Big bank earnings -- to me, it says, "Look out, U.S. banks, we have real acquirers coming" ... especially with the weak dollar on the way.
Position: no
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Jim Cramer
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| Market Soaring Again? |
8/3/2009 6:59 AM EDT
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Money coming in -- not stopping. Still ramping...
Position: none
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Jim Cramer
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| Ron Insana/Melt-Up |
8/3/2009 7:23 AM EDT
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Ron coming with an important melt-up piece that is a must-read...
Position: none
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Tom Graff
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| Treasuries Weak |
8/3/2009 7:26 AM EDT
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Friday we saw the 10-year Treasury trade down to resistence at 3.48%. In the Asian and European sessions, it has bounced off that number, now 7 basis points higer to a 3.55% and currently at the highs (in yield, lows in price) of the day.
Friday's action had the hallmarks of a real money move: a slow and steady climb in prices the whole U.S. session. In light of the sharp selloff already under way, it now looks mostly like month-end rebalancing rather than a real investment in Treasuries.I plan to stay neutral to slightly short until I see how Friday's non-farm payroll number shakes out.
Position: None
Last month's equity rally has carried through to today's activity. The recovery theme, earnings and higher commodity prices appear to be the main drivers. The MSCI Asia-Pacfiic Index rose almost 1%. China and India reported gains in their PMI reports and an investment house upgraded the outlook for Korean shares.
There were some exceptions in the region. The Nikkei slipped marginally, but the broader Topix gains. Taiwan and Malaysia's main indices also eased. The peak of the U.S. reporting season is behind us, but this week 98 of the DJ Stoxx 600 report. HSBC (HBC) and Barclays (BCS) reported today, and the former looked unexpectedly strong.
Financials and basic material sectors are leading the way today. U.S. shares are expected to open broadly higher, leaving the S&P 500 poised to test the 1000-1014 target zone.
Position: None
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Doug Kass
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| Why the Futures Rally? |
8/3/2009 8:06 AM EDT
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The proximate causes for the strength in futures seem to be the strength in HSBC (HBC) and Barclays' (BCS) quarterly reports, coupled with the fifth month in a row of improving Chinese PMI and the fourth consecutive month of improving manufacturing output in China.
Position: None
The PowerShares QQQ Trust (QQQQ) is trading up this morning after an attempt last week at a pullback from $40.20. The selling was fairly mild, so buyers are still holding this market up.
I am going to look for selling at the open today and see how far down we go before buyers move in on the dip. My guess is that we move down to around $39.60 to $39.70 if the market is going to move over $40, and if we move under $39.50 we will be in for another weak ending like Friday. Savient (SVNT) is my hottest trade, but is already up from $8 to $11.50. One of those great pre-open trades...
Position: NM
Apple (AAPL), our usual morning tell, is off to the races. The upgrades this morning are incredible: 3M (MMM), Ford (F), retailers, just so, so positive. Apple's going to take us higher. Price target increase for Cisco (CSCO) doesn't hurt the ramp.
Position: CSCO
1008.50 = 101.35 S
1001.50 = 100.65 S
996.50 = 100.15 M
993 = 99.80 M
989.50 = 99.40 S
986.75 = 99.15 M
983.50 = 98.80 M/S
979 = 98.35 S
Position: none
Anyone know what caused natural gas to pop so dramatically in the last few minutes?
Position: none
After a relaxing summer weekend, the bulls are ready to continue their assault on 1000 and further frustrate the bears. Traders continue to buy breaks, with all trading above 979 ... initial targets are 1001.50 and 1008.50.
The bulls enjoyed a lazy and restful Friday but now want to continue their trek to (and through) emini 1000. With moderate support at 993, traders need only push through moderate resistance at 996.50 before tackling strong resistance at 1001.50. To be clear, the 1000 area is more psychological than anything else ... it's not a magical level that is guaranteed to stop thousands of hungry bulls. There are likely to be a lot of stops placed just above 1000, so pick your entries and stop levels carefully (try to avoid the obvious areas). Any momentum that builds above 1001.50 should run into strong resistance at 1008.50 (the November 2008 highs).
