1.) I have no idea how Allstate (ALL:NYSE) will trade today, but its earnings really looked solid as it crushed estimates. The dynamic here is whether the advantage that Allstate currently has from its tiered pricing methods are sustainable or not. Even though many other stock companies have tiered pricing, most mutual companies don't. Allstate et al., are taking share from those mutuals, and leaving them with the worst risks.
And, to phrase it another way, Allstate simultaneously shrank its combined ratio, and increased its policies in-force. That's pretty good in a competitive marketplace.
2.) If Congress repeals the Public Utility Holding Companies Act (PUHCA), in the current omnibus energy bill, expect utilities to rally. After that, expect Berkshire Hathaway (BRK.A:NYSE) to rally. Utilities fit perfectly into Buffett's plan, in that the earnings yield is far more than the cost of funds at his insurance enterprises. Berky will buy a bunch of utilities, and enjoy the smooth, inflation-protected returns.
Now, if only a few other insurers got the same idea, we could have a real buying frenzy. The problem is, Buffett has waivers from the investment policies that other insurers must hold to, so I don't see a buying frenzy in utilities. They will rise if PUHCA is repealed, though.
3.) Ambac (ABK:NYSE) is probably a buy here, after getting trashed postearnings. Why did Ambac fall so much? It dropped its previous guidance, and refused to issue new guidance, because its markets have gotten too competitive, and it won't chase the pricing levels down.
So, the question that I have posed to a number of managements over the past quarter is, What do you do when your competition gets irrational? The answer that I received from the best was, let the competition kill themselves. They will eventually eat their losses. Stand back; let our growth go to zero, and let them eat the bad business. This does not fly on Wall Street, but this is what the best businessmen do.
So, with Ambac, my advice is sit back, wait a while and buy. At present, Ambac's shareholder base is changing from a bunch of growth-at-a-reasonable-price investors, to a bunch of value investors (like me). This will take a little while, but the stock should go lower as the change occurs.
4.) Last, on General Motors (GM:NYSE) and Ford (F:NYSE): They aren't shut out of the corporate debt markets, but it is uneconomical for them to issue now. So where do they go if they need cash? To the securitization market. They sell auto (and other) loans into trusts that will sell them off to third-party asset-backed securities investors.
So, GM and Ford get cash. Who loses? GM and Ford corporate bond owners, who get implicitly subordinated by the inability to touch assets in the securitization trusts. This won't help the corporate debt ratings, but it will help keep GM and Ford alive.
The U.S. dollar is mixed in Europe. It is firmer against the sterling and yen, in response to disappointing economic news in the U.K. and Japan. Japan unexpectedly reported a smaller trade surplus, which fell 0.2% year over year rather than increase like the market had expected as expensive oil imports appear to take a toll. For its part, the U.K. reported an unexpected 0.1% decline in March retail sales. The consensus was for a 0.4% increase. The dollar is slightly softer against the euro and Swiss franc, partly reflecting the adjustment cross trades, like euro-yen and especially euro-sterling. That said, the momentum for the euro is beginning to flag. Including today, the euro has had quite a five-day run. Each day the euro has made higher highs and higher lows, but the new upticks appear to be getting more difficult to register. While I have been bearish the dollar, yesterday I cautioned against the establishment of new short positions before getting a better bounce. And although the dollar lost more ground yesterday, I still think this is the prudent course. Sterling, which had led the move against the dollar, flirted with a five-month downtrend line near $1.92 and is now nearly a cent lower. For its part the euro remains in a narrow range around $1.31. An important retracement objective comes in near $1.3125. If the euro were to rise above there and was confirmed by a sterling move through $1.92, I would be more tempted to chase the market on the idea that the brief sideways consolidation was the anticipated correction. Of note, the U.S. reports leading economic indicators and the Philly Fed survey today. Both numbers are widely expected