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Jim Cramer
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| OIl--up 43 cents |
11/13/2009 4:36 AM EST
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At 4:30 a.m. when i write this, oil is up 43 cents so i guess i should go take some nasdaq futures....
Position: none
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Marco Hague
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| S&P Futures Charting |
11/13/2009 5:57 AM EST
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Overall View: Consolidation, then a 1098 break-out; looking for a move to the 1115 - 1120 zone 4 Hour chart trend: Long. Main price points: 1098.50, and 1015-1120. Looking for: Wave CS&P futures traded lower into the 1080 - 1083 support zone as discussed and posted here yesterday . Traders may already be seeing some up-side reactions from the 38.2% Fibonacci area test. The current wave count structure signals for a final push higher in wave V), which may find the top somewhere around the 1115-1120 zone, especially once the previous wave III) top at 1100 is taken out.S&P Futures ChartingThe expanding diagonal pattern in the black wave 5, or C, position is not yet complete. Each leg of our expanding diagonal pattern should be structured by three waves, labeled as wave A, B and C. On the four hour chart above, the market is trading in the last leg of our pattern, wave 5), with an extended red wave C in process.
Position: N/A
Overall View: Looking for final legs of wave V (shown on our daily chart).4 Hour chart trend: Long. Main price points: 1025, and 1098.50. Looking for: Wave C Oil prices moved lower after the U.S. Crude Oil Inventories report on Thursday, resulting in a move lower to test the 76.00 support zone, as posted here yesterday.As such any triangle formation that was being monitored was invalidated by the severe nature of the move. The overall view is still to the long side, as the chart below shows a double zig-zag pattern, in the red wave IV).Crude Oil 4 Hour ChartingIf the wave count and zig-zag pattern is correct then the market should trade higher over the next few sessions, with the first minimum objective around the 79-80 dollars per barrel area. The wave count remains valid so long as the 71.92 critical support area holds.
Position: N/A
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Marco Hague
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| Perfect Straddle On Usd/Cad |
11/13/2009 6:40 AM EST
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Understanding that forex is to be traded, and not a replacement for a stock or bond portfolio, there is a perfect storm type of set-up on the economic calendar today. Keep an eye on both of the Trade Balance numbers from the U.S. and Canada today, they could lead to a perfect Straddle play on Usd/Cad. 8.30am Cad Trade Balance Exp. -1.5B Prev. -2.0B
8.30am Usd Trade Balance Exp. -32.0B Prev. -30.7BA case of the Haves, and the Have-Not's... I will post up the numbers ahead of the releases.
Position: N/A
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Don Dion
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| Commodity Producer ETFs with Momentum |
11/13/2009 6:55 AM EST
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Currently, IShares U.S. Basic Materials (IYM) is my highest ranked broad mateials ETF in terms of long-term momentum, while IShares Global Markets (MXI) is slightly stronger than IYM in terms of short-term momentum. These two ETFs are also both very liquid and offer investors well diversified products at a much lower cost than comparable mutual funds.
Position: IYM MXI
At 8:30AM EST/13:30 BST the US trade deficit (-$31.8 bln exp vs -$30.7 bln) and Canadian deficit (-C$1.8 bln vs -C$2.0 bln) are due. Canadian vehicle sales are due at the same time (exp flat in Sept vs. -0.3%). At 10AM/15:00 the first Nov release, Michigan confidence, is expected to rise to 71.0 from 70.6. Inflation expectations may be in focus after the FOMC highlighted inflation expectations in the latest statement but the 1- and 5- year are likely to remain close to 2.9% for both the 1- and 5-year outlook. The Fed's Evans speaks at 11:30AM/16:30. Pres Obama began his visit to China today.
Position: None
Global equity markets are mixed with early indications suggesting US markets may open on a firm footing. In Asia, Japan's Nikkei lost more ground, posting its third consecutive weekly decline. Weak earnings reports and softer commodity prices contributed to the decline. By contrast, the Hang Seng was led higher by financials on an encouraging report from ICBC bank helping the index close up for the second consecutive week. China's Shanghai Composite also closed higher on the day and week. European bourses are narrowly mixed but are up 2.5% to 3.5% on the week. News BA and Iberia agreed to a merger may have helped consumer services shares.
Position: None
Sirius XM Chairman Gary Parsons has resigned as chairman of the satellite-radio provider and will be replaced by independent director Eddy Hartenstein. Hartenstein is publisher and CEO of the Los Angeles Times. Click here to read the TSC report.
Position: None
1102 = 110.70 S
1098.25 = 110.35 M
1095 = 110 M
1093/1092 = 109.80/109.70 S
1087.50 = 109.25 M
1085 = 109 M
1082.50 = 108.75 M/S
1077.50 = 108.25 M
1074.50 = 107.95 S
Position: none
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Bob Byrne
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| Morning Trade |
11/13/2009 8:27 AM EST
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The bears managed to tag the low end of our range yesterday at 1082.50, but it took a strong move in the dollar and a reasonably large drop in oil to weaken the bull. We need continued dollar strength and commodity weakness to drag the Emini lower. Watch the DX (dollar index) for support at 75.55 and then all the way back to 75.20...strong resistance is at 76.00 and 76.12. On crude---I am watching for support at 72.50.
The bulls need to push through our strong resistance zone at 1092-1093 and target moderate resistance at 1095. I expect traders to be back in "by any dip" mode with a sustained trade above 1092-1093. Given that its Friday and the dollar is not falling off a cliff, traders are not likely to generate the momentum to push past moderate resistance 1098.25 and strong resistance at 1102...but if they do---the Emini can run straight to 1114 before the bears dare to make a stand.
Captain Obvious and his minions need to come in selling and target moderate support at 1087.50 and 1085. Assuming the dollar does not head south for the winter, traders are likely to target moderate/strong support at 1082.50 to see how resilient the current bull is. A failure at yesterday's low sends us to (and through) moderate support at 1077.50 and towards strong support at 1074.50. Similar to the bulls near 1098.25...I doubt the bears will have the support to push past 1074.50.