The bears are in desperate need of help ... and I am not sure where they will find it. For starters, they need to push the emini back under moderate support at 993 and strong support at 989.50, but even that won't bring many traders to their side. It will take a trade back through moderate support at 986.75, moderate/strong support at 983.50, and strong support at 979 before any bulls question the latest surge.
Position: none
The Ford (F) surge from the secondary is a true thing of beauty. I am amazed at how much money you made from that deal. Just the secondary of the century.
Position: now
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Jim Cramer
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| The Rally Fighters |
8/3/2009 9:40 AM EDT
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the rally fighters are amazing: they just will not stop going against this rally. I watched the International Papers (IP) and the Alcoas (AA) of the world ... They are "not quittable," and they are pure recovery, as are IBM (IBM) and Caterpillar (CAT). And --head in the ad hominem lion's den -- the call to keep buying MasterCard (MA) into the pullback is looking good. Remember, I felt both MasterCard and Visa (V) were raided down, and the process of buying them up, as painful as it is, works. ... Meanwhile, Citigroup (C) is becoming an important proxy, and I continually hear that things are better.
Position: none
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Tom Graff
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| Corporates Strong |
8/3/2009 9:54 AM EDT
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Corporate bonds are strong today, with most names 3 to 10 points tighter. Finance looks especially strong, with Bank of America (BAC), JPMorgan Chase (JPM) and Morgan Stanley (MS) all about 10 tighter. International Paper (IP) is the headline new issue today. $800 billion with talk in the low 400s. IP is also planning to tender for its $1 billion 7.4% notes due 2014.
Position: None
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Jim Cramer
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| Fading the Opening |
8/3/2009 10:01 AM EDT
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How many bears are out there that people faded this opening? What's the hook?
Position: none
For subscribers who have sent me emails this morning and not received a reply, know that we are having some technical difficulties, and when it's fixed, the responses should get there.
Position: Thanking you for your patience
My Jan '10 Bank of America (BAC) calls ($20 strike) are up almost 200% since my recommendation a little over a week ago. Although I expect further strength, it's prudent to take some money off the table. While I have sold enough recently to recoup my original investment, I still own thousands of Jan '10 contracts (of various strikes), so it's still a meaningful bullish position in my portfolio.
Original money in is now out, to be put to work elsewhere. Some of the Radian (RDN) calls have doubled, so I am taking profits in some of those positions as well, while letting the rest run.
Position: BAC RDN BAC calls RDN calls
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Jim Cramer
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| Email/Cash for Clunkers |
8/3/2009 10:56 AM EDT
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It is universal, Helene -- we are all being delayed and short-circuited on email. ... Meanwhile, I continue to be in disbelief that anyone would be against Cash for Clunkers. This is the only thing that has worked to stimulate the day-to-day economy. There are actually car dealers running out of inventory. I bet we see the mpgs that are being taken out of circulation to be in the single digits because they have no trade-in value -- 18 mpg cars have market value. Gasoline is going highter. People see it. Cheap program. I would have rather done this than the ridiculous stimulus that benefited state and local workers, those who are safe in their jobs.
Position: none
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Jim Cramer
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| Insana Alert/Consumer Staples |
8/3/2009 11:31 AM EDT
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Important alert from Ron Insana for his indispensable Market Movers note. Separately, the rotation out of the staples is so vicious that it is beginning to become attractive to me.
Position: none
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Howard Simons
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| Oh Lord, Won't You Buy Me a Mercedes Benz? |
8/3/2009 11:46 AM EDT
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It is not so much a matter of being "for" or "against" the Cash for Clunkers program. As I posed the question on Friday, how will we be able to end it?
Once a subsidy is created, multiple constituencies are created therewith. In the space of a few weeks, we have created constituencies of the auto makers, auto workers, auto dealers and perhaps most important of all, the politicians who get to play Santa Claus with other people's money. Are they going to slam the door when this $2 billion runs dry? Hardly; we live in a country where they extended a coupon program for digital television converters, even though everyone had years of warning, and only 15% of the population does not get a television signal from either cable or satellite.
Oh, and why did they sent out those $40 coupons instead of lowering the price? Look, Virginia, there is a Santa Claus.
Position: Worked hard all my lifetime, no help from my friends...
