Beige Book Wednesday

Big data today! The fed gives us the “State of the Economy” message today in the form of the Beige Book, after skipping August (only out 8x a year) expect traders to be all over this coming into the Sept 25 Fed meeting. In June- Mid July report we saw manufacturing picking up and that spooked the markets that the Fed may tighten again. Consumer spending was dragging but housing starts still looked strong, which gave builders a 10% bounce at the time. Expect this report to be the directional trigger we’ve been waiting for but I still expect a positive reaction as retail spending was strong over the summer. Asia was off this mornng but mostly as a result of a rebalancing of the Hang Seng so expect a lot of weirdness for the rest of the week out there (more so than usual). Europe is off a touch, waiting for the same Beige Book figures we are. I am very disappointed in the EU as it really has become nothing more than a shadow of the US markets! Heineken had a 26% rise in first half profits and credited strong sales in “the Americas” during the World Cup as being a key factor. World Cup? When was that? They must mean South America and boy those guys must have been drinking up a storm because I doubt that more than 20% of ourUS readers this even know who won that thing, yet alone bought a case of Heineken to celabrate… Denmark arrested 9 guys with bombs yesterday but if it doesn’t affect us you won’t hear about it on the US news (to be fair, Japan’s Princess did have a baby…). http://www.news.com.au/story/0,23599,20362796-1702,00.html I’m still expecting a pullback here, same as yesterday so expect some determined selling ahead of the 2:30 Fed report. There are a lot of profits to be taken and a lot of bears were reluctantly pulled into the market in the past month so look for some nice entry opportunities if you are feeling brave this afternoon! Let’s keep an eye on yesterday’s levels but if the transports don’t kick in, we may have a serious problem as they are starting to look like the SOX did but they may also be coiling for a very nice breakout. I’m watching that 2,400 line more closely than any other index! http://stockcharts.com/gallery/?%24tranq Can Apple hold this new level? Let’s watch GE, TXN, SHLD and MOT to get a good clue of the market’s mood. We need positives from all 5 of these stocks in order to break up on the broader indices. We can’t ask oil to behave any better. This nice orderly sell-off is better, in the long run, than a steep drop as it is unlikely to suffer a major correction. Still looking for $67.50 resistance but inventories are pushed off until tomorrow and Brent Crude already hit $67.28 this morning! The mystery of gold’s upshot was twofold yesterday. For some, unexplained reason, CNBC and others swtiched to the December contract early, giving gold the appearance of a sudden rise. The official COMEX gold price is still $640.70, even for Oct delivery but the forward months are on the rise and a sudden rise in December orders at $646 ran the numbers up. The rise in December contracts masked a drop in October (-$3.20) and March (-$2.70) deliveries. http://www.nymex.com/gol_fut_csf.aspx Unlike Oil, gold prices climb with each forward month and delivery in Jun of 2011 will cost you $781 per ounce so the gold market is still in uber bullish mode. There was a big, legitimate demand as jewelers in India began stocking up on gold aheadd of buying season but the last few months have been weaker than expected over there. Much like oil, gold traders are jumping on any excuse to pump up the price. On a continuous contract basis, gold closed yesterday at $637.94, still having trouble with the $640 level, which it bounced off mid-day. If gold falls back below yesterday’s open of $627 it could get into some real trouble. Still, I think we learned our lesson in oil, never stand in the way of determined pumpers! Let’s watch that $640 level closely… Be very careful out there, both sides will be jumping all over the data today and I’m going to be missing all the fun again as I have a very busy week this week. ====================================== MSFT Vista pricing was lower than expected, about the same price as XP and the stock will trade down on that news, giving us a potential entry point. The real news is that they are on track for November delivery to business and consumers in January. I think keeping the pricing at $199 and $99 for the upgrade is just right to move boxes. Since they cost virtually nothing to produce, the object is to move as many boxes as possible – one would think a savvy analyst would understand this… Windows Vista Premium for $299 turns any PC into a TIVO so we’ll see how they react but the real market mover should be the fact that Vista needs more ram and better video cards, usually the tipping point that makes me buy a whole