Position: none
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Alan Farley
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| Hewlett-Packard (HPQ) Breakout Possible |
11/13/2009 8:36 AM EST
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50 is a big number for Hewlett-Packard (HPQ). The stock reversed off that price level three times in 2007 and 2008. The current recovery lifted the tech giant back into the number on Monday. The intraday high for the last four sessions has come within 4-cents.
Sellers tried to take control of the stock after it issued upside guidance on Wednesday, in relation to the 3Com acquisition, but it held up relatively well on Thursday. This leads me to believe it can finally break out when the broad market and tech sector turn higher.
Annotated chart here.
Position: nm
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Ken Wolff
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| Morning Prep |
11/13/2009 8:39 AM EST
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The QQQQ is trading up a bit this morning after a bearish day yesterday... The overall momentum was very predictable hitting my targets darn near dead on... I am going to look for another down day today which means we should sell down near the open but again it will probably be choppy and mixed ... We can move up slightly but should head down much like yesterday... We have Michigan sentiment numbers out at 9:55 which can shake us up a bit, but pops should be shorted...
Position: NM
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Poilin Breathnach
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| U.S. September Trade Gap Exceeds Estimates at $36.5 Billion |
11/13/2009 8:47 AM EST
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U.S. exports totaled $132.0 billion in September, while imports were
$168.4 billion, resulting in a goods and services deficit of $36.5 billion, up from a revised $30.8 billion in August, revised, well above consensus estimates of a $30.7 billion gap. September exports were $3.7 billion more than August exports of $128.3 billion. September imports were $9.3 billion more than August imports of $159.1 billion, the Commerce Department said. Click here to read the full report.
Position: nm
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Marco Hague
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| Short USD/CAD Possibilities Off Trade Balance Numbers |
11/13/2009 8:52 AM EST
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The Canadian trade balance numbers showed an increase of C$1.1 billion to print at -C$0.9 billion, compared directly with U.S. numbers, which saw the deficit increase from $30.8 billion to $36.5 billion. The forex play here would be a short USD/CAD move, which would get a boost from oil holding 76.50 support (oil being a prime instigator of Cad valuations). The moves since the 08:30 EST release have been to drop USD/CAD lower, but that move has been tempered by the oil market dropping lower at the same time.The short play from 1.0490 will be a more comfortable ride if equity trade opens in the green, supporting the oil market and allowing for a test of 1.0400 on CAD.
Position: N/A
The U.S. Import Price Index rose 0.7% in October, the U.S. Bureau of Labor Statistics reported, led by a 1.8% increase in fuel prices. The rise followed a 0.2% increase in September. U.S. export prices advanced 0.3% in October after decreasing 0.2% the previous month. Click here to read the full report.
Position: nm
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Jim Cramer
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| Inconceivable rally |
11/13/2009 8:58 AM EST
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Frankly, I find it inconceivable that we could rally with oil down a dollar since 4:20 a.m... It just hasn't worked out yet...
Position: none
Maybe both. The guys at the Fed who missed the entire debt bubble, housing bubble, tech bubble, and commodity spike contend we can't have inflation until we have higher employment. The guys watching $1100 gold and $80 oil swear inflation expectations are benign. With their awful track record, should we believe them? Maybe, but not necessarily. While rare, periods of stagflation do happen. If the Fed continues to debase and monetize, senseless promoting debt induced consumption and speculation, we can certainly experience rising prices in goods and services with subpar economic growth. Input driven price increases can happen, just like 2007. Most want to believe it's either/or. But a period of stagflation is the market's worse enemy historically.Today's economic news, prices and net exports are perfect example. Prices rose fairly rapidly as did the trade deficit, which hurts real gdp. Hence, rising prices and slowing gdp. While the debate rages on over fire vs ice, few investors are considering both.
Position: none
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Jim Cramer
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| Doubt strength will remain |
11/13/2009 9:09 AM EST
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I would be trying to get short in SPX here, not wait until opening, even... Oil is down $1.60 in a flash and 15% of the S&P will be hammered... Nat gas spot is so much below the futures that I have to believe that group is going to get crushed again too. Keep an eye on APA, most sensitive... below $90 looks interesting.
Position: none
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Marc Chandler
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| Speculation that China may move on its currency this weekend will likely prove for naught |
11/13/2009 9:13 AM EST
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Yuan non-delivered forwards continue to rise today and indicative pricing for the 12-month NDF is for a 3.6% appreciation, the most in several weeks. Many observers risk exaggerating that the report by the central bank saying global capital flows and changes in major currencies would be taken into account in setting foreign exchange policy and did not repeat the standard mantra emphasizing stability. However, this might not be the signal of a change in policy. Two days before the report PBOC Governor said the yuan wasn't under much pressure to appreciate. And the day after the report Premier Wen did not mention currency policy in a speech. The economic reports this week showed deflationary pressures easing, though not quite as fast as economists expected, and exports improved, though not as fast as expected. It does also not seem part of China's modus operandi-- to appear to capitulate to US, European and IMF pressure. China has indicated it will expand the trials of liberalizing fx rules for individuals and allowing non-financial institutions to offer the service. This, in turn, has driven the Chinese dollar-denominated B shares sharply higher. Reports indicate that the B shares trade on an average of almost half of the A shares (yuan denominated). Speculation of the renewed yuan appreciation also helps support the dollar-denominated share prices. Many suspect that if China were in fact to allow the yuan to appreciate, there would be a broad-based move against the dollar, especially through the region and that may be adding to the upward pressure on those currencies in recent days.
Position: None
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Marc Chandler
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| Developing Europe Still Contracting |
11/13/2009 9:14 AM EST
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Of the major industrialized countries, only Japan and Canada have not reported Q3 GDP estimates. Japan reports on Monday and is expected to have expanded at almost the same pace as the US. On the quarter, the US expanded by almost 0.9%, while the Japanese economy may have expanded by around 0.7%. With the Big Three in the Eurozone reporting, the preliminary estimate is that the region expanded 0.4% after a 0.2% contraction in Q2. The UK's 0.4% contraction represents the outlier. Canada reports at the end of the month and the economy probably was fairly stagnant.
