The Nikkei dropped another 250 pts but the other Asian markets were fairly flat. The banking sector got hammered there as Mitsubishi came out with a warning. This may be a unique problem in Japan as they are coming off a zero interest rate environment. India had a nice bounce of 341 points (not reflected in chart yet):
http://stockcharts.com/gallery/?%24bse
Europe is reversing most of yesterday’s steep losses while the US seems to have a little bit of pre-market promise. In comments yesterday I called the bottom pretty accurately at 2:15 but it remains to be seen whether that was the ocean floor or just a reef.
Again today we need to focus on the S&P, which is just 4 points above the 200 dma and will certainly drag the markets down with it if it turns under. The Nasdaq has quite a way to climb before challenging it’s 200 dma from below at 2,230 but any positive finish will be a signal that this may be more than just a pause on the way down.
Until the Nasdaq breaks up there can be no real recovery so I’m still mainly in cash and very suspicious of any profits I actually make. Seeing Lowes get killed yesterday on great earnings and decent guidance reminds me that the market is still very unforgiving and it will take some real leadership to turn it around. The SOX are still killing the Nasdaq which is killing the markets and GLW’s projection for lower flat screen demand is not going to pull them out of it.
http://stockcharts.com/gallery/?%24sox
Oil is back over $70 as contracts roll over to July delivery so today’s action between $70 and $71 will be very telling although the hurricane card is being played with full force, driving natural gas prices back up on fears of another hard season. Oil took a hard bounce off the dollar adjusted 200 dma at $68 yesterday but needs to get all the way back to $74.50 in order to break the 50 dma and resume a real uptrend. This is not how it will be perceived however as I am still the only person in America who adjusts for changes in the dollar!
Gold is holding it’s own for a change after taking a hard bounce yesterday off a dollar adjusted $600 mark. The 50 dma for gold is $620 and the dollar has recovered to 6% down so if we knock 6% off the current price of $656 we see gold resting just below the average and facing overhead resistance at roughly $660. Reports are that woldwide demand for gold slipped 16% last quarter vs. 2005 but that is by tons, not dollars where spending was up 9%. Even jewlery, which was hardest hit with a 22% drop by weight, still had an increase in spending of 2%.
If today’s rally is oil and commodities then it is no rally at all so be very skeptical until we see real leadership from either the Dow or the Nasdaq, although neither can gain any ground if they are anchored by the S&P so on the whole we do not have the best recipie for a rally.
I’m hanging my hat on the McClellan Oscillator, which indicates that the Nasdaq’s pain may soon be over as we near an oversold level not seen since last October, right before the last major rally. Here is a nice primer on the indicator and the current chart:
http://www.stockcharts.com/education/IndicatorAnalysis/indic_McOscillator.htm
http://stockcharts.com/charts/indices/McSumNASD.html
Although we are now resting on just about the same technical level we were at in early October although we could easily get another week of consolidation before turning. Any continued downward movement means we will test lower lows and the rate of decline on the Summation Index is what I find most alarming.
While bearish sentiment is just 10% above the 25% max (usually) on the Nasdaq, there is still quite a ways to go on the Dow (57% bullish), the S&P (51% bullish) and the NYSE (56% bullish).
In a continued downturn I will start to focus on Finace, which is still 74% bullish (ie. they haven’t admitted there might be a problem yet).
If we don’t get a nice move up today it will really be time to take a little vacation as my personal bearish indicator will be close to 100 but let’s keep an eye on the Vonage IPO to see if hope still springs eternal as this company is a classic .com model that needs money so they can lose much more money than they are losing now and maybe if they are really cool they will figure out a way to make money one day but there is no particular plan to make money at this time…
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GOOG’s Schmidt said nothing yesterday which is 100% better than the last time he spoke and tanked the stock so we should see a little something from Google as relieved investors feel we dodged a bullet!
There is a Goldman Sachs Internet conference this week in Las Vegas where Google will get another chance to piss off the analysts but after that it should be smooth sailing.
The thing I’ve been looking at is Schmidt’s statement that within 10 years he expects 20% of corporate ad budgets to be spent on the web. US ad spending is an $800Bn business and 20% of that represents $160Bn of revenues. Even if you think Eric is crazy you would still have to give him 10% which would mean $80Bn in 10 years (although I think he’s being conservative) and even if Google’s market share slips to 25% (from 43%) you would still be looking at $20Bn in revenues, a 300% increase over last year.