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Timothy Collins
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| Scott R. -- Fallout From Leveraged ETFs |
8/3/2009 11:50 AM EDT
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Scott -- With regard to your article/comments that some assets will shift from companies that are not currently doing business, there could be an opportunity in finding the companies that still do (not that you are advocating or supporting leveraged ETFs). I do believe that you are correct in looking at the do-it-yourself firms. The two biggest I've found are Fidelity and InterActive Brokers (IBKR). I have no position in IBKR, but we do use its platform for some of our fund. The stock may be worth a look.
Position: nm
It is sad to say, but I think all of this spending money we don't have will not end until we go broke. That is why I have a very hard time being bearish on gold even though I appreciate the explanation of the bear case for gold provided by Howard S. last week. As the US prints trillions to prop up our economy and the rest of world tries to keep up with our money printing, gold and other hard assets will continue to appreciate because growth in investment demand will outweigh declines in other sources of demand resulting from higher prices and weak economic fundamentals. This was clearly true in the late 1970's and early 1980's during the last gold bubble, and I believe gold has even much better reasons to rise in today's world than it did at that time.
Position: long gold and people expecting a free lunch
Chris, I just want to clarify that was an explanation of why gold has been struggling. I am not committed to a direction in gold at the moment, and I don't want someone dressed in a chicken suit riding a unicycle and honking on a kazoo to start calling me a "gold bear," or whatever. I long ago lost patience with those loop-de-loops.
So saying, I saw another one of those "steal your neighbors' gold and mail it into us for some quick cash" ads on late-night TV (an Ovation program on James Dean if you must know). They announced they were increasing the amount they will pay by 20%.
In previous gold bull markets, the fast-money crowd was trying to get the public to buy. Now they are trying to get the public to sell. This may be an intrinsically bullish indicator as these commercial players are trying to convince the non-commercials the market is peaking.
Position: None
Goldman Sachs (GS) feeling a bit heavy today. I've played a synthetic put with some upside protection on this one. I've shorted the stock while buying the August 160 and August 175 calls.
Position: Short GS stock, long calls
Sorry Howard. I didn't intend to call you a gold bear. I also haven't worn a chicken suit recently, and I don't know how to ride a unicycle. I might be able to use a kazoo, but I'm actually not sure what it is. The point you make about the commercials trying to induce people to sell versus buy is very interesting. I do think it is an indication that we haven't peaked yet.
Position: none
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Howard Simons
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| Sugar, Corn, Ethanol And Crude Oil |
8/3/2009 1:36 PM EDT
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The failure of monsoon rains in India is pushing raw sugar prices to a three and one-half year high and refined sugar prices in London to a twenty-year high.
Brazil has diverted a substantial portion of its sugar crop to the production of ethanol for motor fuel, and just as corn prices surged higher in the U.S. last year under increased ethanol demand, higher global petroleum prices are making ethanol a more profitable use for Brazilian sugar that foodstuffs.
The food-energy tradeoff of early 2008 is making a comeback. Lower crude oil prices early in the year and a large corn crop postponed another grocery price shock in 2009, but we may be setting ourselves up for another one in 2010.
The tradeoffs noted above and domestic sugar price supports mean the major beneficiaries of higher sugar prices in the U.S. might be petroleum refineries, of all things.
Position: None
I dont really care about the chatter here at all. The stock's a major play on the turn in the U.S. economy and should be bought...
Position: BAC
Birinyi on Bloomberg on saying that people aren't respecting the strength of this market....He predicts faster recovery--don't fight this market...
Position: none
One of the key metrics behind our conviction in late '07 that the dollar was poised to rally was the fact that on PPP basis the dollar's bilateral exchange rates were stretched more than ever. The dollar's rise began against sterling and Canada in late '07 and then Swiss in March 08 and finally the euro in July 08. The acute financial crisis saw bilateral pairs move close to fair value as measured by PPP.
According to Economist calculations, four currencies stand out as over-valued, Norwegian krone, Swiss franc, Danish krone, and Swedish krona.
Many currencies are regarded as under-valued. but these are all in the emerging market space. The Economists reckons that the Hong Dollar is the most under-valued (-52%), followed closely by the Chinese yuan (-49%). The Thai baht (-47%), the Russian ruble, Indonesia rupiah (-43%) and Philippine peso (-42%) are also regarded as extremely under-valued. Often, because of generally speaking higher inflation in developing countries, emerging market currencies tend to be under-valued.