A number of countries from central Europe reported Q3 GDP figures today. Slovakia and Czech reported positive quarterly growth of 1.6% and 0.8%. Hungary was the weak sister. The economy contracted 1.8% from the previous quarter, the sixth consecutive quarterly decline. The Hungarian government forecasts the economy will decline over the course of next year as well.
Poland does not report until the end of the month. The Economics Ministry has been particularly upbeat in its recent comment suggesting growth could be as high as 2% after 1.1% in Q2 year-over-year and Q4 could be even better. The Czech kronua has appreciated about 5% against the euro, while the Polish zloty has gained a little more than 1%. Most of the other currencies in the region, including the Hungarian forint (-1.3%) and Russian ruble (-4.3%)have not kept pace with the euro.
That said, we continue to like the Polish zloty and do not think that the market appreciates its fundamentals sufficiently. We continue to look for the zloty to appreciate vis a vis Hungary and Czech.
However, we recognize that Czech and Hungarian debt instruments continue to outperform Polish bonds. We suspect this means that if there were an unwind of the risk trades, the zloty might not be quite as vulnerable.
Position: None
The menu was fairly extensive, food very good. Attendance not so good; time was around noon. This was an eastern Pennsylvania restaurant that I'd not been to. I've been impressed with how DENN has fared during this recession -- just one quarterly loss, Q4 2008. The company still has some work to do paying down debt, but so far it's headed in the right direction.
Position: Long DENN
Good numbers, good report from Agilent (A). Not a huge pop in the stock. Instead of selling the calls, I am shorting some stock (covered by the calls) in the $28.15 range (like realizing $3.15 on the calls).
Position: Long A calls, short stock
J.C. Penney (JCP) -- another good report. I took some of the November 29-31 call spreads off the table at $1.25 (about 75% of them).
Position: Long JCP
JPMorgan (JPM) -- this is the key. We need this one to move over $43 and stay there.
Position: JPM
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Jim Cramer
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| Just an Awful Market Right Now |
11/13/2009 9:57 AM EST
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Be aware that this market is not coming together right now and would have reacted negatively to any datapoint. Oil and banks down -- just toxic ... but ... if tech can hold it together, we will just trend lower and not plunge lower, as there are only 30 shopping days until the end of the year! Key stocks: JPMorgan Chase (JPM) holds $43, Apple (AAPL) holds $200, Schlumberger (SLB) now $64.
Position: JPM
Yingli Green Energy (YGE): Results were better than I had anticipated in this solar name. I sold half of the Nov 12 puts at .20 for a loss of .15. I now have a 1-by-2 ratio spread long Nov 12 puts, short Nov 11 puts.
Position: see above on YGE
Consumer confidence was very disappointing and reflective of the problem with labor and unemployment. While the speculator class feasts on free money, the average Joe is struggling with too little equity and income, and too much job insecurity and debt of all types. It's good to see the Obama administration address the jobs crisis. I like nat gas as transportation fuel as the best return on investment and highest job creation infra spend. It sure beats red brick inlays!
Position: none
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Poilin Breathnach
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| Michigan Consumer Sentiment Index Drops to 66.0 in November |
11/13/2009 10:06 AM EST
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The Reuters/University of Michigan consumer sentiment index fell unexpectedly to 66.0 from 70.6 in October, MarketWatch reported. The consensus forecast of Wall Street economists was for sentiment to rise to 71.8. After hitting 73.5 in September, the index has now fallen in two straight months.
Position: nm
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Jim Cramer
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| Good Things/Bad Things |
11/13/2009 10:11 AM EST
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J.C. Penney (JCP) and Dollar General (DG) are both really positive, but I remain negative, given oil/banks, despite a dearth of data on either of the latter. Big pressure on Nazz to turn this thing around, but please remember we are up big for the week, and it is reasonable, given the presidential agenda for health care -- and concomitant tax packages -- plus new focus on cap-and-trade, that we are not getting any help from Washington...
Position: none
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Jim Cramer
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| GS/Oil -- If Only |
11/13/2009 10:14 AM EST
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If only Goldman (GS) and oil had something to do with each other, it would be so much easier to figure out this market, but every 25-cent tick down in oil seems to yield a 50-cent decline in GS...
Position: GS
I fail to see how anyone who lives outside the Beltway or New York could have expected a different consumer sentiment number. Everybody I talk to is worried these days, from employees to business owners. The amazing disconnect between Wall Street and Main Street is the widest I have ever seen it. While the Street declares an economic recovery, out here people are still losing jobs and dealing with disappearing home equity.
We are a consumer-driven society. Eventually Main and Wall will reconnect. It will be either a massive increase in conditions on Main Street or a fall between the rivers. I would love it to be the former but suspect the latter will occur when the liquidity begins to dry up. When that happens is anybody's guess with the printing presses still running full speed.
Position: n/a
U.S. import prices rose 0.7% in October. The market was expecting an increase closer to 1%. However, the underlying trend is clear. Import prices have risen in all but two months thus far in 2009. The fact that import prices are still off 5.7% from a year ago is reflecting the base effect of the collapse of import prices in the August-December period. Imported fuel costs are an important culprit. Excluding fuel (not just oil), imported prices rose 0.4% after a 0.5% rise in September.
The price of imported capital goods rose 0.2%. Consumer goods, excluding autos, rose 0.3%. The price of imported autos and parts rose 0.6%, the largest gain since late 2007. Expectations for both headline and core PPI and CPI may increase on the basis of today's import data. Both of these price indices will be reported next week.
Geographically, goods from China increased by 0.1%, and goods from Japan increased by 0.2%. Goods purchased from the E.U. rose 0.6%. Goods from Canada rose 1.2%, while goods from Latin America rose 1.4%.
One of the key channels by which a depreciating currency affects an economy is often through imported inflation. There has been much work done on why what economists call "pass-through" is far from perfect. Three important ones are:
- Companies from Asia and Europe often compete in terms of market share rather than profit margin and therefore may be reluctant to pass on the full currency change.
