegger told reporters outside his office last evening. “This is a budget that has no tax increases and this is a budget that is cutting spending and it deals with the entire $26 billion." deficit.” 

California's neighbor to the East and major trading partner, Japan, was quite pleased with the news this morning as the Nikkei came back from a long weekend and jumped up 2.7% this morning.  There was never any doubt at the 9,500 line as the index gapped right over it, did a mid-day test but then had a hell of an afternoon, adding 150 more points to close at the day's high.  Tech stocks led the rally in Asia off good TXN earnings last night but the Hang Seng went flat and the Shanghai fell 1.64% but that is what we expected going with FXP protection as China, of all the world markets, seems to be a bit ahead of itself.  "Much of the equity gains have come on declining volume, [indicating] confidence is still tentative," said analysts at UBS. "We ultimately think the gains will prove unsustainable on a three-to-six-month" basis.  "Investors should consider taking some money off the table as we expect this rally to be interspersed with some pullbacks," said CIMB.

Europe is having yet another nice day (7 in a row) and the FTSE is teesting that 4,500 line this morning and it would be a very big deal for them to take it out.  The DAX is aiming for 5,150 and the CAC need 3,500 to make it's point.  Retailers and banks led the rally, which was nice as energy and metal stocsk took a break in an overnight dip in commodities that is already reversing ahead of the US open (8:30).  Today it was CS's turn to push the markets higher as that bank advised investors to trim their holdings in government bonds and buy equities, reversing a recommendation from June:

Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,” according to London-based global strategist Andrew Garthwaite. The VIX and investment-grade corporate bond spreads have returned to more “normal levels” and this will allow money market funds to buy into the stock market, Garthwaite told clients in a note today.

Valuations on equities are “not expensive” and consensus estimates for earnings in the U.S. are now being increased, something which precedes a rising stock market in the subsequent two to three months, he wrote.  “Bonds no longer look attractive,” Garthwaite wrote. We expect “a positive macro surprise in the second half of the year. We believe that we are halfway through the first ‘V’ of an upward sloping W-shaped recovery, with a likely peak in the early fourth quarter.”

Gee, comments from MS on Asian markets yesterday morning, Goldman on the US market this morning and now CS on the European markets today – it does kind of make me think of plate spinning as they run around the globe and through the various sectors, upgrading their outlooks in a huge effort to keep everything going because we all know what happens when they stop!  Now I love TXN and I do believe we will recover over time but they earned .20 per $23.50 share vs. .18 expected and that is less than 1/2 the .44 they earned last year, when the stock was at $24.  IF TXN earns $1 per share (.78 estimated) this year then their p/e would be 24, which is a damn site better than QCOM (46) or INTC (36) but still a bit high for a large-cap company in an uncertain environment.  At some point in this process we may have to stop spinning all these plates and see what values actually hold up when the music stops

Still, when things go crazy we switch off our brains and watch the technicals and we only need to see 6,232 on the NYSE to have all of the major US indexes over the 40% mark, something we haven't had since early November.  We want to hold the June high closes of:  Dow 8,800, S&P 946, Nasdaq 1,860, NYSE 6,200 and Russell 530 and we'll be looking to take out the June intraday highs of Dow 8,878, S&P 956, Nasdaq 1,909 (yesterday's close was a new high), NYSE 6,231 and Russell 535.  It was the NYSE who pooped our party in June so we'll be watching that index closely.  We covered our long covers (flipping bullish) in the morning yesterday and picked up bullish plays on MTXX (bull call spread), PGF (leap), PGH (buy/write) and VNO (neutral spread) in member chat but mainly we watched the action as our bullish plays are now so far in the money that there's not much we can do with them at this point other than wait to collect the cash at expiration.

We also initiated a cover play (as we don't like to be 100% bullish) on the SPXU, the ultra-short S&P ETF.  Buying options on an ultra-ETF gives you insane amounts of leverage and we went with the Sept $80s at $3.35 as we expect them to drop in half if the S&P breaks over it's levels.  As it is, they should take a hit this morning and we will be looking to roll to the $75s if we can do it for .65 or less.  SPXU was at $85 11 days ago and these contracts have 60 days to run so a fun play if it turns up and, otherwise, it's relatively cheap insurance against our long gains. 