to be on the weak side. How the market responds to the news will be an important reflection of market psychology. Given that nearly every one now appreciates that the U.S. economy did not grow as fast as previously expected in Q1 (Q1 GDP out next week), there is a danger that many players are exaggerating the slowdown. To be clear, rather than grow slightly above trend as previously thought, the U.S. economy probably grew slightly below trend. No chicken little, the sky is not falling. The U.S. economy is not stagnating. If you want stagnation, look toward several countries in the eurozone or Japan. The U.S. bond market is beginning to underperform Europe again and this means that interest rate differentials are beginning to widen out in favor of the dollar again. And this may continue in the near term. France, where polls suggest the majority may reject the EU constitution at the end of next month, held a bond auction today that was well received. There are some 30 billion euros in bond maturities and coupon payments due on Monday and a good part of that money seems likely to stay in Europe. And in the beginning of its new fiscal year, Japan has stepped up its buying of foreign bonds and the private sector has shown a preference for European bonds over Treasuries. In data released earlier today, Japan reported that its investors bought $6.8 billion in foreign bonds in the past week, bringing the three-week total to an impressive $18 billion. Perhaps this has been a factor helping the euro. With U.S. inflation readings now behind us, the July fed funds futures market remains 2.5 ticks higher on the week and does not completely factor in two quarter-point hikes by the Federal Reserve here in Q2. Yet, insight from seasoned Fed watchers and comments from Fed officials, including yesterday's Beige book, suggest that based on what we know now, the Fed is most likely going to deliver those two rate hikes. We need to get past today's data and then I would look for the market to correct its view on the trajectory of Fed policy and for the U.S. dollar to correct higher and provide the new selling opportunity. One currency that has lagged behind the majors and is now worth considering is the Canadian dollar. Prime Minister Martin is to address the country tonight. His Liberal party heads up a minority government, and with the polls suggesting the Liberal would lose to the Conservatives, it seems premature to expect him to call for the June election that is the subject of much speculation. Instead, look at him to address the scandal that is the proximate cause of his woes. The U.S. dollar has initial support near 1.2350 Canadian dollars, but a break would suggest potential toward 1.22 Canadian dollars initially.
Good morning. As we linger around 10,000 on the Dow, futures look to propel the market higher this morning. S&P futures are up 8.20, Nasdaq futures are up 14.50 and Dow futures are higher by 66 points.
A flood of earnings hit the tape this morning, including results from Alaska Air (ALK:NYSE), Alltel (AT:NYSE), AT&T (T:NYSE), Baxter (BAX:NYSE), BellSouth (BLS:NYSE), Briggs & Stratton (BGS:NYSE), Caesar's (CZR:NYSE), Con Edison (ED:NYSE), Delta Air Lines (DAL:NYSE), Equifax (EFX:NYSE), First Horizon (FHN:NYSE), HCA (HCA:NYSE), Headwaters (HW:NYSE), International Game Technology (IGT:NYSE), JetBlue Airlines (JBLU:Nasdaq), Marriott (MAR:NYSE), McDonald's (MCD:NYSE), Merck (MRK:NYSE), Northwest Air (NWAC:Nasdaq), Nucor (NUE:NYSE), Office Depot (ODP:NYSE), OfficeMax (OMX:NYSE), Outback Steakhouse (OSI:NYSE), PNC Bank (PNC:NYSE), PPG Industries (PPG:NYSE), Royal Caribbean (RCL:NYSE), Schering-Plough (SGP:NYSE), Sherwin-Williams (SHW:NYSE), Union Pacific (UNP:NYSE), UPS (UPS:NYSE), Valero (VLO:NYSE), as well as others.
On the economic docket, look for weekly jobless claims as well as leading economic indicators for March. Fed Chairman Greenspan is speaking to the Senate Budget Committee on budget reform and the Senate takes up issues surrounding Fannie Mae (FNM:NYSE) and Freddie Mac (FRE:NYSE), as well as questions on the impact of Sarbanes Oxley.
In the "cheers" department, British spirits firm Allied Domecq agreed to a $14.2 billion friendly takeover offer from French rival Pernod Ricard.
A report this morning says Altria (MO:NYSE) is close to signing a deal with the Chinese government allowing Marlboro to be manufactured and sold in China. The deal would give Philip Morris a foothold in an enormous market that accounts for nearly one-third of cigarette consumption.
