Tuesday, April 27, 2010

Nasty, Tricky Day

Despite losing money today and being slapped around, I am encouraged to see a market which seems to have a human pulse.  An hour ago, the S&P 500 broke the 20 day moving average again (I bought some SPY puts just as a downside hedge)... then 30 minutes ago popped back up to S&P 1194 enlisting "here we go again" thoughts.  I was beginning to think this was going to be "one of those days" where every move is a disaster, and I am just compounding them by trying to quickly make up what was lost.  Not only had I sold my long index positions I was now exposed to the downside with options.  Then out of the blue the market falls off the cliff.  Anyone who bought that bounce to 1194 thinking "V" shape bounce was hurt.

In theory, a downside reversal like we had today - breaking through the 20 day moving average and sitting at  last Monday's lows on the close - should lead to more downside to come.  In theory.  Downside test if it continues would be to the 50 day moving average at 1167.

In the weekly summary I proposed buying some long dated (Jan 2011) out of the money puts - something in the S&P 1100 range because eventually the market has to go down again and fill those (multiple) gaps.  But after being burned in relentless fashion for endless weeks attempting any shorting, it is hard to take the plunge.  I have however wanted to go long volatility but the darn ETFs to replicate VIX are horrid.

Anyhow let's see what tomorrow brings (actually the PPT is hard at work, with S&P up 3 already in the 10 minutes after the close), China fell to a 7 month low last night, and Europe has its obvious issues.  Fed meeting tomorrow where we will analyze if Ben Bernanke moves one comma in paragraph 5, sentence 3.... and the implications for the world from this action.

Ironically when I posted that Portugal debt story this morning (one I've posted similar articles to in the past), I assume it elicited many yawns.  "Here we go again, talking about something that does not matter".  But Moody's waking up (dear Moody's - you might want to review USA's "AAA" rating as well - speaking of jokes) seems to have made a little difference.  Cmon German taxpayers - do your moral hazard duty and make sure the average Greek public worker can retire at age 53... you don't want to "upset the markets".

As I always like to say, it only matters when it matters.  Knowing when the market chooses to care about something is the part that is very difficult to assess.

Bookkeeping: Sold the Remaining 50% of SPY Calls as Rebound Does not Appear

I sold the 2nd half of the SPY puts (edit: calls) as there appears to be no miracle coming in the last 90 minutes. Main logic here is not to compound a mistake, go back to cash aka a clean slate and start anew tomorrow.  In the old days I'd also list overnight risk but since almost every morning we are greeted with positive futures it has not been a risk very often the past year+.

From here the only drama is to see if S&P 1194 will hold on the close.  If not, the first close below the 20 day since mid February.

Despite the drop today, it still remains a market that only seems to fall when human emotion is involved... if there is no specific news event, we just grind up.

[Also sold the TNA ETF]


Cavium Networks (CAVM) - Another Good Quarter, with Raises Guidance; Still Pricey

I seem to be writing the same commentary in almost all these earning report reviews.  A company which beat lowly analyst estimates, raised guidance, but still an expensive valuation.  All I do is change the name of the company and stock symbol.  Today we have Cavium Networks (CAVM) which I have been keeping an eye on for the past 6 months or so.  [Dec 18, 2010: Cavium Networks Raises Guidance, Breaks Out of 4 Month Range] [Jan 29, 2010: Cavium Networks Continues to Show Strong Growth]

Cavium Networks is a leading provider of highly integrated semiconductor products that enable intelligent processing in networking, communications, storage, wireless and video applications. Cavium Networks offers a broad portfolio of integrated, software compatible processors ranging in performance from 10 Mbps to 40 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access & service provider equipment. 

Estimates for full year 2010 have increased from 44 cents to 58 cents over the past 90 days.  With today's guide up for next quarter that number should be in the low to mid 60s now. But considering the stock is now near $30, it is still a 50x-ish type of forward multiple.  (record broken alert)

A look at the impressive growth of late (full report here):
  • Chipmaker Cavium Networks Inc (CAVM) posted better-than-expected quarterly results on strong bookings at its chip and software business, and forecast second-quarter results above market expectations.
  • The company, which makes processors for networking and communications equipment makers, forecast second-quarter earnings of 18 cents to 20 cents a share, excluding items, on revenue of $48 million to $50 million.  Analysts were looking for earnings of 13 cents a share, excluding items, on revenue of $43.2 million.
  • Cavium Networks expects gross margins of 63 percent to 64 percent in the second quarter. Gross margins were 59.6 percent in the first quarter.
  • "Enterprises seem to be finally loosening their purse strings and spending on enterprise infrastructure upgrades, which they had postponed," Chief Executive Syed Ali said on a conference call with analysts.
  • The company recorded a strong sequential growth of 25 percent in the enterprise and service provider market, which was 69 percent of first-quarter sales.  The company, whose customers include Cisco Systems Inc (CSCO) ,  Juniper Networks Inc (JNPR) and Alcatel Lucent , said it expects continued strength in the enterprise and service provider market.  Sales at top customer Cisco formed 27 percent of total revenue and grew 20 percent to $11.1 million on a sequential basis.
  • For the first quarter, Cavium posted a loss of $3.1 million, or 7 cents a share, compared with a loss of $6.5 million, or 16 cents a share, a year ago.  Excluding items, the company earned 14 cents a share.
  • Revenue more than doubled to $41.6 million.  (last year $20.4 million) Analysts were expecting earnings of 11 cents a share, excluding items, on revenue of $40.7 million.
  • Jefferies & Co. analyst Adam Benjamin told clients in a note Tuesday that Cavium is poised for "significant" revenue growth over the next few years, driven by the company's backlog of successful chip designs.

No position

Now That's a Failed Breakout

It always is interesting to see how certain news, ignored for weeks or months on end, suddenly matters.  Today Greece and Portugal suddenly matters again?
  • Stocks have sold off sharply following the downgrade of Greek and Portuguese debt by Standard & Poor's. Broader market weakness has been underpinned by the downgrade of Greek debt to junk, and the accompanying downgrade of Portuguese debt two notches to A-. That news has also put tremendous pressure on the euro, sending it to 1.3212, its lowest level in over a year.
Having lulled me to sleep and dulled my senses, that drop happened too swiftly for me since I was not watching at the time and now am trapped a bit.  A nice drop there from S&P 1211 to 1190 in a matter of 40 minutes or so.  I was going to stay "long & strong" as long as the 20 day moving average held, and here we are... in fact we broke below intraday for a few minutes there.  Yesterday's breakout to new yearly highs was a nice trap.  On the positive side, this introduces some trepidation for bears for the first time.

For now I am taking on big time water with my index positions (oh the joy of options when they work against you), and I'll have to figure out if I will make them realized losses or not in the next few hours. Looks like the days where one can buy stocks and leave the computer for 4 weeks in a row might have taken a break.  S&P 1194 is key for today, right now at 1197.  Will we pull another miracle off as we did last Thursday when a 1.5% drop was bought and the markets actually ended green by end of day?