YHOO and AAPL earn tonight and it would be amazing if YHOO doesn't disappoint us for a change.  Out of 40 companies reporting this morning only 9 did not beat expectations.  They were BJS, BTU, CAL, EDU, LAB, LXK, PNR, PCP and RF.  Among the winners, AKS lost less than expected, FCX crushed numbers, LMT was BTE but outlook was iffy, MRK had a huge beat, SY was encouraging and AMTD pulled out a nice quarter.  So far, so good and tomorrow and Thursday hit us with another 200 reports so we should have a really good picture by the end of the week

Until then, better keep those plates spinning! 

 

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Phil,
Thanks for the 5% rule explanation on the Salvage Play page. I posted a quick reply to your question about the daily chart on that page.

Thanks for the enlightened review of my remedially stupid YUM spots.   Good stuff.  Learning bunches.  

Phil – Ur terminology and concise take on YUM is very clear.  I just want to be sure I didn’t mangle the description of my position before I internalize what you’ve said and act on it.   I’m long 30 contracts on October $37.50 calls – and I’m short 20 contracts on August $35 calls.   My average costs are as above.  Sorry if I misused "2/3" and "covered" here.

ObamaCare update:
http://hopeychange.blogspot.com/2009/07/obama-obamacare-brazenly-dishonest.html
It is a sign of how weak Obama’s position is on health care that he can’t argue for it honestly."
 

Good Morning Everyone
 
The traditional pre-market pump to get off the overnight lows has started. The S&P was way down at one point but is on the way to the flatline. I’m following the $23.7trillion story and wondering why your press hasn’t made more of these staggering numbers. I wish we had someone like Alan Grayson in our govenment. He seems really switched on to all this crap. Bernanke just looks so guilty.

Good Morning Phil, DB & all

Earnings beats – Too early to tell (and maybe my bearish bias) but it seems that manufacturing, chemicals, plant etc are all showing very large drops in revenue covered by cost and job cuts to save earnings. End user products and technology seems to be holding up and banks that didnt get bailout money are toast whilst banks that did are making hay. So I think that implies pipelines are being emptied and not refilled. Not sure how that pans out. Waiting to see what retail has to say but I dont think earnings justify the blanket euphoria.

Good Morning Ramana

Mornin’ from Scotland to fellow UK’ers and back home too.
 
I dislike watching the futures, as It always seems to frustrate the heck outta me.  Well at least it isn’t raining!

Asia/Pacific Markets    Wednesday, July 22, 2009
(The following is from Yahoo, please confirm with other sources)   

Australia All Ordinaries*                 4,068.90        20.60        0.51%
Nikkei Average*                             9,723.16        71.14        0.74%
Shanghai Composite*                     3,296.61        83.41        2.60%
Hang Seng*                                19,248.17       -253.56      -1.30%
Seoul Composite*                         1,494.04           5.05        0.34%
Singapore Straits Times*               2,450.83          -3.50       -0.14%
Bombay Sensex                         14,840.63       -221.86       -1.47%
Baltic Dry Index                            3,455.00        -56.00        -1.59%

* at Close

Good Morning Where
 
Its either futures or the cricket ! but since the test finished its futures for a week or so …

DB – I think your observations are correct.  And at least from a fundamental standpoint are scary.  But it does seem to me that if the consumer can keep it up for a while (and they may) then many companies will continue to "beat" as they are selling the last remaining inventories while basically shutting dowm all production and associated costs.  I see that this could indeed last through the holiday season having the market mask the underlying problems.  The real issue lies with the consumer.  When will this apparently discressionary cash (i-Phone anyone?) run out?  That’s when the music stops.

Asian Markets End Higher But Gains Muted

Asian markets were higher on Wednesday after U.S. stocks marked their seventh straight day of gains, but gains in Asia were capped as some markets took a breather.

Japan’s Nikkei clawed back into positive territory to close up 0.7 percent. The broader Topix gained 0.6 percent. But exporters took a hit as the yen crept higher against the dollar.

South Korea’s KOSPI eked out a 5-point gain to end at 1494.04, staying rangebound following their recent rally.

Australian markets were ended higher with the S&P/ASX 200 up 0.4 percent.

The Hang Seng fell by 1.3 percent after a late-session selloff, while the Shanghai Composite gained 2.6 percent.

Singapore’s Straits Times fell 0.3 percent and Malaysia’s KLCI rose 1.2 percent.

Greater China markets were all in positive territory led by solar energy stocks after China launched an unprecedented and long-awaited plan to offer subsidies for utility-scale solar power projects.