And, it looks like Time Warner (TWX:NYSE) and Comcast (CMCSA:Nasdaq) have cut a deal to take control of Adelphia for about $12.7 billion and 16% of Time Warner Cable, which will make Time Warner Cable public. A long time coming, Adelphia looks finally in its final chapters.
It looks like a strong market this morning. Good earnings in general and a "cheap" stock market relative to fixed-income securities should make for a constructive day. Bouncing along these levels is likely for several days but this still feels, in very general terms, like a very good buying opportunity.
Have a great day.
Weekly jobless claims dropped 36,000 to 296,000, a much larger decline than the 1,000 to 329,000 forecast.
Stock futures are adding to their already-strong opening indication.
Upon further review, yesterday's Beige Book shows solid economic growth with rising inflationary pressures, which confirmed yesterday's worse-than-expected CPI core, which rose 0.4%. The Fed's Ferguson says it is right to worry about inflation, and that it's possible the economy hit a soft patch, but he sees only a few reports of weakness. What's interesting in the details of the Beige Book is that one district reported signs of improvement in April after a restrained March.
This morning, initial jobless claims fell 36,000 to 296,000, indicating the soft patch may already be over.
Look for leading indicators, out at 10 a.m., to show a decline of 0.3% in March, and look for some relative weakness in the Philly Fed at noon. In between those releases, Greenspan testifies on the deficits and budget reform before the Senate Budget Committee. By early afternoon the market tone should be set for the remainder of the week.
Treasury yields failed again within my risky areas, most notably the 3.576/3.418 range on the 2-year, the 3.878/3.738 range on the 5-year, and 4.180/4.043 on the 10-year. Assuming a 3.00% funds rate after the May 3 meeting, and given my assumption that rates will stop in the 3% to 3.5% range, the yield on the 2-year is just too tight.
The strong premarket levels for equity indices are between supports and resistances from my proprietary models. Supports are 1135.0/1133.7 on the S&P futures, 9972 for the Dow and 1889 on the Nasdaq. Resistances are 1159.3/1165.5 S&P, 10,215/10,251 Dow and 1936/1945 Nasdaq. Supports should build, but no signal of a bottom yet.
I am now beginning to read where those who were bullish a week or so ago, based upon oversold readings and bearish sentiment (a bullish signal), may be questioning if this time is different. The usual tools that lead to market reversals in the past are not working. This may be true in that all the extreme readings in breadth and volume may represent a more fundamental and technical change, and that all the selling must mean something. On the other hand, this kind of doubt is good for building a bottom.
While we all have defined this market environment as bullish because sentiment is bearish, that doesn't mean prices have to reverse. Buying based upon "market environment," whether interest rates, inflation or sentiment, can lead to disastrous results. The only thing that correlates with higher prices is higher prices! Understand the environment; apply a price-based strategy within that environment.
Returning to the data...
On the Nasdaq, the new lows were lower yesterday despite the horrid action; this is my favorite and most reliable breadth indicator (empiric observation) and it could be setting up for a divergence. The 10-day average of the new high/new low is pointing straight down and has yet to make a turn.
The Rydex market-timers are bearish (bullish signal)but not to such a great extreme ... certainly not to the levels of August 2004 yet.
Last, thanks to all those who wrote to me about gold last night. Gold investors and those who follow gold seem to be the most passionate investors and certainly write me the longest and detailed emails!
What a very strong round of earnings reports we've in the last few days. Interestingly, if it's truly the vigilant Fed that's the weight on this market, these reports should make that weight heavier. In other words, why is everyone talking about a "soft patch"? Because of IBM (IBM:NYSE) mostly, I guess. The rest of the reports sure don't indicate much, if any, evidence of a slowdown.
Good morning! Based on the dwindling gaps, it appears we will sell down from the open.
It's been quite a mix in trading with some stocks doing very well in the early going (such as Dynamic Materials (BOOM:Nasdaq)) and others selling down (such as Apple (AAPL:Nasdaq) and KLA-Tencor (KLAC:Nasdaq)).