Watching and observing for now...1190 was the low last Thursday as well and 1183 the low the Monday after Goldman Sachs, so closes below these 2 levels would potentially be trend changers. Too early to get bear paw hopes up as it has been futile for months.

EDIT: To cut down some risk exposure I am selling half of TNA ETF and SPY calls on this bounce near S&P 1198.   This will obviously lock in some bountiful losses (4% on the former, 35% on the latter), but in case a real market returns (one that goes both up or down) will save some pain in the future.  If we "V" shape bounce right back up, it will have proven to be a bad move.   Normally these should have been sold (at least the SPY calls) no worse than S&P 1210. Live by the sword...


Bloomberg: Portugal Suffering Greek Contagion

Nothing new to long time readers as we've pointed out repeatedly that the newest, and biggest bubble of them all is the government debt bubble.  [Feb 5, 2010: Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale?]   In a world fixated only on benefits, and could care less of the costs as long as they are borne by taxpayers, very few seem to care these days.  It is now the ethos that whatever the problem, a central bank or government will throw a country's populace under the bus to "solve" it.

Some countries will stomp on their people, though backdoor defaults via money printing (Japan, US, UK) - but those within the European Union are stuck as their central bank is not set up to print Euros to "fix" things.  [Dec 13, 2009: Bond Vigilantes Prowling Europe]  If not for this minor detail, these countries could just go to the American way and print, stimulate, and print some more to make all their problems go away.  Which makes one wonder if this European Union is going to last through the cascade of multiple bailouts that surely look to be on the way the next half decade.

Portugal will be next on the radar [Mar 9, 2010: Portugal Tries to Front Run Bond Vigilantes] [Feb 3, 2010: Portugal Debt Costs Rise to 11 Month High] - while not in as bad a situation as Greece, we'll see if the bond vigilantes wait for the fiscal outlook to reach Greece's stage, or if they will strike sooner than anticipated.  According to this Bloomberg article, there might not be as much time as I originally though the markets would allow.  Which leads one to wonder how much time Spain has... [Dec 10, 2009: Global News - Ireland takes Responsible Budget Steps, Spain the Next to Worry About]

If only Ben Bernanke could make all these European countries "bank holding companies"... ah well.  All the US taxpayer can do for now is send the IMF more monies and then do backdoor bailouts that way with the IMF as the middle man.   Our pockets are endless and money trees plentiful.

  • Portugal risks becoming the new Greece.   With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month. Portugal’s credit default swaps show investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala. 
  • “We do not ignore that Greece’s particular situation has contagion risks, and we are feeling it,” Finance Minister Fernando Teixeira dos Santos told reporters in Lisbon on April 22. “The performance of spreads in the market reveals that contagion risk.” 
  • Portuguese spreads, the extra yield that investors demand to hold its debt rather than German equivalents, jumped to 227 basis points today, the most since at least 1997.
  • Portuguese Prime Minister Jose Socrates' push to convince investors his country will avoid Greece’s fate is being hobbled by an economy that’s expanded less than an annual average of 1 percent for a decade and is reliant on tourism and industries such as cork and pulp.  
  • While Portugal’s public debt of 77 percent of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236 percent of GDP. (ah, I was wondering why the author said Portugal had higher debt than Greece)   The country’s 236 percent debt burden last year compares with 205 percent in Italy and 195 percent in Greece.
  • The lack of savings at home lies behind the Portuguese government’s dependence on foreign investors to fund the deficit, and the vulnerability of its bonds to shifts in sentiment.   The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development
  • About 15 to 17 percent of outstanding public debt is held by Portuguese investors, the debt agency estimates. In Spain about 54 percent of bonds and bills are held domestically; in Japan 94%.
  • “The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow,” said Kenneth Wattret, chief euro region economist at BNP Paribas SA in London. 
  • EU policy makers’ difficulty in containing the Greek crisis is stoking the threat of contagion, just as the near-collapse of Bear Stearns Cos. in 2008 undermined other U.S. banks, exacerbating the credit crisis.    The risk for Portugal is that investors who are trying to protect their portfolios from a Greek-like rout will dump holdings of small euro countries, such as Portugal. Once that happens, surging bond yields could put Portugal in the same spiral that Greece is trying to escape
  • Portugal plans to raise as much as 25 billion euros this year, equivalent to 15 percent of GDP. That compares with 21 billion euros last year, according to the national debt agency.  “As spreads get higher the problems are getting bigger: it’s a self-fulfilling prophecy,” Penninga said in a telephone interview. “It will get more difficult now for Portugal to tap markets.”
  • The IMF raised the prospect of contagion on April 21, saying “if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion.” 

[Dec 10, 2009: Ken Rogoff (Videos) - Sovereign Debt Defaults Likely in Next Few Years]

Monday, April 26, 2010

And You Want to Short Some Stocks to Hedge? Case Study - Whirlpool (WHR)

It's called unshortable for a reason - ask any who bet against Chipotle Mexican Grill (CMG), Netflix (NFLX), or indeed even our lowly Atheros Communications, Riverbed Technology (RVBD) or F5 Networks (FFIV) last week.

Or indeed... you cannot even bet against refrigerator makers... cripes.  I think I was shorting Whirlpool (WHR) about a year ago and $60 lower.
Your silly stop losses would be no help here...

  • Whirlpool Corp's (WHR) quarterly profit and full year forecast surpassed Wall Street estimates, helped by sales in Brazil, Asia and North America, sending shares in the world's largest appliance maker up 14 percent.
  • The company has shut plants, cut jobs and moved some manufacturing to low cost-centers like Mexico.  (again the perfect nirvana for global corporations has arrived; the global race to the bottom in wages leads to the global race to the top in profits.  Thankfully the endless pockets of the US taxpayers are armed with appliance rebates ... you probably already forgot about that stimulus.  Really who needs jobs anymore when our government provides everything.)



Yep, It's Starting to get 1999ish Out There - Analyst Upgrades Mercadolibre (MELI) and Slaps 60x Forward PE Ratio

First let me preface this by saying PE ratio is not the end all, be all of valuation methods.  But it's the 'common man's' way to look at things, even with the caveat that there are multiple ways to slice 'earnings'.  The more important take away is we are now seeing the same behavior we saw in 1999 -at least with companies that actually had earnings back then.  I called it the relative comparison valuation.   This is when analysts can no longer find valid reasons to justify prices, so to upgrade a stock that used the "it's not as expensive as company ABC" methodology.  This is a lot like how we pay CEOs nowadays.... "well if Chuck at company XZY is earning $X than I should be paid $X+10".  And so on and so forth you can go on forever, in a permanent spiral upward.  Unlike CEO compensation where there is no market force to keep this nonsense in check (board of directors are just rubber stamps in American corporatism), the market eventually washes out this "valuation method" in stocks.  Key word... eventually.