Bombay Stock Exchange’s Sensex ended at 14840.63, down 221.86 points or 1.47 per cent. Indian markets ended in the negative terrain Wednesday as traders booked profits after a recent surge in equities. auto space were down while realty stocks closed a little higher.

DB/where – Cricket ? Please… when was the last time we watched one where the matches have not been fixed. 🙂

Euro Socks Halt Run; Miners, Banks Drop

European shares slipped on Wednesday, snapping a seven-day winning run, as banking and mining stocks weighed, while analysts cautioned about earnings expectations, pointing to profit taking after the recent surge. The FTSEurofirst 300 index of top European shares was down 0.7 percent at 881.82 points.

Mining stocks took the most points off the index and the DJ STOXX European Basic Resources Index was the biggest sectoral loser, down 2.1 percent. BHP Billiton fell 2.3 percent after the world’s largest miner said restocking of commodities in China may have ended.

Banks also fell, with the DJ STOXX European Banks Index down 0.5 percent, and Deutsche Bank, Barclays and BNP Paribas shedding between 0.4 and 2.4 percent. Shares in Wincor Nixdorf fell 9.3 percent after the German maker of ATMs posted weaker-than-expected quarterly results, while the company’s full-year forecast disappointed.

On the upside, the DJ STOXX European Telecoms Index was the top sectoral gainer, up 0.4 percent, with Deutsche Telekom, Vodafone and Telecom Italia up 0.5-3.1 percent.

Later in the day, investors will focus on a raft of further second-quarter earnings by European companies such as GlaxoSmithKline and Fiat.

Around Europe:
FTSE     4,482.46       1.29          0.03%
DAX    5,088.95    –  5.02        – 0.10%
CAC     3,281.54    – 21.35        – 0.65%
SMI    5,632.01     – 4.18        – 0.07%

Ramana – Cricket – LOL watch the Ashes !!

LONDON — The contraction in U.K. manufacturing output eased in July but order books sank to their lowest level for 17 years, indicating further trouble for the sector in coming months, the Confederation of British Industry said Wednesday.
The CBI said that the volume of output eased to -14 in July from -17 in June.
However, total orders — an indication of future activity — plunged to -59 from -51. That is the worst result since January 1992.
The reading for export orders eased to -45 in July from -52.
CBI chief economic adviser Ian McCafferty said "the further sharp decline in export orders is of particular concern as we are not seeing much of a boost from the relative weakness of sterling."
"These figures reinforce our view that the road out of recession will be long and slow."

Oil Falls Below $65 on Build in US Crude Stocks

Oil fell below $65 a barrel on Wednesday after data showing an unexpected rise in U.S. crude stocks suggested demand in the world’s top energy consumer was still weak.

he market awaited U.S. Energy Information Administration (EIA) data due at 3:30 pm London time to see if they would confirm the American Petroleum Institute (API) figures. "The API numbers will likely exert pressure on the crude complex over the course of the Wednesday session, as they imply that the EIA numbers will likely follow suit," said MF Global in its daily note to clients.

U.S. light, sweet crude [ 64.74    -0.87  (-1.33%)] oil for September delivery was down, having fallen to a low of $64.42.
London Brent crude [ 64.67   -0.94  (-1.43%)] for September was lower.

U.S. crude oil stockpiles rose unexpectedly last week as domestic refining activity slumped, the API said on Tuesday. A Reuters survey of 15 analysts forecast the EIA would report a drop in crude oil inventories as slow imports countered a decline in refining activity. But refined products supplies were expected to have risen, despite the lower domestic refinery capacity use.

Euro Eases as Stock Declines Dampen Sentiment

The euro was pressured against the dollar on Wednesday when a recent rally in equity prices ran out of steam, dampening risk-taking sentiment.

The euro [1.4191    -0.0033  (-0.23%) ] was down versus the dollar after hitting a seven-week high on Tuesday at $1.4278, close to its peak for the year.

Traders reported hefty options activity in euro/dollar at $1.4200, set to expire later in the day. A holder of a digital option will get payout if spot is above $1.4200 at expiry, while other expiries at $1.4200 are thought to total 1 billion euros, market participants say.

Against the yen, the euro [132.58    -0.78  (-0.58%)    ] fell. The dollar index, a gauge of its performance against six major currencies, was flat at 78.960 after touching 78.591 on Tuesday, its lowest since June 3.

The pound [1.6373    -0.0086  (-0.52%)    ] was down versus the dollar on the day.