I am cautiously optimistic today and plan to buy the early bottoms on BOOM and AAPL. However, if I see AAPL move under $35.80 and KLAC move under $40.80, I will treat all bottoms as fast 50-cent scalps.
We are moving up and down on news events and Greenspan is speaking today, which can cause the kiddies to jump out of the pool again today. Good trading!
Motorola (MOT:NYSE) is a stock I have liked for a while. The company just delivered excellent results for the first quarter and guided sales and profits materially higher.
The shares have been creeping up lately, but I believe the turnaround potential is still vastly underestimated by investors and Wall Street analysts. Quite simply, many of the sound bites surrounding the company are wrong.
First of all, the cell phone is still a highly technical product. Emerging new features such as video, music, higher quality cameras, small form factors, VoIP features and others create solid opportunities for innovation and differentiation.
The cell-phone business is not overly competitive. The top five guys have nearly 80% share with leaders making very good profits. Both Nokia (NOK:NYSE ADR) and Samsung reported 17% operating margins in the last quarter. Motorola's meager 10% margins offer material opportunity for upside!
Motorola's wireless infrastructure business is still healthy despite less share in 3G than I would like. The Nextel (NXTL:Nasdaq) business, an area of concern, should be strong for the next two years. Motorola's home division is not just a cable box business anymore. The company is on the cusp of an explosive growth phase with the buildout of digital cable, cable telephony and fiber-to-the-premises services such as fiber video on demand. Motorola is the only company that can offer hardware and software infrastructure to both the cable and telephone service providers, as well as subscriber products to businesses and residences.
Because most of Wall Street is tepid on the shares, analysts dramatically understate Motorola's real earnings power. Its current earnings estimate simply reflects a historical bias against this long-underperforming company. As my previous posts stated, Motorola should earn around $1 per share this year and $1.20 next year. Consensus etsimates are $.93 and $1.02 for this year and next. Motorola recently published a set of financial targets to improve operating margins from 10% in 2004 to 14% by 2007. Not one single analyst on the Street has the company achieving its 2007 financial targets! If the handset business is decent for the next three years, and if Motorola gains big market share as I expect, and it achieves the midpoint of its margins targets, Motorola could generate $1.50+ per share profits in 2007! Combined with 10% to 15% revenue growth, these fundamentals could be best of breed in the tech sector over that period. These results should generate a healthy valuation premium for the stock as the company delivers. And here sits Motorola at $15.75, trading for virtually 10 times EV-earnings and 5.5 times EV-EBITDA on next year's results. For a company with high revenue growth, expanding margins (for the next three years), strong balance sheet and impressive free cash flow, the valuations are downright cheap. Pay little attention to lowballing analysts and "sell"-screaming investment commentators. They don't yet understand the upside potential in the Motorola story.
If Motorola only delivers Wall Street estimate-type results, the shares should be OK. But, if/when Motorola delivers its projected turnaround financials, those same bears will love the shares much, much higher. I reiterate what I wrote last fall: If Ed Zander, the new CEO, and his management team execute to a very reasonable plan, the stock will be a home run and the CEO will be on the cover of a popular, national business magazine as a turnaround guru!
The U.S. Conference Board of Leading Economic Indicators slid -0.4% in March. The LEI have been soft for some time now,
posting a marginal gain in February (0.1 %) and a decline in January (-0.3%).
Note that despite this morning's decent new claims number, the biggest negative factor in the index was average weekly initial claims for the month. Excuse me if I cannot muster much enthusiasm of the "Yeah! There are less layoffs than before" variety.
Only two of the 10 indicators that comprise the leading index were positive last month: interest rates and manufacturers' new orders for consumer goods and materials.
This is not an economy hitting a soft patch; rather, it is a choppy expansion with fading momentum. Higher energy prices, commodity costs, interest rates and taxes are not helping; consumer confidence has faded and business spending and hiring is (mostly) MIA.
Lastly, earnings have been very good -- but that's very much expected. Yesterday's CNBC poll had three-quarters of viewers expecting earnings to help the market. That suggests that good earnings are already factored into the market. Note that the year-over-year earnings gains for the S&P 500 -- earnings momentum -- has been steadily fading since third quarter 2003 (almost 30%) to first quarter 2005 (12%). That ain't good either.