Last week, one of our old stocks Mercadolibre (MELI) was upgraded.  I eagerly went to see the reasoning behind it.  And our 1999 reasoning was here "it's one of the top 5 stories out there in internet land!" (hey I happen to agree with that idea, but that does not mean you should slap any valuation on it).  The real reasoning said analyst should have used is "it's cheaper than Baidu! (BIDU)"  Then when MELI passed BIDU in valuation the BIDU analysts can come out and upgrade Baidu with reasoning "it's cheaper than MELI".  And so and so the two bands of analysts can go at each other, ever increasing valuation on "it's cheaper than the other guy and a top franchise to boot!" as Greenspan morphs into Bernanke, and we repeat the same reindeer games.  Heck we don't have to even wait a generation or 2 anymore to revisit old lessons forgotten.  Thanks Bubble Makers in Chief.

The only difference (thus far) is in 1999, the stock price would have jumped from $50 to $70 in the opening 15 minutes of the session it was upgraded.  And then the next analyst could have come out with his $90 target within days.  This means we are not yet at Code Red status of bubble making... still in Orange.

  • Thomas Weisel Partners analyst Jordan Rohan has launched coverage of Latin American e-commerce play MercadoLibre (MELI) with an Overweight rating and $70 price target. The stock closed yesterday at $50.14.
  • “We believe MELI is one of the top-five secular growth stories on the Internet due to the growth in users, usage and monetization,” he writes in a research note.  “While valuation appears high today, (translation: "don't worry about it, we'll come up with a new valuation method" or "cheaper than Baidu!") we forecast upside to near-term estimates and strategically the Pago payments platform distances MercadoLibre from competition.”
  • Rohan expects MELI to post profits of $1.14 this year.
[Dec 24, 2009: IBD - Mercadolibre: E-Commerce Sales Soar as Latin American Households Get Wired]

No position other than deja vu

HDFC Bank (HDB) Beats Estimates but Valuation Getting Quite Rich

I don't know how many more times I can write the same things... at what point is beating analysts expectations but being valued at some extreme level a warning sign?  Not yet. India's #2 bank, HDFC Bank (HDB) reported (Saturday?) and the results are again good.  But as I've written in the last few pieces on this company, I don't know how to justify paying forward 35x+ earnings as a great entry point, especially with a central bank that has begun to increase interest rates.  Yet as of last Thursday, as the stock broke over $150,  the chart said "buy buy buy"... a new breakout after a short consolidation.  And charts are apparently all that matter to HAL9000 and his merry band.  The stock is now at an all time high...

A quick look at earnings:
  • HDFC Bank (HDB) reported a 32.6 percent rise in its quarterly profit, beating market estimates, bolstered by a pick-up in credit demand in Asia's third-largest economy.   Profits were boosted by a 29% drop in interest expenses, which improved net interest income by 27%. 
  • The results were marginally better than analysts expectations.
  • Within retail — auto loans, commercial vehicles and home loans were the growth engines, followed by business banking
  • Strong growth in the loan book and better margins boosted net interest income, said Mr Paresh Sukhtankar, Executive Director, HDFC Bank. The net interest margin was up marginally at 4.4 per cent (against 4.3 per cent). Other income was down as treasury earnings were hit due to rising bond yields.
  • In the quarter, net NPAs dropped to 0.31 per cent (0.63 per cent). "The impact of the non-performing loans acquired from Centurion Bank is wearing off. With the economy looking up, the asset quality of the retail portfolio is improving," said Mr Sukhtankar.
  • The corporate loan book grew 40 per cent and retail 22 per cent.  

[Jan 15, 2010: HDFC Bank Earnings Rise 32% Year over Year]
[Oct 15, 2009: HDFC Bank's Earnings Propel Upward 30%]
[Jan 7, 2009: Bookkeeping - Starting HDFC Bank on Satyam Scandal]

Long HDFC Bank in fund; no personal position

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 38

Year 3, Week 38 Major Position Changes

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 52.2% (v 65.5% last week)
19 long bias: 44.1% (v 27.4% last week) [Includes 1 option position]
2 short bias: 3.7% (v 7.1% last week) [Includes 1 'long dollar' position]

21 positions (vs 21 last week)

Weekly thoughts
After a hiccup on Goldman Sachs Friday, US markets made up all losses and more last week, with both the NASDAQ and S&P 500 gaining 2%+; the Russell 2000 doing even better.  There have been many days to wear out the bears the past 2+ months, but a day like last Thursday with a rare (perhaps 3x in 2010) material down day in premarket, and a swift 1% loss - is the type that kills a camel's bear's back.  What ensued is what has typically ensued since March 2009... a V shape bounce.  Since the morning touch of the 20 day moving average of S&P 1190, the S&P gained 27 straight points in a session and a half.  Debilitating for any bear.

I'll post the 3 major indexes below; I've been using a "6 day moving average" rule for this remarkable portion of the run... in which the S&P 500 was so relentless there was not even a pullback below this level for 2 months.  It took a fraud charge against the most powerful firm on Earth to crack that level, and Monday the S&P 500 touched the 20 day moving average before a quick bounce.  Then the fateful Thursday morning drop I mentioned above happened, and once more a bounce off that 20 day.  And late Friday, a squeeze to new highs of the year as S&P 1214 was breached. Until this 20 day moving average is breached there appears very little bears can hang their hat on - overbought or historic put call ratio or whatever else you want to use, thrown out the door.

The Russell 2000 has been even stronger... with still NO close below the 6 day moving average - even on Goldman Sachs Friday or this past Monday... only some moments intraday.  This chart actually broke to new yearly highs last Thursday, rather than Friday.

Ditto for NASDAQ ... so strong that it did not close below the 6 day moving average even during the turbulence.

Please keep in mind the 6 day moving average has no significance... it simply is the 5 day moving average with some rounding error room; it simply shows how strong the market has been.  Typically a market will pull back to the 20 day moving average if anything on an upswing, from time to time.  Aside from the S&P 500 (and it took some market moving news to do it), this has not happened.

The latest bear argument is something called the 200 week moving average.  Below is a handy chart, showing how rare it is to be below this level - in fact, before Alan Greenspan and Ben Bernanke went ballistic with blowing bubbles as official Fed policy, there had been 2 decades when the S&P 500 had not been below the 200 week moving average.  As you can see this past decade has not been so kind.

So what does the chart show us?  Being below the 200 week moving average is so rare it should provide resistance.  Even in the great 'recovery' early in the past decade (2003ish) the market tailed off for a period of time (what appears to be a few months) before it found enough energy to push through.  But this market is much more unrelenting than what we observed back then... so will there be a stall at this level (S&P 1225-1230ish)?  Any rest?  Anything?  Who knows... after 8 straight up weeks on the Dow Jones, you'd think so.  But anyone betting against this market has been made into mush.