Higher risk currencies such as the Australian and New Zealand dollars edged down after rising in recent sessions.
The Australian dollar [ 0.8139  -0.0042  (-0.51%) ] fell versus the dollar after hitting a 5-week high of $0.8193 on Tuesday.
The New Zealand dollar [0.6544    -0.0036  (-0.55%)   ] slipped against the U.S. dollar after rising to $0.6610 on Tuesday.
The dollar eased versus the yen [93.4    -0.33  (-0.35%)    ] after shedding about 0.5 percent on Tuesday.

Gold pares gains as dollar steadies vs euro

Gold was bid at $948.90 an ounce at 1446 GMT against $948.35 an ounce late in New York on Monday, having earlier touched a session high of $953.40.

Gold prices in India, the world’s largest bullion market, were flat as dealers awaited lower prices. On the investment side, holdings of the largest gold ETF, the SPDR Gold Trust, were unchanged on Monday.

Silver was flat at $13.62 an ounce, platinum was at $1,179.50 an ounce against $1,180, and palladium was at $253 an ounce from $252.

OK – Last of my bearish posts but it illustrates my points about earnings v cost cuts and revenues. Had to cut and paste because the link is subscribers only. Sorry
 
Whirlpool 2Q Earnings Smash Estimates On Cost Cuts

DOW JONES NEWSWIRES

Whirlpool Corp.’s (WHR) second-quarter earnings fell one-third on what Chairman and Chief Executive Jeff Fettig called "significantly lower" consumer demand for appliances.
But the company reported higher North American profit on its cost-cutting efforts and overall earnings were double what analysts expected. As such, the company sees 2009 income at the top half of its prior target.
Whirlpool, which has also been dealing with pressures from raw-material expenses, has been trying to combat the weak sales environment with belt-tightening. But the housing slump and tight credit markets have been dissuading consumers from buying new refrigerators, stoves and other major appliances.
Last week, rival Electrolux AB (ELUX-B.SK) reported a sharp jump in second-quarter income and suggested the crucial U.S. market was showing early signs of recovery. That company, which stands second in size only to Whirlpool and has also been cutting costs, said it gained market share in North America, Latin America and Australia.
Whirlpool posted earnings of $78 million, or $1.04 a share, down from $117 million, or $1.53 a share, a year earlier. Revenue dropped 18% to $4.17 billion; excluding the impact of currency charges, the drop was 10%.
Analysts polled by Thomson Reuters expected per-share earnings of 51 cents on revenue of $4.2 billion.
Gross margin fell to 13.3% from 14.8%.
Whirlpool’s North American profit rose 19% despite a 17% sales drop. U.S. major appliance shipments dropped 14% and the company reiterated its the region’s shipment forecast for the year.
European revenue slumped 25%, half due to currency changes, while volume dropped 12%. The segment swung to a loss and Whirlpool further cut shipment targets for the region.
Shares closed Tuesday at $56.34 and were inactive premarket. The stock is up 36% this year.

Hey, morning all.
I totally agree with DB and Phil. Earnings are best than expected and masking some things BUT the market is accepting them and if they manage to ride this thunderstorm, they will be in good shape for future. Read Karl Deninger, he explains very well when speaking on KO:  (bold is mine)


"EPS was up dramatically to 88 cents with the gain almost entirely due to restructuring and efficiency improvements (again, recessions force efficiency gains, which is a good, not bad, thing!)  If there’s a bright star in this recession in terms of revenues, it is found in companies like Coke which have managed to avoid the revenue disaster monster."

Spider – Yes,  Phil believes that "most" companies are fairly valued around now and that by cutting costs they will benefit when the market picks up, hence there is no bear case for a drop in values/the market. I would argue , because I see no recovery (flat if best, down when the consumer/real estate get worse) that these companies wont be able to cut cost next Q , neither will they increase revenue. Therefore the lift in price that these earnings are giving them will have to be withdrawn. I’m not sure I believe this chart – but even if its half true then S&P is well overvalued …

Sorrythe chart got removed from the last comment

 Morgan Stanley horrible earnings miss…. single handedly is driving futures down

Where – it’s not raining in Scotland?!?!? Heavens – you’ll be telling us the sun is out next……

RGR DB.  Thats why I think we can cherry pick hammered stocks  with current fair values based on a slow recovery. Hard.
But on drops and selling puts calls we can average down and get good entry.  Like phill call X at $30 a week ago, of others.

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