Sorry to be such a ray of sunshine, but I calls 'em as I sees 'em.
Textron (TXT:NYSE), one of the names highlighted in my article, "Two More Plays for Earnings Season," is up more than $5 or 6% after reporting solid earnings and boosting guidance. Those May $75 have more than doubled to $2.10 per contract.
Harman International Industries (HAR:NYSE), the other name the article mentions, reports after the close. The stock is acting well, up over $2 and holding important support at above $85. I think there is still more upside, and it's not too late to look at buying the some call options or a vertical spread.
Having breezed through both the Philly Fed Manufacturing Index and the Beige Book, I must admit that I am impressed with the degree of economic strength seen by the Fed in most of the fed districts. This encourages me to think the Federal Open Market Committee will continue to tighten 25 basis points for the next few meetings.
This is particularly interesting because it is arguable from reading other private economic sources as to how strong the economy really is. As an example, consider the articles out recently showing wage growth falling behind inflation.
This leaves me with my thesis that the Fed keeps tightening, and the yield curve flattens. Interest spread-based (borrow short, lend long) financial stocks won't do well in an environment like this. Punch up a chart of Doral Financial (DRL:NYSE) if you want a polar example of the carnage that can result.
Per James Altucher's article, "Winners, Losers in NYSE Merger," another potential loser of the NYSE/Archipelago (AX:PCSE) merger could be the International Securities Exchange (ISE:NYSE).
The NYSE and AX have made no bones about the fact that they want to trade more products, especially derivatives such as options. And while it might take some time to get those approved and launched, it seems inevitable that the NYSE/Arca combo will be very serious competition, not only in terms of trading volume but in terms of investment dollars for those looking to gain exposure to a growth in trading volume.
The ISE, the first all-electronic option exchange enjoyed one of the best first-day gains in years when it went public this past March, soaring to $30 or some 50% above the offering price, mainly due to its ability to become the leading exchange in the booming options market.
Options volume has experienced 30% year-over-year volume growth for two consecutive years, and 2005 is on a similar pace. But the stock been trending lower ever since its March IPO. Today it's down another 4% to $22 per share.
This bold move by the NYSE may also force the CBOE to accelerate, rethink or combine with an equity trading platform for its own plans for an IPO.
The merger of the NYSE and Archipelago (AX:PCSE) is just another step down the road of reducing margins for those who broker securities.
Technology improves, allowing for a more efficient execution of a trade. The technology can be imitated by others, so competition drives down brokerage costs, and the benefits accrue to those who invest. In a competitive structure like this, the low-cost competitor wins and favors consolidation in order to gain scale advantages in the industry.
I think that the combined entity has the best chance of being the dominant player within the consolidation. Beyond that, I think it allows the NYSE seatholders a graceful exit as open-outcry trading slowly diminishes as a fraction of all trading. John Henry loses to the steam drill again.
One place that will be slower to change, if it ever does, is bond trading. Given the virtual absence of retail accounts in bond trading, the dealer-driven market makes a lot more sense.
Transaction sizes are larger, and there is a greater ability for brokers to add value by finding liquidity or bonds in places that are not obvious. There are zillions of unique bonds, and bond trading is erratic for most issues, outside of some benchmark issues, so human brokerage is a real help. John Henry has a better chance in bond brokerage.
I want to re-make that point I made this morning about the oft-cited, but little-seen "softpatch." David Merkel makes the point below that the Fed sure doesn't seem to see a "soft patch" right now.
Rewind your mind to last summer when companies left and right were blowing up and missing numbers. IBM's (IBM:NYSE) little blip does not a soft patch make. On most of the calls I'm on, there is talk about seeing strong demand and analysis that indicates it's early in a growth cycle. While it's certainly possible that the economy does cool off here (for a multitude of reasons), and while it's clear that growth of the growth is down, I'm not seeing a "soft patch" from the calls or the macro reports in general.
The real question is do you sell stocks that are down big and cheap because of it?
