Last day before earnings – this should be fun!
Stage one of our Long-Term Virtual Portfolio review is in the newsletter so make sure you read that as this is an important time of year for us as we decide to roll ’em or fold ’em.
We discussed last week that expectations for S&P corporate profit growth are a limbo-low bar 4.4%, which will be hard to disappoint and Ben Stein says that, taking a step out of our country and looking back in from uber-economy Germany, that the US does not look too bad from an International perspective.
We’ve been playing the exchanges and discussing the exchanges all week and the WSJ was kind enough to save me the trouble and explain what it is that the exchanges actually do. I highly recommend this excellent article on derivatives, which traded an astounding 12Bn contracts last year and, as we just discussed this weekend, our ISE reported another 35% growth in volume this year! ICE decided not to up it’s offer for BOT, which leaves CME the winner by a very expensive default.
Asia is off to a rockin’ start this morning with Hong Kong posting it’s daily 285-point gain and the Nikkei adding another 121, a 7-year high for the Nikkei and and all-time high for Hong Kong. Shanghai is game on today with a 3% gain on both sides of the exchange and South Korea posted a record close, led by PKX ahead of 7/16 earnings and heavy machinery orders in Japan. I’ve been looking for a reentry on X (7/24) and this will force my hand with the Aug $115s at $5.30.
TOSBF is selling part of its US stake in Westinghouse to Kazatomprom in order to secure uranium. That’s how tight the supply of uranium is! "If the companies form a partnership, it would give Toshiba access to low-priced uranium from Kazatomprom and enable the Tokyo-based firm to guarantee a long-term supply of fuel to electric power firms. They would gain a strong advantage in nuclear plant negotiations," said Goldman Sachs analyst Ikuo Matsuhashi in a report. This is good for our CCJ holding!
European markets are humming along despite persistent $75 oil across the pond. We’re light on M&A activity this week but last week gave us enough for the month. Unfortunately, it was much of a commodity rally with the IEA finding yet another way to spin demand numbers into a warning. While the European markets believe they are strong enough to keep paying $75 for oil, it remains to be seen how the US markets take it but the boys at the NYMEX seem determined to find out.
LXK trimmed guidance already and will get a big haircut but I don’t think their issues (low inkjet supply sales, losses on aggressively priced items that sold more than expected) are going to be much of a leading indicator for the group.
In the US markets I ran the big chart yesterday so Happy and I are keeping our eye on the critical 1,530 mark for the S&P, which would leave only the Transports as (very understandably) our only index that hasn’t broken out:
Oil is looking very strong and we’ll be watching VLO and TSO for possible upside break-outs if the crack spreads make a recovery and XLE Aug $72s, now $2, will provide upside cover if it takes off. Zman points out that all bets are off with the heat wave hitting the Northeast US, which should reinvigorate the natural gas markets. Zman gave us a couple of excellent natural gas plays in the newsletter and we will be going with entries there this week.
BA will get a nice pop as they roll out the "Dreamliner" but this is not news so it will be interesting to see if it is enough to have them close at "par" ($100). Somehow the IEA doesn’t take into account that the best selling plane in history consumes 20% less fuel than it’s predecessors and (perhaps rightfully) they ignore the US rhetoric to up fuel economy as they’ve heard that song before.
I’m still very wary of the markets but we’re going to go with the flow as long as the S&P can show us the money!