- 30-50% of the final price of an imported good may be derived from domestic costs -- storage, transportation and marketing.
- Most goods the U.S. imports are invoiced in dollars.
Position: None
Longtime favorite Assured Guaranty (AGO) is up strongly today. The immediate cause is that Moody's has finished its ratings review on the company. Additionally, the recent earnings release revealed far higher than expected core earnings power.
Position: Long AGO
The oil market tipped its hat and led things lower after hitting $78.50 in trade at 6:45 EST, and from there found only short-sided speculative interest. That move put pressure on the European equity cash market and the S&P futures market, as well as driving gold prices down to their lows of the session. The reason is unclear in regard to a fundamental play, however our four-hour chart reads on the global market drivers (oil, gold, equity, dollar index) have been in neutral trend mode, with low sentiment and momentum reads since Wednesday. That signaled to reduce targets, and also exposure on anything taken in trade on Friday. Low momentum reads that are oversold against a weak near-term trend lead to a high probability that volatility will be the order of the day.That is exactly what happened, and it leaves the European market close at 11 a.m. EST as the last real chance of near-term trades filling and following through. Ten out of our 10 global reads are in neutral mode, and Friday is not the day to be expecting much to follow through. We looked at the short side of CAD (Usd/Cad), but that too has got caught up in the volatility.Maybe we should just, slowly, put the mouse down, pull the chair back, wipe the Fibonacci Candles from our eyes, step gently around the desk, and run for the door to catch the 11am tee-time. These markets are going nowhere except round in circles in trade on Friday, and there does not have to be a headline to explain it; there are not enough speculators with skin in the game on the last session of the week, it would seem. Simple as that, on Friday the 13th!
Position: N/A
I know this may be repetitive, but the Powershares DB Dollar Index Bull (UUP) is down hard today due to the fact that they've begun creating shares again. The arb play there is now gone, and was a fantastic two week play.
Position: long some UUP 22-23 call spreads
I don't think you can stress this enough, Tim ... it is the driver ex-oil that is holding us up...
Position: none
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Jim Cramer
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| More Great Calls -- Dion |
11/13/2009 10:31 AM EST
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Great call by Dion to take profits in the networking ETF. ... Stay long Cisco (CSCO), dump the rest. Or go short ETF vs. CSCO...
Position: csco
The continued chatter about the dollar I always find interesting and usually not very relevant. Back in the early 1990's during my days as a fixed-income or credit analyst for a now-evaporated mutual fund firm here in Chicago, my old boss, who was a University of Chicago trained economist, often told me that the dollar's importance, particularly from a materiality perspective, was vastly overrated. Now that was almost 20 years ago, and the percentage of GDP from the trade balance (exports less imports) has likely changed dramatically so he could be wrong today, but as long as the dollars movements remain somehwat controlled, or we continue to see a slow drip south there is probably not cause for alarm. I'm still fascinated by the indirect bidding strength in each Treasury auction despite the weak dollar. That being said, a number of technical services have turned bullish on the UUP (dollar bull ETF) given the double-bottom in the low $20's over the last year. Check the chart. Home Depot and Lowe's report next week. With JWN, KSS and some other previously-mo mo related retailers taking a break, maybe we'll see a rotation into some of the defensive retail like Walmart, Home Depot and Lowe's, that have underperformed this year. WMT was up on decent volume yesterday, on a so-so earnings report.
Position: long WMT, HD, LOW
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Marc Chandler
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| Michigan Confidence Slips, Inflation Expecations Rise |
11/13/2009 10:37 AM EST
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The U.S. dollar gained ground and equities slipped after the preliminary November Michigan confidence report showed consumer confidence fell to 66.0 (vs. an expected improvement to 71.0 from 70.6 in Oct.) That is the lowest reading since July although significantly better than the 55.3 recorded last Nov. The economic outlook also deteriorated for the first time since August to 69.6 from 73.7. The data suggest that consumers remain hesitant in the face of a weak labor market. Meanwhile, five-year inflation expectations, monitored by the Fed, climbed to the highest level since Feb or 3.1% after climbing to 2.9% in Oct. (One-year inflation expectations slowed to 2.8% from 2.9%.) Still, both series remain within this year's range and are unlikely to shift Fed concerns about prices after one release. Note that import prices actually rose by less than expected.
Position: None
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Michael McDonough
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| Trade Gap Could Mean Downward Revision to Q3 GDP |
11/13/2009 10:38 AM EST
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September's trade deficit widened more than anticipated to $36.5 billion from a revised $30.8 billion in August (originally $30.7 billion). Exports rose by 2.9% to $132.0 billion, while imports were up a more significant 5.8% to $168.4 billion -- with auto imports rising a substantial $1.4 billion. It is not at all unusual for the trade deficit to widen during the early stages of an economic recovery. But, the wider-than-anticipated trade gap could place some downward pressure on third-quarter GDP growth, which, according to the advance release, was estimated at 3.5%. The data currently available would indicate a growth rate of closer to 3.0%. At the same time, stronger US exports should help bolster the domestic manufacturing sector.
Position: nm
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Michael McDonough
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| Wavering Confidence a Concern Ahead of Holiday Shopping Season |
11/13/2009 10:40 AM EST
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The preliminary November University of Michigan Consumer Sentiment Index was reported at 66.0 versus a 70.6 reading in October and 73.5 in September -- well below expectations. As I warned in my Economic First Look, this index could face some downside risk as survey participants would have been exposed to a worse-than-anticipated employment report last Friday, in addition to what have been volatile equity markets and rising oil prices. Wavering confidence will be a big concern going into the holiday shopping season, as many cash-strapped consumers remain hesitant to undertake large expenditures.
Position: nm
Michael M., the expanding trade gap will be a drag on GDP as the revisions are made. What we are seeing is a combination of the income effect you note, that a growing economy pulls in imports, and the so-called "J-curve" effect on currencies. This is the increase in imports that often occurs in a country whose currency is weakening as exporters reduce prices to maintain market share.
J-curves can last a long time, and often never complete the "hook" of the currency response as trade patterns can be sticky.