On the economic news front ... well does it matter?  Good news is great news, and bad news is future good news.  What we know is there will be some million census workers hired in the next 2-3 reporting periods through June which will cause celebration on national TV since very few analyze the figures.  The market will be "surprised" and we'll rally.  Housing will "rebound" just as it did a year ago in the spring and summer - before falling to record lows in some months in the fall and winter.  The only question is will round 3 of the housing bribery plan be announced once housing slows down again in the fall.  Bernanke won't raise rates ... and even though some of his minions are pressuring him to at least sell some of these mortgage backed securities off this balance sheet sooner rather than later; he is all about the Bernanke Forcefield.  All must be protected (except for assets of savers who return nothing) - risk assets must only go up because the "wealth effect" is the easiest bubble to blow up.  So they'll be some economic reports this week - they might move the market for 10 minutes... perhaps 15 minutes, before the grind up continues.  There is a FOMC meeting this week so maybe if they move one comma in the statement, CNBC can go to 24/7 coverage and we can all hyperventilate.  Obviously rates won't be changing, so the only analysis will be what sentences changed a word or two, and if any commentary about asset sales enters the fray.  Doubtful Ben will allow it.

Earnings continues this week, and this will be the last week of major S&P 500 companies... although the big hitters are mostly done.  What was very strange has been since a week ago Friday, many companies HAVE sold off on their earnings but the market continues to march up.   It's as if any company not reporting is fine to rally... very very strange.   It's not the first time I've said that when observing the character of this new paradigm market.


For the portfolio, it remains (as I've said for over a month) an unshortable market.  When the only selloffs lasting more than a few hours require fraud cases, it's simply something you cannot stand in front of.  If I can see the 20 day moving average pierced I can at least make some case, but until then it's ride the train and realize this will end like all other have ended - badly.  But the level of desperation and meddling in this market & economy is multiples of what anyone has seen before, so no playbook.  Until then I will join the complacency crowd, knowing at some point I will get my head ripped off to the side. And look forward to how Bernanke is taken through the wringer in 2014+ for repeating, at 50x, what Greenspan did.

On the long side: Rackspace Hosting (RAX) was sold Monday for not participating in this epic rally.  Once more this week, it did not participate... not sure what is wrong with it.  After Atheros Communications (ATHR) rocked its earnings report, I sold 1/5th.  After some "surprising" housing numbers (all hail! housing figures are starting to bounce as we enter the spring season), I sold 25% of our largest position Lennar (LEN).  I was stopped out of half of coal name L&L Energy (LLEN) for a quite nasty loss, the stock sits right above a key support - if that breaks, we'll have to cut much more as a risk control practice - currently this is my only loser.  In a flurry of trades late Friday, I restarted a position in Bucryus (BUCY), added to Quality Systems (QSII) [new breakout] & Skyworks Solutions (SWKS) [fell back to first level support], and added index positions (SPY calls and TNA ETF) in the closing hours as the S&P was poised to take out highs for the years, and "Magical Monday" awaited.  I closed Market Vectors Brazil Small Cap (BRF) for similar reasons to Rackspace Hosting... no life.

On the short side... are you kidding?  All I did was sell some index put positions I was holding from late last week once the S&P 500 bounced off that 20 day moving average Monday.

A part of me is considering buying way out of the money puts perhaps for January 2011 since I do believe those multiple gaps must fill in time.  In fact, I thought mid April to mid May would be the time frame - which appears increasingly wrong.  It's quite rare for an index gap not to fill within a few months.  The only question is how soon I want to begin losing money on this trade.  Potential issues the market will be grappling with in the fall is (a) loss of 1M+ census jobs (b) seasonal slowdown in housing (c) election stress (d) China real estate slowdown (e) the first signs that Ben may actually relent on his foot on the pedal by Q1/Q2 2011 (f) producer price inflation and (g) do state budgets matter anymore as a "problem" or is the unspoken of "backstop" by federal government yet another moral hazard?

That said there is no reason the market can not be at all time highs (in nominal terms) with unemployment at 8.5%+ (that would be government figures, not reality) by end of 2011 - remember the less workers, the more profit for corporate America.  With the government having bottomless pockets to pay for the lifestyles of those out of work, plus many others employed no longer bothering to pay their housing bill - it's a nirvana economy.  In many ways this is the same economy we've had for the greater part of a decade+ - there is simply no bubble except government and healthcare to hide all the excess workforce.  A greater and greater portion of national profits are simply going to corporations, and workers are receiving less (as has been the case year by year the past 10-15 years) - so the government is taking the spot of the house ATM to fill the gap.  Until the US debt is called to the floor this can go on for years.

Jeremy Grantham GMO April 2010 Letter - Playing with Fire (A Possible Race to the Old Highs)

One of the "must reads" distributed across all of Wall Street is Jeremy Grantham's quarterly letter; here is his latest entry.  If you've been reading this website for more than 2-3 weeks, you will see very parallel thinking ... but Grantham is always worth the read.  He is truly one of the only guys on the inside who does not talk like a salesman but speaks (his version of) the unvarnished truth.  The title is pretty self explanatory Playing with Fire (A Possible Race to Old Highs).

[Click 'Fullscreen' for easier reading]

Jgletter All 1q10                                                                 

[Jan 26, 2010: Jeremy Grantham GMO January 2010 Letter]
[Oct 27, 2009: Jeremy Grantham GMO October 2009 Letter]

Sunday, April 25, 2010

Updated Position Sheet

Cash: 52.2% (v 65.5% last week)
Long: 44.1% (v 27.4%)
Short: 3.7% (v 7.1%) [long US dollar positions are considered "short"]

This data is updated weekly and can be found on 'Performance/Portfolio' menu tab on the website. As always the total gain/loss (both dollars and percentages) only apply to the open portion of the position; it is does not apply to portions of the position sold earlier.

[click to enlarge]

LONG (1 photo file)



Friday, April 23, 2010

Bookkeeping: Closing Market Vectors Brazil Small Cap (BRF)

This ETF has done nothing for a long time.  There are no trading opportunities.  It is not doing us any harm... nor good. 

Since I've added some new positions of late, and I want to keep portfolio position numbers finite, I will sell the 0.5% stake in  Market Vectors Brazil Small Cap (BRF) and wait for a time it begins to work again.   We've held this name since October 2009 - exiting this last small piece at "flat".

No position

Bookkeeping: Adding Back to Quality Systems (QSII) on a New Breakout

I took some profits on Quality Systems (QSII) last week but rather than correcting, stocks now just sit...rest... and then breakout on top of old breakouts.  This is what is happening in QSII today.

I sold in the $65.50s hoping to buy back in the $62s (which at the time was where the 20 day moving average was)... I missed my repurchase by about 30 cents as the stock fell to $63.  It happens.... but my error for not moving my limit purchase order up to the 20 day moving average a few days after I entered it, because this is exactly where the stock fell to.

With a breakout over the obvious resistance of $66, I am adding back a 1.25% exposure today in the $67.60s.  As long as $66 holds, this reasoning for this addition should hold.

