This is almost sickening.
The Nikkei is down another 464 pts (3%) today, this time it was so bad they halted trading! I wish I traded foreign markets because I called the dead top on that one last week…
Not to be depressing but I was going to start this article off by referring to the Hitchhikers Guide’s great cover advice “Don’t Panic” but, looking at the world situation I’m not sure that is good advice today.
If you have been taking my advice and staying in mainly cash, then we can just wait and go bargain hunting later but, if you are still holding positions and the markets are dropping, you may want to take some losses off the table just in case the Nikkei drops another 500 pts tomorrow. The Japanese market lost $300Bn this week, that’s like losing a mid-size country’s whole economy – while it is possible that this will finally start a flow of money back to US equities, I’m not going to hold my breath.
If the market does not climb up from today’s open to close within 1/2% of flat, we will be breaking some major technical levels that will make for a very tough recovery.
It will all come down to earnings and we are off to a rotten start. AAPL should be a bright spot today, even with what are now insane expectations for the stock. EBAY is a wildcard so the most important number of the day will belong to AMD who, hopefully, can demonstrate that Intel’s suffering is due to their success and not due to overall market weakness.
More rebel attacks in Nigeria and the Iranian crisis are keeping oil up despite the fact that Opec is getting so backed up with actual crude that they are talking about cut backs. Fear and fear alone is driving the markets and President Roosevelt said that fear is the one thing we should fear (not exactly his point but it is mine).
A fear driven market is irrational and dangerous and I cannot emphasize enough the advantage of staying in cash at a time like this. Losses in Asia and Europe are so steep that people are cashing in their gold to cover their positions. Money is also flying into treasuries which is inverting the yield curve again.
Speaking of kicking a market when it’s down, Warren Buffet picks today to voice his concerns about the trade deficit (I guess he’s a reader too!).
Without an oil report today there is nothing to reverse crude prices (other than Bush and Iran’s president kissing on camera) so the best we can hope for today is not to drop more than 1% on the indexes.
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Google is feeling Yahoo’s pain with a $20 drop (so far) in pre-market. It’s an interesting reaction because Google may be the reason that Yahoo’s sales were a bit thin. Keep in mind that a 5% correction in Google would be $25 and the stock is up 50% since 10/20 so a correction all the way down to $420 (10%) would be unremarkable if it happened to any other stock.
YHOO fell below my target of $37 last night. Apparently, an 83% increase in Q4 profits is considered a problem these days! I suppose revenue was only up 25% so it makes sense to someone that they should sell the stock for less money than people were paying for it in 2004.
Net income for all of ’05 was $1.9Bn, up 150% from 2004 but the adjusted number missed estimates by .01 – go figure!
Be warned! If this is the reaction to Yahoo’s report with a p/e of 37, what would the reaction be to a Google misstep with a p/e of 103?
I asked a question one week ago today (when I said there are forces moving to take Google down) “Will someone have the nerve to downgrade Google?” Well, rumor has it that today’s the day so keep your eyes open for this one…
I will wait until Yahoo settles down a bit, looking to see which side of the 200 dma of $36 it ends up on but I am going to be looking to establish a long position in the stock.
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SNE had great earnings with improving margins, a big surprise and one to keep our eye on when the dust settles.
TSO will have some catching up to do if VLO has another good day. This might be the only long I feel good about (following the Valero rule, of course).
While I think that BSX could have picked a worse time to overpay for GDT, you do have to admire the way they have put their foot in it. I don’t expect a matching bid from JNJ, now is the time for them to sit back and wait until they can buy the combined company for less than $25Bn.
If BCRX pulls back you may get an opportunity to get back in but this may be one of today’s few winners.
My SNDK puts are finally paying off, if the chip sector continues down, this one can lead the way but be very careful as it tends to snap up violently.
MSFT was firmly rejected from its 50 dma of $27.25. I will really be liking the Feb $27.50s if they drop down to .25 with earnings coming a week from today.
Is IBM’s poor service numbers the result of INFY’s success or is competition hurting everyone’s profits? I like the company if it holds the 200 dma of $71.25 for a long term play.
NEM may take another hit today on falling gold but I think this drop is temporary and gold buying will resume shortly.
EBAY will be taking a big panic hit today – it will take amazing earnings from Ebay to calm the net market. Look for it to open at or below the 50 dma of $44.50 and expect it to trade a bit below for the day.
If Apple goes down, watch for PLAY to tumble as well – more of a buying opportunity than a short though.
Hedging our IBM calls by selling the current $85s may have been right on the money. It doesn’t look like IBM will break $85 before Friday so I am going to wait out the expiration rather than buy it out for .80.
LEXR is resting on the 50 dma of $8.35 but is way above the 200 dma of $6.5, watch SNDK to confirm direction but I like the FEB $7.50 put for .40. Get out as soon as this hits .60.
STM has some great new flu detecting technology that would ordinarily make me a buyer but the p/e is too high for this market – bears watching though.
JPM was good but not great. BSC is the only broker not to suffer a correction so far, may make a nice put play today if the sector goes down.
HPQ looks ripe for a correction as Dell tumbles on a bad Intel report.
RIMM may still go lower on momentum today.
********** Trade of the Day – NVDA ***********
NVDA and ATYT are good put plays against declining PC sales. NVDA is a mile above its 50 dma of $37.50 with the 200 dma way down at $30.50.
This is an ultra high-risk trade but I like the current $40 puts for .25. Remember, if you do not hit your target by Friday you are wiped out so just gambling money on this but it is possible that we can hit a triple on this one, look to get out as soon as you have a double.
This is a great company that has more than doubled earnings from last year on a 10% increase in sales with an acceptable p/e of 30 so we are playing market momentum only – Do not make this trade if the Nasdaq (and obviously this stock) is heading up!