Moreover, if you look at our major trading partners, the currency impact of China has been eliminated with the peg, the Mexican peso has been weakening, much of our non-commodity trade with Canada is inter-subsidiary and nearly all of our crude oil imports are dollar-based. Should anyone expect the weaker dollar to reduce the U.S. current account deficit and therefore provide an upward boost to GDP?
Currency moves affect the distribution of wealth and production within a country more than actual trade patterns. Right now, U.S. exporters in the manufacturing sector are seeing a bit of a boost, but anyone who is exposed to rising import prices is not.
Position: None
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Scott Rothbort
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| Trade, growth, banks and retailers |
11/13/2009 11:00 AM EST
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The trade balance for September was -$36.5 billion versus expectations of -$31.8 billion and a revised August figure of -$30.8 billion.
1. As Mike McDonough just noted, this could take 0.4% to 0.5% off of Q3 GDP. Clearly, this is a negative.
2. The blip up was not from oil imports. So what caused it? My theory is that we were getting restocking for the holidays. This implies two other conclusions:
(i) Retailers and wholesalers are getting credit to buy goods. Thus, the banks are opening up the spigot a bit.
(ii) Expectations by retailers are for better-than-expected holiday sales.
3. I estimate that about $1 billion of the additional deficit was from a weaker USD. By extension, the lack of revenue pickup, actually USD-converted revenue declines, from multinationals we experienced in quarters 1,2 and 3 is finally ending. Increased domestic sales for the holiday and greater dollar-adjusted revnues will result in total revenue growth in Q4.
Position: nm
I see there is an analyst upgrade on shares of Rosetta resources this morning. I owned this one back when the shares first started trading and will revisit it today. The exploration and production company had sharply lower revenues and earnings in the last quarter but they were profitable. Falling natural gas prices and reduced production have hurt the company so far this year. Management said on the conference call that they expected the third quarter to be the low water mark for production levels at the company.
This is a well managed company that could offer a tremendous way to play natural gas going forward.
Position: none yet
Nice to see the reversal in oil and the bizarre interrelation with Goldman bearing out
Position: gs
Today's action has me feeling like a bit of an idiot, so my actions will be VERY limited until I step away for a bit to clear the head. I think we've all had those times we can look back and say we felt like an idiot or that we did something idiotic. If not, then your time is right now.
I will probably look to adjust or close some of my losers this afternoon. The earnings plays from yesterday are a mixed bag at best this morning.
Position: n/a
This feels like a "short denial" day ahead of next week's expiration. Too much bearishness too soon, with just one day down from a failed test at the highs.
Position: nm
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Howard Simons
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| Spending Freeze Leaves Me Cold |
11/13/2009 12:21 PM EST
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I see the administration is contemplating a spending freeze. I wonder how many of these I've lived through? This is rather like corporations working on their organization charts when they should be, I don't know, working on their businesses.
Federal agencies inevitably respond to such freezes by reducing their most visible public services while keeping their own sinecures intact. Moreover, a freeze never addresses how we got here in the first place; I seem to recall this very same administration jamming the $787 billion stimulus program through as if the world depended on it.
Could it be the world didn't depend on it? Hmm.
Until we address the Social Security/Medicare/Medicaid entitlement escalators and the interest on the federal debt and decide once and for all whether we can afford to be the world's policeman, trimming the budget by freezing some minor expenditure will be a sideshow quickly reversed and forgotten.
Finally, the looming stresses in state and local budgets are going to produce pressure for Stimulus, Part Deux. Otherwise, watch for teachers, police and firefighters to lose their jobs first.
Position: None
Like everyone else, Darling International reported lower sales and earnings for last quarter. Revenue fell to $159.9 million, down from $236.2 million last year. The company earned 19 cents a share compared to 28 cents in the same quarter of 2008. The company blamed the decrease on lower raw material volumes and lower prices for end products. The CEO did note that raw material volumes stabilized in the quarter.
I am holding my shares. The company has no real national-level competition and the rendering and grease business is not going to attract a flock of competitors anytime soon. I anticipate owning this company for years to come.
Position: long DAR
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Alan Farley
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| More on Friday Tape |
11/13/2009 12:31 PM EST
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I've been asked for more clarification on my comment.
The market rarely rewards the majority. Falling crude oil and the bouncing dollar this morning should have triggered a knee-jerk sell reaction in equities. It's likely that retail shorts jumped in, expecting that to happen. They then became the majority that needed to get "punished." The market squeezed higher, they covered and added juice to the upside we're seeing this afternoon.
I find it interesting the equity uptick actually triggered a crude oil bounce and dollar selloff, rather than the other way around. It's like the dog wagging the tail for a change.
The early bear "trap" is an opening shot for expiration, which has a contrary reputation. It's a period when the popularly held beliefs are tested, ignored, chewed up, and spit out. November expiration is also a big deal because the end (next Friday) will mark the beginning of positive year-end seasonality, when the dollar carry trade will become less important than the Wall Street suits getting their annual bonuses.
Position: long HPQ at 49.64. today the day?
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Marc Chandler
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| Eastern European Update: Poland |
11/13/2009 12:47 PM EST
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Poland CPI rose a lower than expected 3.1% y/y in Oct, and is the lowest since Jan. It is also the second straight month that it has been in the central bank's target range of 1.5-3.5%. The central bank is likely to leave rates unchanged at 3.5% when it meets Nov 25, and rates have bottomed. Gov Skrzypek sees inflation falling below the 1.5% floor in 201, but admitted that there are some upside risks from higher excise taxes and increases in regulated prices. Some analysts are looking for a rate hike as soon as Q1 from Poland, but we think rates are going to stay low for a longer period and see the first hike in Q2. Wage pressures remain low as unemployment is still rising, so we agree with Gov Skrzypek's assessment regarding inflation risks. Even if tightening is later rather than sooner, the yield advantage that Poland enjoys will still be maintained and so we favor PLN over CZK and also believe EUR/PLN will test the Aug lows around 4.07 and then the 2009 low of 3.8872.