[Mar 18, 2010: Restarting Quality Systems]

Long Quality Systems in fund; no personal position


Bookkeeping: Adding to Skyworks Solutions (SWKS)

This might be a short term play but Skyworks Solutions (SWKS) has not been acting "great" and has pulled back to the 50 day moving average so I am going to add a 1% allocation around $15.50.   Another stock that is sitting right on or above its 50 day moving average, I can use the low of Thursday as a stop out level.  The other issue is the company reports on the 29th so I might sell (if a bounce ensues between now and then) simply to reduce exposure going into the always tricky earnings.  But we'll buy for now and see what the next few days brings.

I also added some SPY calls and TNA in anticipation of Magical Monday.  One Monday this year I expect this trade to crush people, but until then everyone will keep playing it.

Long Skyworks Solutions in fund; no personal position

Bookkeeping: Restarting Bucryus (BUCY) on Muted Response to Earnings

I am restarting a position in Bucryus (BUCY) as we have 2 things working in our favor to reduce risk.  First, the company reported yesterday so earnings risk is out of the way; second, the stock is sitting right above the 50 day moving average so we have a clearly defined area to exit the position if we're wrong.  We last were in the stock July 2009; stopped out at what is now an unmentionable price. 

Bucyrus is an unique franchise essentially providing the tools for the world's miners to feed China.  I absolutely loved the purchase of the Terex assets at the end of 2009; the synergies should be huge once integrated in the coming 12-18 months.  Unfortunately it mostly trades as if it is a coal or steel stock rather than on its own merits but it is what it is.  On $4 of EPS it is very reasonable, but has a low multiple due to the cyclical nature of its business - however that has not stopped other cyclical stocks from now sporting 30-50x type of PE ratios (which make no sense to me)

While I like the company, I will be heading for the exits if this important support below is broken.  I've begun a 3.2% exposure around $68.40.  Our key moving average is down at $66, which is exactly where the stock fell to earlier today.  A move to that level would offer 3.5% downside risk which is manageable.  If the stock can bounce a move to $74 should be a no brainer... then it has to break over that to start a new leg up.

Some flavor on today's earning report:
  • Bucyrus (BUCY)  the mining equipment maker, fell short of Wall Street targets by a wide margin when it reported first-quarter results after the market close Thursday, but the company's CEO is adamant that demand is building for Bucyrus' huge excavation gear.
  • The company, in the midst of integrating its $1.3 billion acquisition of Terex's (TEX) mining-machinery unit, reported adjusted earnings of 69 cents a share for the quarter.  Analysts on average were looking for 81 cents, according to various surveys of the sell side. All the numbers exclude results from the new Terex business, as well as costs related to the deal and the integration. 
  • Executives blamed the weak sales of underground machinery on "timing issues" related to shifting customer delivery schedules.   Margins in that segment -- which produce machines to dig and construct mining shafts -- eroded during the quarter due to "under absorption," analysts say. Translated from the jargon, that means Bucyrus had ratched up its labor force in preparation for demand that never materialized, increasing costs.
  • The company forecast 2010 revenue above analysts' expectations, but lower-than-expected quarterly results took its shares down as much as 5 percent.
  • In a conference call with analysts, Bucyrus said it expects 2010 revenue to be $3.65 billion to $3.75 billion, including about $1 billion worth of revenue from Terex, which the company acquired in February.  Analysts on average were expecting revenue of $3.35 billion.
  • After market close Thursday, Bucyrus posted first-quarter results below analysts' expectations on lower revenue from its underground mining segment.
An interesting contrast in styles here... another "infrastructure" name that broke out today is Cemex (CX) so I will track both stocks mentally to see which would have been the better buy.  Do you buy the one that pulls back, or do you buy the one that is surging... in this market, 90%+ of people who had chosen Cemex.  (I think Cemex is rallying due to the "surprising" housing reports)  So we'll check back in a few weeks to see if I made a mistake in my choice.

[Dec 22, 2009: More Color on Terex-Bucryus Deal]
[Dec 21, 2009: Bucyrus Buys Mining Assets of Terex]

Long Bucryus in fund; no personal position

Market Seems (Broken Record) Poised for a New Leg Up

This week has looked, more or less, no different than most other weeks the past 2+ months.  The only difference was yesterday when we actually had a down open of significance.  That was bought with much vigor and a 16 day intraday S&P move ensued.   Some of the moves yesterday such as Netflix (NFLX), Chipotle (CMG), and the like were stupendous.  Bears are being roasted on an open fire, and I can't imagine many are left even trying to place bets against the market.  It's been an unshortable market and until it proves otherwise - remains so.

It's been well documented how magical Mondays are.  It seems quaint when I pointed it out 5 months ago... back then the market had been up something like 9 of 11 Mondays.  We are now reaching streaks that simply make no sense on a statistical basis.  But it has at this stage become self reinforcing... everyone believes the market will go up Monday so they buy buy buy.  That feeds on itself in an infinite loop.  Lately, even late Friday has become a good time to buy as people crowd in ahead of Magical Mondays.  Let's see what the final 75 minutes bring as the market is poised at its highs of the year and no one cares about weekend news risk anymore.  Maybe the "I'm buying on late Friday to benefit on Monday" crowd can take us over 1214 today. The drop to the 20 day moving average (which was just yesterday morning) seems like a different year.

This little triangle above between the 20 day moving average (rising by the day) and S&P 1114 (highs for the year) is narrowing by the day, and will soon resolve.  In normal circumstances I'd say there might be a 25% chance it is to the downside, and 75% to the upside.  In this market I will place the odds at 99.7% to the upside, and 0.3% to the downside. 

I will join the lemming rush on a break out to new highs as I am often apt to do ...


Riverbed Technology (RVBD) Earnings Report Pleases the Street

So far, our technology names have really done well in terms of earning report reactions - you never know how the casino will take the figures and considering many earnings reports have been sold this week unless they were huge beats, it's been a minefield.  Eventually we will step on a mine - just part of the game, but for now we seem to be weaving through nicely.  Riverbed Technology (RVBD) was the latest to report last night and is up a solid 11% today. (full report here)  Much like F5 Networks I thought it was a good report, not stupendous (beat by 2 pennies) and there was a slight uptick in guidance (1 to 2 pennies) but in this "1999 redux" market, it is not taking much to make investors giddy.  A strange week, we've had 4 stocks have huge surges ...

In terms of valuation, analysts are in for the year at .86... more likely RVBD will hit .90ish.  With the stock over $32, this is over a 35 forward PE ratio.   I find that rich myself, but since this is 1999 valuation doesn't matter anymore.  Until it;s March 2000 redux, and it does matter.  With the Bernanke Forcefield on full blast... we just continue to dance and hope when valuation matters again we are at the ready to sell and lock in profits.