I have been buying some of those names, including machinery, chemicals,\ and technology. So my answer is "no." However, as it typically is in the investment world, one must understand the specific competitive dynamics of each sector. Some industries have much better or more sustainable conditions than others. I am rifle shooting here, not buying everything that cycles.
Nasdaq support is 1900/1889 with my weekly pivot at 1936, and the price gap to last Thursday's low at 1947, now filled.
By definition, a weekly pivot has an 85% chance of being tested during the week, and this week that level provided the stabilizing influence. To confirm a short-term bottom, there needs to be a close above the five-day modified moving average today and tomorrow, with that average at 1945 today.
The pattern sets us up for continued positive reaction to tech earnings.
Closes today cheaper than 3.591 on the two-year, 3.962 on the five-year and 4.309 on the 10-year provide a warning that yields are headed higher again.
Closes tomorrow cheaper than 3.615 on the two-year, 4.012 on the five-year and 4.364 on the 10-year confirm a rise in yield that should last until the May 3 Federal Open Market Committee meeting.
With the help of the stronger-than-expected Philly Fed survey, the dollar is finding its legs.
As others here have pointed out, the Fed does not see the soft spot that got the chins wagging earlier about stagnation or even as Paul Krugman had (with exaggeratedly) claimed stagflation. The market is coming around to the Fed's view. This is reflected in the selloff in the July fed funds futures contract, which is once again pricing in with near certainty two 25-basis point rate hikes here in the second quarter.
In this respect, the Philly Fed survey has done what the inflation data earlier this week failed to do. This suggests to me the market's focus is on growth. The euro tested almost to the tick the $1.3125 level cited in this space earlier today as a key level. I look for the euro to test the $1.2950-$1.3000 level ahead of the weekend as late longs throw in the towel. As noted earlier momentum indicators are already flagging. Sterling has repeatedly tested the $1.92 trend-line resistance and although minor penetration did take place, it was not sustained. A break of $1.9040 now could signal another cent pullback.
Today's U.K. retail sales data were weaker than expected and probably dashed any lingering ideas of a rate hike next month.
The yen is largely sidelined against the dollar and I don't see a near-term big move in either direction. Japanese investors have been big buyers of foreign bonds in recent weeks and that is likely to slow going forward as it probably reflected portfolio allocation decisions at the start of their new fiscal year. Lastly, a word about the Canadian dollar. I suggested earlier that after lagging behind the majors in recent weeks, it can play a bit of catch-up. The U.S. dollar did hold above the support I cited near 1.2350 CAD. But the Canadian dollar itself is registering nice gains against the other major currencies and is actually the second-strongest main currency against the dollar, trailing slightly behind the Brazilian real. Note, though, Brazil is on holiday today and the central bank surprised many by hiking rates last night, so its overnight rate now stands at an incredible 19.5%.
There is not much commentary about the miss from Valero Energy (VLO:NYSE).
The stock is actually up, but so much of the thesis for these energy plays is that the sell-siders are supposedly clueless about the earnings power of these companies vs. where the commodities are. Well, it certainly makes me scratch my head. I guess Valero could be like IBM (IBM:NYSE), and we always have to be careful about extrapolating a single data point. But single data point duly noted in my mind.
On Monday, I said that this week will be a week of gap fills. I was expecting either the move into NDX 1375-80 or into 1440. The first expectation would validate my long exposure setup and offer that long exposure hopefully for the move into the NDX 1440 area.
Instead, the fill of NDX 1440 proved me wrong on the short-term bias and I missed any shot at long exposure on the swing time frame. I have no bias intraday or short term from here and will use the range for today as a guide for tomorrow. As usual, I'll update my thoughts in the morning article.
At last check, upside volume was about 80% of the total on the NYSE and Nasdaq, matching the downside volume of last Wednesday and Thursday.
For what it's worth, we never saw the "90% downside" days the folks at Lowry's say are necessary to form an important bottom; then again, the folks at Lowry's have remained bullish throughout the recent decline. That is, they viewed it as a correction with an ongoing bull market vs. a bear market that "needs" to bottom -- although they felt a 90% downside day or two might ultimately generate more buying interest.