Position: None
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Marc Chandler
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| IPOs May Steal Limelight from Fixed Income Next Week |
11/13/2009 12:49 PM EST
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The U.S. Treasury successfully completed its record quarterly refunding this week, and Corporate America -- not deterred by the midweek holiday -- appears to have raised $20 billion in new bond offerings. Nearly $10 billion of corporate bonds was sold on Monday, Nov. 9, the busiest day in about a month. Typically, the post-Thanksgiving period sees a significant slowdown of corporate bond issuance.
However, next week is shaping up to be one of the busiest weeks of the year for U.S. IPOs. Five companies are likely to go to market and are trying to raise $1 billion. IPOs have raised almost $10 billion since September, according to Bloomberg data. Although other parts of the capital markets were recovering, the IPO market was quiet, with an average of two IPOs a month.
In September and October, there were 18 IPOs, but the performance has been disappointing. Bloomberg data suggests that over the past 15 years, IPOs outperformed the S&P 500 in the first month of trading by an average of a little more than 21% . The IPOs in September and October beat the S&P 500 by an inconsequential 0.1%, on average.
Foreign investors show a clear preference for fixed-income products in the U.S., like Treasuries and corporate bonds, rather than equities. The TIC data show that foreign investors have been gradually returning to U.S. equities. In the May-to-August period, foreign investors acquired almost $75 billion worth of U.S. shares, which is more than what was purchased in the previous 16-month period. The September TIC data is scheduled for release on Nov. 17. The early call is for the TIC report to show that net long-term capital inflows rose off the low $28.6 billion in August to something around $40 billion to $50 billion.
Position: None
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Tom Graff
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| Assured Guaranty and Munis |
11/13/2009 12:49 PM EST
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Assured Guaranty (AGO) is up over 15% today on a Moody's downgrade. In reality, for muni guys, it's really an affirmation, which is why the big rise makes sense. The percentage of outstanding munis which Assured wraps is still pretty small, but Assured's acquisition of FSA makes the combined company easily the largest muni insurer still able to write business. Moody's had already rated FSA Aa3, so the downgrade of AGO from Aa2 to Aa3 merely bringing the two in line with each other.
The challenge for AGO going forward will be the transition of the muni market from a mostly retail market to a mostly institutional market. The percentage of munis directly held by retail investors has been falling (after having been burned by bad insurers and bad auction rate bonds). They are reinvesting this money in professionally managed mutual funds. Even more striking is the emergence of BABs, which accounted for 37% of muni issuance in October. Can AGO expand their wrap business if the muni market becomes all institutional buyers? Or was muni insurance really a way of making retail investors more comfortable?
Position: None
I have a hard time seeing why retailers like J.C. Penney (JCP) and Abercrombie (ANF) are up. Those reports are only good news in the bizarre world of Expectations World. Revenues were down. Earnings were down. Same-store sales were down. The only retailer that has executed well at all is Kohl's (KSS), and they are expecting a weak holiday season. For Abercombie to be at 23 times the wished-for earnings level while earnings are falling just makes no sense to me. Penney is at 20 times the expected and trailing earnings, and that just strikes me as out of line for a no-growth retailer.
For a look at what is happening in retail, look at the story about Target's (TGT) Black Friday mailer being leaked early. The discounts the store is apparently offering to attract customers are unbelievably steep. I foresee a blue Christmas for retailers. Consumers are still cutting back and will be for some time to come.
Position: none
Tim, we are just in a period of unchecked optimism today. Stimulus money is finding its way into the market and all it takes for a bump is for a company to do "better" than analysts' estimates (which were flawed to begin with). I think folks betting on retail today will be in for a painful and expensive lesson.
Position: No retailers.
Tim, the reaction of J.C. Penney (JCP) is bizarre even within the context of expectations. They did "raise" guidance relative to their earlier numbers, but the guidance was still below the Street, so they effectively lowered guidance for the holiday period. I covered the call, and while nothing was terribly bad, I heard nothing positive enough to explain why it's up 5% today. I am really mystified by this today.
Position: None.
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Sham Gad
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| Do Not Discount the Power of Words |
11/13/2009 1:20 PM EST
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At the recent Asia Pacific Economic Cooperation meeting in Singapore, the powers that be agreed to stick with a stimulus plans "as long as it takes to acheive a sustained economic recovery." Don't just assume the guys are blowing hot air. So far those words are worth $1 trillion in Asia and nearly $800 billion in the United States. As one bubble pops, another one begins to grow. This consensus viewpoint among the leading ministers of the most powerful nations is not one to be taken lightly. It could lead to a rally that continues to defy fundamentals, which as history has shown will likely lead to unintended consequences. Gold, anyone?
Position: n/a
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Tom Graff
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| Credit market quiet |
11/13/2009 1:33 PM EST
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The back bid is alive and well in corporate bonds. During yesterday's stock market sell-off, bonds were quoted wider but activity was light. Today buyers are trying to come back in, but sellers aren't willing to sell. The quotes are mostly unchanged but given no one is willing to sell its hard to say where spreads really are. Days like this make me think back to the height of the crisis when certain bonds had no bid and every one wanted to "mark to market" at zero. What if there is no offer? Should the price be infinity?What activity we have seen has been in the financials, which are showing some weakness. Goldman 7.5 19 161/156, +1 on the day. Citi 8.5 19 303/298 +3. Wells Fargo 5.625 17 157/150 +4. J.P. Morgan 6.3 19 152/147 unch.Cisco's new issues continue to be heavily traded. The 4.45% 20 are now 104/101, +4 on the day. Dow Chemical moving tighter after announcing plans to reduce debt. 8.55 19 are 285/280, 10 tighter from yesterday morning's levels. Walt Disney the most notable earnings report from last night, but their bonds don't trade much. CDS flat at +50. Their 2019 issue is quoted around +90, by far the richest media name out there. Maybe every one assumes Cinderella's Castle will fetch a good price in liquidation?