new PC. Even if Dell isn’t following my master plan (dump old pcs at fire sale prices and be ready to ship 20M new ones in Q1) I still have to believe they can close the 60% gap that has developed between them and HPQ! http://finance.yahoo.com/q/bc?t=1y&s=HPQ&l=on&z=m&q=l&c=dell After having disappointed with slower growth yadda yadda yadda someone may notice that Dell does still move $60Bn worth of boxes at a $4Bn profit. What if it’s only $3Bn? Should the company be worth 20 times earnings? Because that would still make them 20% too cheap right now… Goldman Sachs and UBS just downgraded them to a sell on the 18th and analysts estimate that Dell will only earn $1.08 a share this year (and there are 29 of them covering the stock) with 21 rating the stock a sell or hold. I’m not going to say all analysts are idiots because I met one once who was chewing gum and holding a beer AT THE SAME TIME so let’s not underestimate these guys, but Dell did earn .33 in Q1 (.04 less than last year) and .22 in Q2 (.19 less than last year) which is .55 for the first half. So the betting is that Dell, in the midst of a massive windows release is going to blow their 2nd consecutive quarter (last Q3 was .25) and blow the 4th Quarter by close to 30% (last Q4 was .43) in order to come down to that $1.08 number for the year. I doubt it. Dell messed up, they know they messed up and they are smart enough to fix it and well structured enough to fix it fast. http://hardware.seekingalpha.com/article/15998 While I have faith, I don’t have too much faith so I am taking the DELL Jan ’08 $27.50s for $1.60, which gives them more than a year (of new Vista shipments) to get back to where they were in 2003! ===================================== I cannot emphasise enough how I am not buying anything until the book report is out and comes in positive. If our indices and our 5 tracking stocks are down by 3pm, I will be lightening up, not buying! COH is at the edge of the Consolation Zone, not really expensive enough to be a prize but one of those things you don’t deny yourself when you’re wishing you had bought that new home. The Oct $32.50s should make us feel better too at .80. TOM2OC points out that GRMN is in a sweet spot and I agree but we differ on the direction! He sees a classic head and shoulders pattern while I see a stock dragged down by a dead sector despite posting 30% growth so far this year. Who doesn’t want a GPS? Well, if everybody wants one you can bet someone is buying one and half of all GPSs sold are Garmins. They only sell about 1M per quarter and there are still 6.4Bn people in the world who don’t have one yet. GRMN has a p/e 30% below that of Apple, the only other company I can think of that charges whatever they want for a high margin device that everybody wants for Christmas. I like the Oct $50s for $1.85 but I’m hoping for a pullback so I can get the $47.50s cheap! http://tom2oc.blogspot.com/ GLW is raising guidance yet again Feb $25s for $1.45 are the most reasonable of the very expensive option choices. All of my Boeing Buddies ™ are up for except AIR (and Boeing) so I like the Feb $25s for $1.25. http://finance.yahoo.com/q/bc?s=BA&t=6m&l=on&z=m&q=l&c=air,beav,ati,tie Speaking of BA, they just lost a buddy of their own. Alan Mulally, their Executive VP, opted to commit carrer seppuko (no not that silly number game!) by taking over Hindenburg, oops, I mean Ford. Alan has no automotive experience but he did cut 70% of Boeing’s workforce while he was there so I’ll bet you can guess what skill caught Bill Ford’s attention! He also cut Boeing’s fleet from 15 designs to 4, a move that turned the company around so think Mustang, Explorer, Ranger and maybe 3 other cars. What ever happened to the Taurus anyway? Hopefully we will get an entry on BA on this news. I have my eye on the November $80s for $1.65 but I’d feel better closer to $1. You know I hate it when good stocks underperform. TGT is 8% behind WMT for the past 6 months but is a full 30% behind Sears. Granted, all their p/e’s are lining up but if WMT and SHLD continue up, then I really like the Oct $50s for $1.25. http://finance.yahoo.com/q/bc?t=6m&s=TGT&l=on&z=m&q=l&c=shld+wmt FCS raised guidance slightly and are sitting right on the 200 dma so it will be a nice directional indicator for the SOX. I like this company, which should be trading much higher but the options are very pricey – perhaps the Jan $20s for $1.10. TARO got a big drug approval and the current $15s are risky but .30 may be a bargain by next week. This stock was at $34 last year! A more patient player can take the Apr $12.50s for $2.65 (.50 premium). This one will jump out of the box! DCO is another beaten down company that just got the nod to get a small NASA contract to simulate a launch vehicle. These contracts tend to snowball over time so I like the stock at $17.77.