Notably, I'm told Lowry's recently has become more bullish on OTC vs. NYSE names, which is a switch for them.
The last five days of trading, while gut-wrenching, appear to me to be a classic short-term reversal pattern for the S&P 500.
Last Friday, was the third straight day of significant, high-volume declines. On Monday and Tuesday, the bulls tried to take them higher, but couldn't even manage to reach Friday's open.
Yesterday then saw a resumption of the downtrend on very impressive volume -- the third-heaviest volume of the year; the prior low was broken. This was a panicky selloff and most of the pundits were very bearish -- even some permabulls. But notice that yesterday's volume was less than last Friday's. Still a wide-ranging day, but on lighter volume.
Finally, today's gap to a higher open, followed by a market that never looked back, tells me that the downtrend has been rejected. (This was the kind of capitulation I had been looking for my article on Wednesday, "Bull Seen Up Close; Bear Is Further Away.")
Significantly, advancing vs. declining issues in the S&P were 451 vs. 37. It really doesn't get much more convincing than that.
Was this "the" bottom? Depends on your time frame. But it is certainly a tradable one, with the shorts on the run. And as I write this, Google's (GOOG:Nasdaq) numbers won't give the bears any relief.
SanDisk (SNDK:Nasdaq) beats the bottom line big time, but is light on top.
Broadcom (BRCM:Nasdaq) looks good.
Foundry Networks (FDRY:Nasdaq) gets out of the guidance game because things are tough there. I don't like and never have liked that company, and this move underscores why.
Harmonic Lightwaves (HLIT:Nasdaq) is a mess. That's going to be an interesting call, as the company's margin picture is ugly.
Emulex (ELX:NYSE) is good.
Xilinx (XLNX:NAsdaq) is okay, another stock buyback.
Significant? Insignificant? Regardless, it was a pretty impressive one-day reversal. Volume on the Dow Industrials was greater than yesterday, but on the Nasdaq volume was less. I think this is a subtle sign.
In candlestick lore, I believe this can be called a bullish engulfing, which after a downtrend is considered a bullish sign. The good thing too is we know where support is.
While my systems kick with a weekly close on the Nasdaq greater than 1950, I still recognize that the markets have a lot of work to do technically. But today was a good start. And after greater than three months on the sidelines, essentially (in 80% cash) I am looking forward to taking a seat at the table to earn some coin.
At least the downtrend has been stifled. If we can make a price thrust above 1981 on the Nasdaq, then that would be a very good sign and potentially the start of a base-building process.
I would just like to make it crystal clear that the downtrend in the indices has not been broken. The signals I just mentioned (An Impressive One-Day Reversal), use aggressive entries to get into the market.
Risk is greater, but so is the reward. Today was a start, and that, I think, is the best you can call it. Now we have to build from here.
A few thoughts to add to what Guy just said about the day's impressive reversal: Internals were powerful today, with A/D and up/down volume excellent. However, the Nasdaq volume was stronger Wednesday and Tuesday -- than it was today. (See Rev Shark's comments on volume).
I asked Jim Altucher to look into to this (he thinks it's moderately bullish), but I am not a big fan of the huge up days. The markets are much healthier putting together five 40-point days than one 200 pointer. It has the whiff of panic to it, and that's never any good for anyone.
Further, the market is not an Etch-a-Sketch. Everything the market was concerned about on Wednesday -- oil, inflation, slowing GDP, waning earnings momentum -- does not disappear simply because we enjoy a huge up day!
That said, I now go on confirmation day watch: Days four to nine that indices rally +1-2% on greater than average volume. Or, a return to the prior trading ranges, from which we have broken down. Or, as Guy suggests, a break to the downtrend line.
While I am always ready to reverse a call when the markets require, I ask readers of the bullish variety to maintain an open mind. A few permabulls have written chest-pounding missives to me insisting that the March 29 call was wrong. You know I heard from a slew of them today again. (Funny, they've been pretty quiet for 700 points down).
I will try to put some charts together for tomorrow as to when and where I become a believer again.
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