Position: Long GS, JPM, BAC, CSCO bonds
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Marc Chandler
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| Eastern European Update: Kazakhstan |
11/13/2009 1:47 PM EST
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Kazakhstan will reportedly modify the tenge peg next year. Rather than the strict peg vs. USD at 150, KZT will trade in a corridor around 150 that is "-30 tenge and +20 tenge per dollar, or a different rate "according to central bank chief Marchenko. He added the tenge ought to appreciate due to rising oil and energy prices. KZT was devalued 21% to 150 per USD back in Feb. Since then, oil prices have risen almost 100% and RUB has rallied 26% vs. USD and so the case for KZT appreciation is certainly strong and so we would expect it to move to the strong side of the trading band when it is set. No word on the timing. Foreign reserves have crept up since bottoming in Q2 and should head even higher as oil prices remain firm. Central bank last cut rates by 50 bp to 7% in Sep. Inflation eased to 5.8% y/y in Oct, the lowest since Aug 2003 and so further rate cuts are likely. Marchenko this week said the central bank will continue to lower deposit rates in order to encourage bank lending, and announced a 50 bp cut in that rate effective Dec 1.
Position: None
I spent some time last evening with some exchange people whose business crosses the lines between futures, options, fixed-income and equities. They have hired some former regulatory chieftains to guide them through the emerging landscape and they are just as confused as anyone.
What is increasingly clear is we will not get a unified system across asset classes and national borders. There are just too many competing and conflicting interests. If this were Day One after the Creation such a system might be possible, but forget it for now.
The world of OTC derivatives is best-suited for cross-border monitoring as these markets grew up on a supranational basis; think ISDA agreements for interest and currency swaps. The world of equities is least-suited.
What is most frustrating is being a civilian caught in the crossfire. For example, Sen. Dodd came out the other day looking to minimize the Federal Reserve's role. Today the Treasury's Neal Wolin tossed a bouquet in the Federal Reserve's direction.
My guess is we will muddle through for a long time before arriving back where we started. Think about the post-9/11 consensus that intelligence agencies should share information with each other. Now look at the apparent bungling of the Maj. Hasan monitoring and the resulting Ft. Hood tragedy. Everyone agreed on the goal; no one could execute the solution.
After the next financial crisis we will wonder why the regulators missed it.
Position: None
Quite a run by Abercrombie & Fitch (ANF) today, so I am going work on a repair strategy. I am buying 1x November 40 put, selling 1x November 39 put, selling 2x the November 37.50 put, and buying back 1x of the November 34 put with a target cost of zero for the move.
Position: Short ANF via puts
I was filled at zero, and then actually increased the position and received a net credit of a whole five cents. This makes the position less bearish, and adjust my breakeven point down quite a bit. I have to keep a careful watch on the stock if it were to break below the 37.00 to 37.50 level.
Position: Mostly short ANF
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Rick Bensignor
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| S&P Futures Still Beneath Important Level |
11/13/2009 2:18 PM EST
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We've told Top Gun Trader readers and institutional clients that an important potential upside breakout level is a close today in SPZ9 above 1096.90. If it can't do it, especially after yesterday's setup of closing lower than Wednesday's close, the market still hasn't proved itself to be in breakout mode. However, should it close above said level today, despite a slew of technical resistance indicators and levels coming in between 1100--1140, we suspect the upper part of that 40 point range becomes the next upside target for Dec. futures.
Position: Long SPY
Barclays is announcing a "genocide-free" ETF: "The firm will seek a third-party index provider to help discard companies connected with genocide."
Whoa! Let's hope your firm is not on the other side of this selection process; this should be a one-sided issue. Way back in my student days I was a research assistant for a UN conference opposed to waterborne diseases. OK; who is in favor of waterborne diseases?
Everyone has a right to invest as they choose and accept or reject companies based on whatever criteria are important to them. But at what point does this ETF proliferation look like someone broke into the liquor cabinet and poured themselves a double-shot of Old Stupid?
Position: None
To understand today's reaction to earnings, I believe it's important to understand that sentiment on JCP has been decidely poor. In fact, the stock had fallen more than 20% since it reported disappointing October comps.
Aside from that, inventories are down substantially, and seem to be in good shape going into the holidays. Management indicated that that they don't foresee too much promotional spending (good for margins), and holiday-quarter guidance is in line with Street expectations.
You can argue about valuation, but based on forward earnings it doesn't appear all that expensive. I'm not totally enthused about the name, but I understand the action today.
As far as retail in general, I can assure you that 2009 will be very promotional...just like 2008, and 2007, and 2006, and 2005, and 2004....
Position: N/A
For small businesses and households, the credit contraction is deepening. Run, don't walk to John Williams Shadow Government Statistics excellent service for details. It supports the Goldman case for a significant downward revision to Q3 GDP as well as explains the awful consumer sentiment numbers. Small businesses are imploding in the credit crunch, and all Banana Ben has is bail, print, and debase. Maybe the Fed should direct its trillions of largesse at small and mid sized companies instead of rewarding failed megabanks or offshoring behemoths. Somehow this downturn in household/small biz sentiment and imploding employment is being swept under rug by investors. Maybe it just doesn't matter in this bull rally.
Position: none. long behemoths
Looking to sell off a few Foster Wheeler (FWLT) Nov 29-32-34 call butterflies from earnings and post adjustments. The net cost, after adjustment, is .60. I believe that they can be sold for 1.60 here. The original trade was a Nov 29-32 call spread for 1.30, and that can be sold for 2.30 to 2.40.
Position: Long FWLT
I flew from Rio to Sao Paulo on a Brazilian airline that is publicly traded. I've made the same journey dozens of times at approximately $100-150 each way. My cost on Tuesday night for a one-way ticket? $351. The "traveling class" of Brazil is getting wealthier and the airlines are flexing their pricing power muscles. Just an observation...
Position: None disclosed
...my cost from NY to Rio, SP to NY round trip on Delta was $720, scheduled at the last moment as I thought I needed to be back west on Thursday and had to re-arrange...again, just a data point
Position: None
Howard, on the Barclays genocide-free ETF, Don Dion last night made the point in his blog that while such a product is perhaps noble in intention, it's very much misguided in strategy. Less headline-grabbing socially responsible funds already have excruciatingly low volumes, so the viability of such an ETF needs to be questioned. The moral of the story? By all means buy it if you want to feel virtuous, but don't buy it if you want to make money. If this is the direction in which socially responsible investment is headed, has it had its day?
