Tuesday Toss Up

I cautioned you to not be led into temptation by today’s "rally" but some of you didn’t listen!

This was one of those days where I felt like I was in Pamplona and I went to get a coffee and picked the wrong time to cross the street.

I certainly angered the gods of Wall Street with my sermon in the morning as all of my put positions were punished when the market caught fire in the afternoon but I held firm to my faith and continued rolling up our puts and adding to the DIA put position (we ended up with the $136 puts).

I don’t know if I was right or wrong but AMZN’s earnings were not taken well in after hours trading (down 7%) so we’ll see what kind of follow through there is. My issue with this rally is there was no basis for it – nothing changed since Friday other than Apple confirming that they are perhaps the greatest company in the universe – we knew that!

So I seemed really smart early on as the Dow gave up a huge opening run that peaked out at 13,656 around 10:15 which quickly dropped all the way to 13,541 just an hour later. That turned around, though not as quickly and we finished the day just under my capitulation point of 13,700. I just couldn’t buy into the rally as it was another case where the Dow gained 0.8% while the dollar dropped 0.6%, that’s an inflation adjusted 0.2% for the Dow, hardly enough to get me to start throwing cash back in…

There was no stopping the tech train as AAPL posted a 6.8% gain, GOOG moved 3.8% (that’s up $8Bn in one day), RIMM gained close to 10% on a China deal (note to self: Announce PSW marketing deal in China, make Billions from speculators before we even establish a market) and AMZN gained 10% as people seemed to decide they couldn’t possibly missed. Oops on that last one.

To be fair AMZN had very good earnings, with a penny beat (5%) on a 41% increase in revenues but in-line guidance and a 1% miss in gross margins (23.4% vs. 23.6% expected) was not enough to justify the 40% gain off the August lows – who’d a thunk it? As a rule of thumb, I get nervous when it’s time for earnings and a company has to justify a 150% increase in valuation since last year but I’m a millennium market survivor so perhaps I’m just jaded…

The market actively ignored TXN’s lowered guidance, COH’s surprising miss, TGT AND WMT cutting outlook (do we think everyone is shopping at JWN now?) and CFC’s massive rise in delinquencies as ARM’s begin to reset – something we’ve been worried about since last year! I’m sorry, while I do try to switch off my brain for trading, it does maintain some basic stem functions, even in rally mode, and that’s enough to keep me concerned when I hear all this TERRIBLE NEWS in one day!

After hours, the hits just keep on coming:

CTX, a company trading at $25 a share, reports Q2 losses of $5.26 per share. Hey – that beat estimates! Revenues fell 21% and Dallas is supposed to be one of our "strong" markets…
- "Market conditions were extremely challenging during the quarter, reflecting the serious disruptions in the credit and mortgage markets that occurred during that period," said Chairman and Chief Executive Tim Eller in a prepared statement late Tuesday. "In response, we meaningfully reduced prices in order to improve affordability for our home buyers."
  - Translation: We can’t GIVE these homes away!
JNPR posted a great quarter, with a penny beat (up 46%) and revenues up 28% but they sold off as investors didn’t think it was enough to justfy the rise from $16 last October to $37.
- It’s important to watch out for changes in sentiment like this!
BRCM revenues rose 5.3% (you need the .3 when it’s just 5!) but net income fell 75% on heavy R&D spending. Of course investors punished this behavior, especially as the CEP said: ""Looking forward, in the fourth quarter and in 2008, we will continue to invest aggressively in research and development of products for the very large cellular handset market, as well as new product offerings to address more of our existing customers’ needs." Investing in the future? No! Anything but that!
- BRCM dropped 12% in after hours trading.