In some ways the challenge is similar to what some equity fund managers are concerned about. With so many stocks trading above their 200 day moving average (some 80%), some fund managers struggle to find new mean reversion (value) plays. Similarly in the currencies, many of the majors are statistically speaking close to fair value (PPP). Because of the shifting prospects for growth, we would not be inclined to fade the Scandi bloc strength now, but the Swiss franc, which is over-valued and, not only is the SNB intervening to sell the franc as part of their quantitative easing strategy, and suspect the SNB will lag behind other central banks in raising rates. While it may be a little early to fight the dollar weakness, using the Swiss franc as the short-leg of crosses or as a financing currency may have merit.
Position: None
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Tom Graff
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| Your Questions Answered |
8/3/2009 2:01 PM EDT
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I got a couple emails today from readers asking the same question: If corporate bonds are "strong" as I said earlier, why are credit ETFs like LQD or CFT lower?The answer is because I fell into bond speak. Mea culpa. Basically when bond people say corporate bonds are performing well, we almost always implicitly mean when compared to Treasury bonds. Today, for example, LQD is down about 0.80% while the 10-year Treasury is down about 1.25%. It highlights a risk of corporate bond investing, that should Treasury yields rise dramatically, corporate bonds will suffer as well. I would also point out that the lower the quality on a bond, the less Treasury yields matter in the short-term. So investors in LQD should be more worried about Treasury yields than investors in HYG or JNK. I'll also say that LQD is a poor way to play a Treasury rally since corporate bonds tend to lag in a rally.
Position: Long LQD, HYG, JNK
I'm all for respecting market momentum. And if I short a stock here, you better believe I'm buying call protection or even extra call protection. However, how do you open new long positions here for anything other than a trade or with a very tight stop?
I suppose a synthetic call play could be put on as well, but just about every chart I see is so overextended that it is a somewhat scary entry. On a pullback? Absolutely -- I think at least some cash needs to be put to work.
I still feel we have a disconnect between the markets and the economy; however, it doesn't matter what I think. I am waiting for better setups. Could I miss a run higher? Absolutely.
However, I will follow my trading plan and setups. I exited my July bullish plays far too early, but you won't go broke taking a profit. Also, you won't go broke being disciplined.
Position: nm
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Alan Farley
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| Natural Gas Finally Pounding Out a Bottom |
8/3/2009 2:11 PM EDT
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Nat gas futures are up nearly 11% today, with the contract rising off a successful test at the April low near 3.30. It looks like the bottom is finally in for this underperforming commodity.
Perhaps it's no coincidence that the northern hemisphere just passed through its hottest period of the year (around July 20) and is now headed, albeit slowly, into the next winter.
Nat gas chart here.
Position: n.m.
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Marc Chandler
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| OPEC Cheating Increases Even as U.S. Stockpiles Rise |
8/3/2009 2:18 PM EDT
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Bloomberg data suggests that OPEC increased its output and cheating in July, which is a potential negative for oil prices. OPEC output ex-Iraq rose to 26.035 million bbl/day from 25.975 million in June, and was the highest level since January, when new lower quotas went into effect. OPEC cheating stood at 1.19 million bbl/day or 104.8% of quota, the highest January Iraqi output is not included in the quotas, but total OPEC output including Iraq was 28.39 million bbl/day in July, up from 28.345 mln in June and again the highest since Jan. No wonder global inventories remain so high. Latest DOE data showed a 17.8% y/y rise in crude oil stockpiles vs. 16.0% y/y the previous week, and continues the positive readings seen since November. That means oil inventories in the U.S. are piling up, which means oil demand is not strong enough to absorb the supply, which is of course negative for crude oil prices.
The reflation trade has come back strong, with oil prices back above $70. We still fear that markets are getting ahead of themselves, especially given the recent trends in OPEC output and rising inventories. We would be much happier to have oil stay in a $50-$70 range in the second half. That range is a good balance for producers and consumers. Anything above $70 really starts to hurt consumers that are already reeling from job losses and limited wage gains.