Via Reuters:
  •  Riverbed Technology Inc (RVBD) forecast second-quarter results above Wall Street expectations as IT spending improved. The company projected second-quarter adjusted earnings of 21 cents to 22 cents a share, excluding items, on revenue of $117 million to $120 million.  Analysts polled by Thomson Reuters I/B/E/S projected earnings of 20 cents per share, on revenue of $114.3 million.  (I don't consider that much of a guide up, but as I said above... this market is in a state of frenzy so just going along for the ride)
  • "There's an upgrade cycle happening in the enterprise space," Piper Jaffray analyst Troy Jensen said.  "Where you're seeing the bulk of the IT spending is in larger enterprises and they are looking to optimize their infrastructure, reduce the amount of superflous equipment in office," Canaccord Adams analyst Paul Mansky said.  Some of the true catalysts behind WAN optimization at the onset is coming back into focus, he added."
  • For the first quarter, Riverbed reported net income of $1.1 million, or 1 cent a share, compared with $1 million, or 1 cent a share a year earlier.  Excluding items, it earned 20 cents a shareRevenue for the company rose 27 percent to $112.4 million in the first quarter.  Product sales increased 24 percent over the prior year led by solid growth in enterprise sales.
  • Analysts polled by Thomson Reuters I/B/E/S expected earnings of 18 cents a share, excluding exceptional items, on revenue of $109.16 million.  
[Mar 12, 2010: Bookkeeping - Restarting Riverbed Technology
[Feb 11, 2010: IBD - Riverbed Technology: Making the Network Faster Pays Off]
[Jun 29, 2009: Even Handed Story on Riverbed Technology on CBSMarketwatch
[Apr 8, 2009: Stimulus Fire Hydrant (Worldwide) Should Benefit Networking Companies / Broadband] 
[Nov 27, 2007: Riverbed Technology - Fortune Article] 
Long Riverbed Technology in fund; no personal position

Bookkeeping: Stopped Out of Half of L&L Energy (LLEN)

What a wild wide with L&L Energy (LLEN).  As I pointed out when it was purchased a week ago Wednesday:

It's a "small cap Chinese" name so can rise or drop 10% on any session for no particular reason

And true to form in the time I bought it, it jumped sharply in the first day or two, and then has dropped sharply reversing all gains... all on no news.

I had a stop loss to dump half the position if it fell below $11.40 which happened this AM.  The stock has now fallen all the way to the 50 day moving average, where it is currently resting.  If it does not bounce here, I will dump the rest next week simply because it's not acting well.

I don't think there is any specific news or reason (the company sold a small subsidiary today)... as I wrote in my original piece on this stock, I doubt it was held in strong hands and when a stock full of retail traders begins to break down they will leave, especially the momo types.  There need not be any change in the story.

I took about a 9% loss on the half I sold and the rest sits at a 13% loss.  This is really the only losing position I am sitting on.  (I was +8% on the position the day after I bought it...that's how quickly these small cap Chinese stocks can turn on you and why they are not to be used as a base for a portfolio, only as speculations)  I still like the story.

p.s.an aggressive trader can buy the stock right here at support and stop out if it breaks down.

Long L&L Energy in fund; no personal position

Greece Formally Asks for Bailout; Euro Markets Rally on Moral Hazard Party

In what appears to be the final iteration in a long and winding journey - after months of denying it would actually need a bailout (circa Bear, Lehman, Fannie, Freddie), Greece has formally requested funds overnight.  Just as the "bazooka" Hank Paulson promised would never be needed for Freddie & Fannie the "loaded gun" that was on the table which would dissuade speculators, apparently didn't have any bullets.

Of course markets are giddy ....

While we're at it the EU and IMF should begin planning ahead and create plans for Portugal and Spain - might as well get ahead of the curve.

Via AP:
  • Greece will ask for a joint eurozone-International Monetary Fund financial rescue on Friday, a Greek official said, as market pressure pushed the debt-ridden country's borrowing costs to unsustainable levels.  Prime Minister George Papandreou was to make an announcement asking for the activation of the plan during a visit to the remote Aegean island of Kastelorizo on Friday, said the official, who spoke on condition of anonymity ahead of the official announcement.
  • The rescue package will provide Greece with loans from other eurozone countries to the tune of euro30 billion at interest rates of about 5 percent, and about euro10 billion from the IMF.
  • Until now, Greece's Socialist government had insisted it prefered to tap bond markets for its borrowing requirements and avoid calling for a rescue.
  • But on Thursday, borrowing costs spiralled to alarming and unsustainable levels, pushing interest rates for Greek 10-year bonds to nearly 9 percent.  The spike came after after Moody's credit agency downgraded the country's sovereign rating and the European Union's statistics agency Eurostat revised Greece's budget deficit in 2009 to 13.6 percent of gross domestic product from 12.9 percent, and said it could be further revised by up to 0.5 percentage points. 
  • The interest rate gap, or spread, between Greek 10-year bonds and German ones -- considered a benchmark of stability -- began to narrow on news that the government would trigger the mechanism, falling to 5.52 percentage points from Thursday's alarmnig highs of 5.86 percentage points.

Thursday, April 22, 2010

Morning Dodo Bird Sighting Confirmed as Hoax; Business as Usual

The morning nightmare is over... 

There were scattered reports this morning about a blog writing about dodo birds & market selloffs... both complete myths.  Never trust a blog who talks up such fictions.

Buy stocks.  Always. Without question.  Do it.

Back to your regularly scheduled unchanged OR upward market, with a few -0.2% days just to break up the boredom.

(for you folks who play intraday, chart the S&P 500 and look what happened the second S&P 1198 was broken this afternoon... zoom zoom orders came flying in to take the S&P up 5 straight points - dodo style)

Off to go find a photo of a castrated bear.  What's that?   Don't you dare me... oh yes I would.  *snip snip*


Bookkeeping: Selling 25% of Lennar (LEN) on "Surprising" Existing Home Sales

Once again, as predicted, the market was "surprised" by improving home sales data this morning, as we enter the spring season.  Which means April, May and June data should be even more "surprising".  This is a complete repeat of 2009.
  • Home sales rose more than expected in March, reversing three months of declines, as government incentives drew in buyers and kicked off what's expected to be a strong spring selling season.
  • Sales of previously occupied homes rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million last month, the highest level since December, the National Association of Realtors said Thursday. February's sales figures were revised downward slightly to 5.01 million.
  • Sales are now up 18 percent from their low in early 2009, but are still down 26 percent from their peak in fall 2005. March's results had been expected to rise about 5 percent to 5.28 million 
  • The inventory of unsold homes on the market was up 1.5 percent at 3.6 million. That's an eight month supply at the current sales pace. 
  • Sales nationally had declined over the winter, eroding gains made last fall and summer. (ugh! this happens EVERY year)  The downward direction troubled economists because the government has taken unprecedented steps to support the housing sector.