Being super conservative and assuming they find no other way to make money between now and then that would still give Google a 2015 stock price of about $1,500, better than 22% annual return – not a terrible place to park your money.
Ah, but Yahoo was just touted in Barron’s because 60% of their revenues come from somewhere other than advertising. If over the next 10 years Google can find a way to use their $10Bn in cash to generate something other than interest then we would be looking at a company worth well over $2,000 a share with very little stretch of the imagination.
So I put some money into Google now and I have a very good expectation of a 20% + annualized return but as my web gets faster and I begin to watch TV on my computer and I begin to surf the web on my phone I can’t help but wonder if the old media isn’t in a lot more trouble than Eric Schmidt thinks!
There’s a reason they paid their top salesman $288M last year – even I’m thinking of applying for a job now, they will have top sales talent lining up to come on board now so get ready for some real media wars in the second half of the year.
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We still need to be in day trading, take the money and run mode. If you have a 20% gain and you don’t stop out with a 15% gain then shame on you in this terrible market! This is not a time to be greedy, cash is the most valuable thing you can have right now and as soon as you give some up to buy a stock you should be looking for a way to get it back…
We are miles away from anything that can be considered more than a bounce so please don’t get too excited!
AAPL is rumored to be doing somethng with Nike. Whether it’s a musical shoe or a way to recharge your IPod while walking or a line of cross promotional clothing, I can’t see this as a bad thing for either company. As fast as they are growing, Apple only has about 150 storefronts, almost all in the US, while Nike has almost 400 around the world. It is more than logical to think that the $150 sneaker crowd is also the $300 IPod crowd so an A+ for good synergy. I picked up the $65 calls yesterday and I still like them at $1.90 but we have to watch the 50 dma at $66.50 as well as the 200 dma at $63.25 for a sell signal.
ADM took a heck of a beating last week and corn has dropped in price and there are articles claiming that ethanol is not a viable fuel alternative so I’m liking owning the stock and selling the outrageous $40s for $2 as the 50 dma is $38 and should hold well enough to let you out without much damage vs. the 5% return on a 30 day hold.
TOL beat forecast by 3% but lowered guidance by 2% to roughly flat with last year. With a p/e of 5 I have to buy the the $30s for .45 as last time this stock was at $27 the p/e was 10.
MS took a huge bounce off its 200 dma yesterday and if the markets are rallying then the $60s will make a good momentum play at $1.50 but take a quick profit and be happy!
DNA got good news today as they Resume a delayed Phase 3 Avastin trial in Europe and I will be very encouraged if anything with a p/e of 60 attracts buyers this week and their sector is still in the doldrums so it will really be a good one to watch.
I always look for a reason to buy TXN and I still don’t have one but I’m not going to wait soley because the $32.50s are still a reasonable .70 and I don’t want to buy the $35s with both the 50 and 200 dma hanging over my head. The 200 dma should prove a tough barrier at $32 so I will try not to pay more but I will jump in if the stock breaks over.
If Google and Yahoo continue to do well then AQNT should be a no brainer but it’s in the wrong place for an option play so I like owning the stock here and waiting to sell the $25s for $2.50 or better to lock 10% for the month.
DTAS is a smaller competitor of Aquantive and has a nice growth pattern. I think they are just one trade article away from exploding so I like the Sept $15s for .40 with patience.
BOOM still has no options but I have to step in here and take the fire sale price of $26.64, a 40% discount off the May high. The p/e of this rapidly growing company is down to 20 while earnings are on pace to double last year’s totals. I’m out if it can’t beat the 200 dma at $28.50 though.
UNH again? Tempting as it is – No! I’d rather be late on this than early although I am watching it as money is bound to come back to this sector one day.
PD, PCU, RTP and BHP should have good days on a metal reversal but, other than momentum trading, there are no bargains to be had there – we can expect them to test the 5% rule today as they have been way oversold. AA should be the slowest mover and the $32.50s make a reasonable play at $1.
TIE has some of the most insane option pricing I have ever seen and I love buying this stock (which is 401K worthy) for $32.50 or whatever it opens at and selling the $35 calls which were selling for a $5 premium last night!
I called a buy on ATI (and PD) in yesterday’s comments but I was too busy messing around with Goog etc. to play them 8-(
Our Boeing buddy AIR has been very neglected and the $25s are reasonable at .65.
Please be careful out there today, even a 100 pt rally is suspect without follow through so let’s try to take cash off the table as there will be weeks of opportunities in a true rally.