Position: None
Marc Faber just released an excellent analysis of current market conditions through his newsletter service. The gist of it is the following: 1) the rally in equities is reaching a near term top, but after a correction equities could continue to rally, 2) strength in equities has nothing to do with any improvement in economic conditions and everything to do with money printing and zero interest rates, 3) equities may continue to rally for a while longer after a correction exactly because the economy is not recovering and even more money will be printed and spent by the government in a futile attempt to create economic growth, 4) gold and other hard assets are still good but may not outperform in the short run, 5) high quality equities and corporate bonds are much better than long term government bonds or cash, 6) Asian equities are much better than other equities, 7) all of this is in the context of a long term US bear market that will take many more years to run its course (i.e. think Japan in the 1990's).
Position: none
A headline just came across the screen that the Treasury is reducing this quarter's borrowing estimate from $515 billion to $406 billion.
Can we ever do anything anymore that does not involve $100 billion swings? This used to be a lot of money.
On the surface, this might be expected to be bullish for Treasuries. However, if the reason for the lower deficit is stronger economic growth, then we might see both higher long-term rates and increased pressure to raise short-term rates to end the over-stimulus. If things are getting better, do we really need short-term rates this low?
Also, a lower borrowing need will affect our capital surplus, one of the things keeping long-term rates lower than they would be otherwise...unless stronger import demands push the current account balance higher.
Position: None
Small bearish play on Teck Resources (TCK) by buying the Sept. 30 puts at 3.60.
Position: short TCK via Sept 30 puts
Doug - I think the harder trade is still to short. First, you are stepping in front of a momentum trade by doing such. Secondly, it is an unlimited loss trade, unless buying puts or some protection. Third, human psychology offers to more things which are fear/greed and habit. Most people are in the habit of buying, not shorting. Also, people are driven by fear and greed. Right now, people fear missing out on the up move, and all "the riches it has to offer."
Buy today and get a gap up tomorrow. We'll even through in a higher close for free, but act fast because this offer is subject to change!
Position: nm
Thanks, Timmy. It makes sense.
What changes investors'/traders' attitudes toward this?
Position: n/a
Here are a few stories and videos from our flagship site that you may have missed:
- Here's a rundown of Bank of America's (BAC) settlement with the Securities and Exchange Commission.
- These retailers have actually grown in the past year.
- Biotech is set to have a red-hot August.
Position: None
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Tom Graff
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| Treasury to Borrow... Less |
8/3/2009 3:24 PM EDT
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The Treasury has cut their forecast of borrowing in 3Q from $515 billion to $406 billion. In addition, the Treasury borrowed slightly less in 2Q than was previously expected ($361 billion vs. $343 billion).We'd all like to see Treasury borrowing subside a bit. It would also help the auctions to be a lot less sloppy. It would also flatten the yield curve, i.e., allow longer bonds to fall in yield relative to shorter bonds. I do think a flattener is the next big move in Treasury bonds, but now is not the right timing.
Position: None
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Tom Graff
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| International Paper Update |
8/3/2009 3:43 PM EDT
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International Paper's (IP) new bond issue was priced at +387.5, at the tight end of the price talk. I'm already hearing a +360 bid. That's a nice 2% gain for a one-hour horizon.The new Safeway (SWY) bonds I mentioned Friday are now trading in the low 140s vs. a +158 price talk. Given how Treasuries have moved however, it's a marginal gain on an absolute basis.
Position: None
My alter-ego spent a good bit of my educational days in the world of sociology as well as business and economics, and I feel we have now crossed into the mob mentality phase of investing along with game theory components (probably too long to cover in 300 words or less). Simply put, this fear and greed is being supplanted by joy and "winning." The diffuse crowd is being supported by the masses (a.k.a. media) at this point. We won't rotate until joy/greed are replaced with anger and fear (which one comes first is up for debate).
The ironic thing is that the market is ruled by game theory, which still has rationality behind it. Therefore, once the mentality shifts, even if it looks like a panic (read: short, sharp selloff), it is actually a very rational resolution in game theory.
My guess is that it will be something not initially deemed newsworthy that shifts this emotion. The collective will first fear losing their profits, then get angry the market is falling. Mob mentality, diffuse crowds and game theory, in my opinion, are subject to cycles just as are business and the economy. Therefore, we can expect them just as anything else in the markets; however, calling the turn there is just as difficult as calling a top or bottom in the market.