I am taking today's "surprising" existing home sales data as an opportunity to sell a quarter of the Lennar (LEN) started on Apr 5th for about an 8.5% gain (sale was just under $19.10).  This is a volatile stock and provides nice trading opportunities - the name spiked on call activity last week but I did not sell any, and as of Goldman Friday I had given up all my unrealized gains.  Hence this time around I am going to take profits on some portion.  With the move the past few days, this stock had become the largest long position in the portfolio.

If Lennar keeps running, I'll take some more off over time... if it comes back in, I'll buy some more as long as that 50 day moving average holds.   Today's move has the stock going to new highs so as long as the market cooperates, its momentum may keep going.

Long Lennar in fund; no personal position

Dodo Bird Sighted

In an extreme rarity in the new paradigm market, we had futures down sharply and an open of -1%.  Looking at a 4 month chart the last occurrence of an open significantly lower than the previous day's close would appear to be the 2nd to last session in February.  Aside from that ... one episode seen in mid January; there does not appear to be any other session like this in all of 2010 aside from those 2... today would be #3.  (even the big down days in January were originated from flat opens)  That's how common it has become for flat or positive opens even on days when we eventually falter.  Not that days of faltering happen much anymore.

For now, the S&P 500 is between the same 2 spots we cited coming into the week... overhead are last Thursday's highs near S&P 1214... we made a nice go at it, although yesterday we did not have the traditional premarket markup... but still got near the highs creating a potential "double top" (which would be bearish if indeed this is what has happened).  On the bottom side is the 20 day moving average which was the floor Monday.  Let us see if dip buyers rush in en masse as they did Monday around S&P 1189 if and when....

I continue to believe it's not worthwhile to make any directional bets until this situation is resolved.  Bull horns are safer to bring out at new yearly highs.  Any close below the 20 day moving average would be the first since mid February.  If that happens the first chance for the bears in months might finally be presented.  In between is the choppy stuff that has happened this week.

{question: are the words premarket and masse in yellow highlight for readers, or just me?}

Louis Bacon's Moore Capital Management Warns of Euro-Zone Breakdown

While not as famous to the general investing public as some of his hedge fund peers, Louis Bacon of Moore Capital Management has one of the best track records on the planet since 1990 with annualized returns of roughly 20%.  [Forbes Article from 2004 on Moore here

Bacon runs a style called "global macro" which in English means... go anywhere, do anything.  But his specialized skill set is risk management and capital preservation.  Which in theory is what a hedge fund is supposed to be about, but as we saw in 2008-early 2009, many hedge funds are only that in name.
  • Moore's main hedge fund has generated annual returns of more than 20% over two decades. It suffered only small losses in 2008 and returned more than 22% last year.

With this sort of track record, this CBSMarketwatch title "Moore Capital Warns of EuroZone Breakdown" certainly caught the eye - now as always, even if this does some day come to pass, the timing of it all will be of upmost importance.  As we've said many times, sovereign debt issues [Feb 5, 2010: Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale?] will not be a 1 year, or 18 month issue but something that will overhang like a dark cloud for a very long time - when specific countries flare up enough to "matter" is something that is impossible to tell.
  • Moore Capital, a leading global macro hedge-fund firm run by Louis Moore Bacon, warned of a "potential breakdown" of the European Monetary Union and criticized plans to bail out Greece, according to a recent investor letter obtained by MarketWatch on Wednesday.  "Perhaps the most interesting area for the foreseeable future is in the potential breakdown of the European Monetary Union," Bacon wrote in the letter, dated April 16.
  • "Instead of punishing the Greeks for their free-rider and fraudulent gaming of the Maastricht rules -- either by ejecting Greece from the Union to propel them to reform and come back at a competitive exchange rate or by forcing them to restructure their debt within the confines of monetary union, either of which would have eventually strengthened and solidified the euro -- the European leaders have decided to reward the prodigal Greeks with a bailout, socializing their ills and taxing once again the prodigious Northern European workers," he said.  (replace "banking oligarchs" with "Greeks" and you have the same situation in the US)  The bailout could have "disastrous consequences" for the European Union and Europe, Bacon warned.
  • Sovereign-wealth funds have bought trillions of euros to diversify away from U.S. dollars. That's supported the euro and allowed European investors to "flee their debauched currency," he wrote.  When sovereign-wealth funds "finally realize what they own, they may stand aside," Bacon went on. "The euro will find a new level while these large funds instead seek currencies in the emerging markets where solvency is not such an issue."

As for other general thoughts - he is riding the Ben Bernanke Express for now but expressed concerns for the Kool Aid to peter out by end of year.
  • Moore Capital is currently playing what Bacon called a cyclical rebound in the U.S. economy, which is being driven by companies rebuilding inventories and the positive effect of huge fiscal and monetary stimulus.  However, Bacon said he's "wary of long-term investment commitments." 
  • The U.S. economy could reach "escape velocity" this summer, but markets could be worrying about "stall speed" by the end of the year, he wrote. "We should see a resumption of a bearish market amid the secular softening of U.S. economic might. The fiscal erosion in the developed markets will be a constant market negative that will upend any strong recoveries."

F5 Networks (FFIV) Results Solid but Market Expectations High

The market is a bit confusing this week.  Since last Friday many stocks have sold off on earnings as expectations finally have reached a point where the price seems to be reflected.  So those specific stocks (that are reporting) have been mostly selling off...while the overall market continues its ever upward move.  Strange.

F5 Networks (FFIV) is a good case example... it reported a very nice quarter (full report here), with modest beats on both revenue and EPS.  But sold off in after hours by about 3%, but that level of selloff should only take the stock to about its 20 day moving average, so no real damage done.  

At $2.20 for full year estimate (year "ending" Sep 2010), the stock is trading at about 30x forward estimates.  In a normal environment I'd consider that relatively rich for the growth rate, but in *this* environment, no price is high enough and valuation is something only used in historical textbooks. It will matter only when it matters... and not a minute before then.

Reuters take on the report:
  •  F5 Networks Inc (FFIV) forecast third-quarter earnings slightly above estimates on strong bookings, but higher expectations pulled the stock down from the heights it had reached following a recent run-up.  The network equipment maker's shares, which have gained 150 percent in the last 52 weeks and are near their 10-year high, were down at $64.8 after market. 
  • For the third quarter, the company, which offers products that handle Internet traffic, sees adjusted earnings of 57 cents to 59 cents per share, on revenue of $214 million to $219 million.  Analysts on average were looking for earnings for 56 cents per share on revenue of $207 million, according to Thomson Reuters I/B/E/S.
  • F5 Chief Executive John McAdam said in a conference call the company was upbeat on outlook for its overall business given the strong sales momentum and a solid pipeline of sales opportunities.   "Overall sales bookings were very strong with book to bill above one in the quarter. This is a first time in five years that our sales book-to-bill ratio was greater than one in the March quarter," he said.
  •  "The strong results give us confidence the company is not only benefiting from improving IT spend environment on the enterprise side ... but also from its new product cycle," Pacific Crest Securities analyst Brent Bracelin said. The company about three months ago introduced a new upgrade of its TMOS platform and that "clearly is helping drive a rebound here in the business," Bracelin added.
  • Product revenue, which made for about 63 percent of the total revenue, rose 38 percent to $129.6 million in the second quarter.  "That's actually the highest growth rate in the group since 2006," Bracelin added.
  • Net income for the second quarter rose to $33.1 million, or 41 cents a share, from $19 million, or 24 cents a share, a year earlier.  Excluding items, earnings were 56 cents a share. 
  • Revenue rose 34 percent to $206.1 million.   EMEA revenue was up 37 percent while Americas was up 40 percent on an year-over-year basis, the company said.
  • Analysts expected earnings of 54 cents a share, excluding exceptional items, on revenue of $199.6 million. 
F5 Networks, Inc. provides technology that optimizes the delivery of network-based applications, as well as the security, performance, and availability of servers, data storage devices, and other network resources. 

[Jan 21, 2010: F5 Networks Executing Well
[Apr 8, 2009: Stimulus Fire Hydrant (Worldwide) Should Benefit Networking Companies/Broadband]
Long F5 Networks in fund; no personal position

Tuesday, April 20, 2010

To Buy Tomorrow's Gap Up on Apple's (AAPL) Surprise Beat or Not?

Remember when the S&P was at 1183 yesterday (2% away) 27 hours ago?  Those were the days....

Obviously my headline is rhetorical because any question that asks if we should buy stocks can only be answered in the affirmative.  We have replaced "buy the rumor, sell the news" with "buy the rumor, and also buy the news".  So when Apple (AAPL) crushes their number we will be surprised and rush in as good lemmings.  (programming note - CNBC will now commence 24/7 coverage of Apple)   The set up is quite particular actually... at S&P 1207, a nice tidy 0.4% markup in premarket tomorrow will take us to last Thursday's highs.

In the old market it would be a perfect place for a blowoff top, and potential level of exhaustion.  In this market, the only fatigue is anyone who even dares to think about shorting.

Remember, any bad economic news this week we blame on European volcanic ash.

Kool Aid man says buy the gap up tomorrow... Kool Aid man never wrong.

(today is the 8th up day in the past 9, the only down day being when the most powerful firm in the world is accused of fraud....11th up day of the past 13, and 14th up day of the past 17)


Bookkeeping: Selling 1/5th Atheros Communications (ATHR)

I am selling 1/5th of Atheros Communications (ATHR) around $43.27 as the stock is up about 9% today.  Why?  Because I can.

If you are a momo chaser you should be doing the exact opposite of what I am doing and shaking down your broker for shares, as many as possible.  Because stocks only go up; no on gets hurt buying stocks up 10% in a day... or 30% in a month... or 50%+ in 2 months.  The Bernanke Forcefield protects us all from market forces...unless those forces push us upward.  Then they are allowed.  This gap won't be filled until 2014.  Or when Larry Summers allows it.

If I'm lucky F5 Networks (FFIV) will do the exact same thing tomorrow.  Frankly I am surprised the earnings report generated this much of a response but whatever, it's 1999 v2.0.

I'll sell another 1/5th every $15 until we reach $100.  (which I estimate to be late June 2010, or sooner)

Long both names mentioned in fund; no personal position


Could be a Big Day for America's Stock - Citigroup (C)

Much like the Dallas Cowboys are America's team, Citigroup (C) is America's stock; since we're all part owners.

Today could be a big day... the stock has jumped back to Thursday's highs and sits right below the $5 level.  This level is key because it's a price point where most traditional institutional money (i.e. mutual funds, pension funds) can come in.  (many are not allowed to own stocks below $5)

The government is supposedly going to sell a huge batch of their holdings "sometime soon" but no one cares, the Bernanke Forcefield is up, and this institution is now federally protected, backstopped, and fed 0% Fed money via the IV every day.

So here is a good micro example of a potential double top... or double top breakout.  For the sake of America, let's hope its a breakout.  Maybe the government will send us Citigroup Investment stimulus checks once Citi gets to $8.


p.s. I am getting a kick out of every "The Bailouts Worked!" story.  So you mean to tell me when government tells the world a company won't be allowed to fail, and the Fed feeds said company free money on which it can lever up and mint money 24/7, the bailout "worked".  Shocking.  Trust me, we could take failing Joe6Pack's Acme Tool & Die Shop and if the government protected it in bubble wrap while Bernanke funneled money into it each night, that bailout would "work" too.  I just love the logic of it all.  Hey our "investment" paid off; all it took was depriving all Americans some 2 years worth of any interest in their savings account.    This is modern day "success" in Cramerica Citimerica.

[Feb 17, 2009: Hedge Funds Pile into Citigroup; as does Bruce Berkowitz of Fairholme Funds]
[Aug 26, 2009: Citigroup Surges on John Paulson Investment]
[Feb 22, 2009: WSJ - U.S. Eyes Large Stake in Citigroup]
[Nov 24, 2008: Details of the Citigroup Bailout]

No position

Thus Far, a Perfect Bounce

The bounce off the 20 day moving average noted yesterday continues with our almost traditional premarket markup (it's been missing the past week or so).  We never lose Magical Mondays but the premarket +0.3%, +0.4% markup sometimes comes and goes. If it's one of *those days* the entire day's move has already been completed in the premarket and opening salvo of trades - we go sideways in a 2-3 S&P range all day afterwards.  Now the computers will churn us for 5 hours straight, collecting rebate after rebate while trading Citigroup, AIG, Fannie, Freddie for hours on end as their little electrons click in ecstasy.  Just another day at the office.

Thus far everything is playing out per the script... I (a bit tongue in cheek) said in the last piece Friday after Asia would sell off in error Monday, it would be be time to buy US markets once the knee jerk move down happened. Then yesterday as we hit a support level the buyers rushed in.  It is almost too perfect to take seriously.

The earth shattering 2% correction is over. ;)

With the surprise beat by Apple (AAPL) tonight it's just a matter of how close we get to Thursday's intraday high of 1214ish between now and this afternoon/next morning.  Don't forget the surprise beats that VMWare (VMW) and Juniper Networks (JNPR) will give us as well, although Apple will steal all the oxygen along with 59 of the 60 minutes of "Fast Money" tonight.

As of now I'll place the odds of a double top (bearish) forming in the coming 24-48 hrs as we retrace to 1213 as 0.3% and the odds of a blast off through that level at 99.7%.  That's my complacency talking. 

One of these days we're going to have a good ole fashioned intraday reversal without news... but placing chips anticipating it has been a losers game for a long time.  In theory the market is supposed to provide pain to the most people... and nowadays the most people buy every dip without thinking...even if dips are now a flat day.  But these people have not felt pain in over 2 months.

Until some strange day when humans take back the market from computers, there has only been one man to listen to... he is 7 feet tall, 450 lbs, round and cheery.  And Ben Bernanke is his biggest fan.


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