Position: nm
The Nasdaq is now up 27% without a breather. We have an amazing worldwide bull market on our hands with the S&P over 1000 here...
Position: none
Seeing lots of filing for secondaries today. Mostly they are from smaller and mid-size firms, but very active today.
Position: nm
Jim (and I mean you no disrespect with this question), doesn't the straight-up move, without pause, give you any worry at all? The move has been strong, without question, but we've built no support, very little backing and filling, a trend line that is as steep as I've ever seen. This is not to be read as bearish, but more as prudent on entries. Anyone else? I've been very much in agreement with what I'm seeing from Rev. I just fear that some people mistake over-enthusiasm for the green light to buy at will.
Position: nm
Equity markets ended up to make new highs again for the cycle, with DJIA and S&P 500 up 1.3% and 1.5% on the day, respectively. Energy-related stocks outperformed on higher oil prices, though we think the recent oil rally is overdone (see below).
Financials also outperformed. European markets rose too, as DJ Euro Stoxx 50 ended up 1.4% on the day. Asian equities are likely to open up today, as Asian ADRs rose during North American trading. Nikkei futures are pointing to an up open for Japan, and exporters are likely to be helped by the softer yen.
Position: None
The application of game theory that I'm looking at here in regard to mob mentality is just a take-off of what you saw if you watched the movie A Beautiful Mind. If you have nothing to gain by changing your stance away from what the mob is doing (assuming the mob is bullish), then why would you do it?
You make the best decision you can, assuming you know that the best decisions are being made by others. As long as each member of the mob feels that they know the other members of the mob are bullish, then they have nothing to gain by changing their stance to neutral or bearish. Ironically, this does not often result in the greatest gain for the greatest number of people.
Here's where contrarians come into play. Given that the markets are a zero-sum game, not everyone can fit into this equilibrium, so Nash's Equilibrium Game Theory can't explain the actions of all, but it can be applied to the mob.
As Doug asked, when does this mob change? That is the million-dollar question. If you are the contrarian or one of the first in the mob to see that your best decision is on the other side of all those that were making the same decision as you, then your success will be the other's failures. However, if you stay outside of the mob, or move to early, then your losses are their gains.
This is why there is study of sentiment and "smart money" movement. I can't say that it will give a definitive edge. Nothing in the market gives you a definitive edge, but watching people, what they do and what they say is very, very important.
Position: Long being a sociology dork; short enough time and resources to give anyone a definitive edge on the subject
I respect the power of straight-up moves, but I always scale out of them on the way up. But parabolics like this one can last longer than people think...
Position: none
Scaling out seems prudent, or at least trailing stops. If I were bullish, I would definitely let it run but keep increasing my trailing stops each day, or since we are getting close to options expiration, look at some put-spread protection. I definitely under-anticipated the strength here, but fortunately, I don't live and die on the basis of that.
Well, now it's Miller time. Although down here it is more like Dos Equis/Corona time!
Position: Long a beer or two ... or six. Hey, I'm not driving anywhere.
So you got caught flatfooted on this move or, worse yet, short. So what? Are you gonna get angry and yell at the market? It shouldn't be this way!
Guess what? It is. So what now?
I didn't get caught per choice, but we run correlation arbitrage, and trending markets can be very unpleasant. It would be so easy to sit on my hands, whine to my partners, complain that the market is out of touch with the economy, but where does that get you?
Each day is a new opportunity. Some days, the best trade is not making any, but other times you find yourself down so far that you can't think straight. Your head in hands, staring down, waiting for something to magically change so you can be happy again.
You know what? Snap out of it! Think! Use your brain. OK, why did you get in the trade or not get in the market? Was it the right decision? Are you following a trade strategy? If not, make one. Make one right now!
You always have options. Always. Unless your account is at zero, you have options. A chip and a chair is all you need. I firmly believe that. I am spending this evening looking at my options and what we have.
Tomorrow I will be posting some of what I am going to do to not only protect what I have, but to grow it. The market is forward looking, and you should be too. You made a mistake. Learn from it, and MOVE on. If you focus on that mistake, you will make more simply because of that. Instead, let yourself make new mistakes. If you're bullish, and running wild. Great. I have some ideas for that too.
Time to head to the lab. Beers will have to stay on ice for now. Markets are open tomorrow.
Position: nm
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