Position: None
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Doug Kass
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| Realtors vs. Reality |
11/13/2009 3:23 PM EST
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The National Association of Realtors is out with its forecast for home prices and transaction activity. Dont believe these projections. Period. Historically, taking the NAR's forecast on face value has been harmful to one's financial health.
Position: None
Stopped out of the last quarter of my JCP Nov 29-31 straddle at 1.50.
Position: nm
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Howard Simons
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| Socially Responsible: Has The White Knight Had Its Day? |
11/13/2009 3:30 PM EST
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Poilin, the socially responsible funds have been around a while and have garnered considerable traction. I can pull up 22 screens of "socially responsible funds" on Bloomberg. In addition, many endowments and institutional pension plans have investment mandates and some have leaned over into divestment as a strategy.
This raises the question whether the ETF is the proper instrument as opposed to an open-end fund. ETFs are marvelous things, and I have owned many of the broader index ETFs such as SPY, MDY, IWV, EFA and EEM. These offer low-cost access to broad markets and have minimal tracking error. The smaller and more specialized ETFs find tracking error to be a problem.
Wall Street always takes a good idea and beats it to death. We had a proliferation of open-end mutual funds back in the 1980s and 1990s, and now we have a proliferation of ETFs. The product development and marketing departments at the ETF shops should take a breather and quit throwing so much spaghetti on the wall to see what sticks. Futures exchanges did that for years and lost credibility by continuously launching new products into the dirt.
Position: Long SPY, MDY, IWV, EEM and EFA
Definitely disappointed in the action here today. The Board and the management seem bent on acquiring Terra Ind. (TRA) and shunning a huge offer from Agrium (AGU). Is this in the best interest of the shareholders and the company, or in their jobs, pay, and positions? I think the latter, but who am I to say. I bought back the short Nov 90 calls on CF for .25. Let's hope that the company comes to their senses over the weekend. The offer is valued at just shy of $98 per share. Unfortunately, TRA is trading today as if its the likely buyout candidate.
Position: Long CF
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Tom Graff
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| TIPS, Munis, MBS |
11/13/2009 3:34 PM EST
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TIPS are performing in line with Treasury bonds. Rare given that we're getting a bull flattener, which is normally a dysinflation trade. The fact that TIPS are performing well tells you that the strong move in long bonds is techincal. So many trapped shorts out there. Munis are very firm today. Traders are saying that changes in MMD aren't reflecting the reality. Bonds are impossible to source, mutual funds back in inflow mode. We're adding here. MBS performing well. Fannie 6's are up 1/8, outperforming the 5 year which is flat. In fact, 6's have had a great month, up 12 ticks in price vs. the 10-year up 19 ticks. Not bad, especially given that 6's now have a $106 handle. Did you ever think you'd see a major MBS coupon trade with a $106 handle?
Position: Long TIP
Chalk up Thursday as another one-day blunder.
The bears tried to scare this market off way too early in the afternoon.
We had another up week. Now get ready for M&A Monday.
Position: None
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Don Dion
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| Income ETF Makes Play on Emerging Market |
11/13/2009 5:15 PM EST
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I added IShares Emerging Market Bond ETF (EMB) to my ETF Action portfolio earlier today. This unique ETF invests in U.S. dollar-denominated securities tracking external debt instruments of emerging countries. The narrowing of spreads and the ongoing dollar weakness could bring further appreciation to the underlying securities while paying us monthly income. EMB invests in nearly 50 individual securities from nations that span the emerging markets spectrum. For more on my ETF Action portfolio picks try a free trial to ETF Action by clicking the top right ETF tab.
Position: EMB
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Marco Hague
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| Re: Kass Fast Money Recap |
11/13/2009 6:04 PM EST
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Well done Doug (if I may), proud of you, that was a great way to cut through the ticker-tape parade and bunting that comes out most days. Common sense, trading experience, and correlated signals, equals a solid dose of common sense. And yet, miss a call by 3%, after calling a 50%+ bottom (and the ugliest 3% of movement many have ever seen, by the way), and the knives get drawn!Common sense will prevail. It is not all doom and gloom, there will be days of strong risk tolerance, but Doug, agree 100%, that we need something just a little more tangible, to trust that this top will hold.Investors got hit too hard in the 2000, 2008, in the "Buy The Dip- All will be fine" approach, to really want to dive in at these levels, and in reality, that cautious approach is what keeps some skin in the game.When reality gets detached from Mr Market it is only the late comers that get to hold the bag in one hand, and turn the light out with the other. The answer is to lock in profits, diversify into some high yield bonds, and trade the top, if that is actually what it is.If it is not the top, who cares, profit was locked in, bonds insured the potential drop, and the daily trading will add some drip-fed income.That interview Doug said more about the "instant reward" society that we live in than anything I have seen recently. The need for Twitter-like sound-bites that are sexy yet shallow is overwhelming, and a spoken sentence that runs more than 160 words is obviously more than some are willing to listen to. It may not be Grandpa's market, but Grandpa has the experience to hold a steady course. Not you Doug, you are not Grandpa, just the analogy, oh, this is going wrong now....
Position: Not Yet
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Doug Kass
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| Memo to Marco 'Polo' Hague |
11/13/2009 6:39 PM EST
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Thanks for the nice words.
The road is long
With many a winding turn
That leads us to who knows where
And who knows when.
But I'm strong, strong enough to carry on
In the face of it all --
You ain't heavy, Marco, you're my brother.
It is said that Wall Street is paved with bodies of those who had one right call in a row -- but I do my best, in hopefully a rigorous and logically reasoned manner, to make the right turns in that road.
Enjoy the weekend, and thanks again.
Position: None
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Don Dion
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| Buffett Keeps Two Railroads |
11/13/2009 7:17 PM EST
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Warren Buffet tells Charlie Rose that he hopes to be able to keep his old toy railroad in the attic of his house but that he has already sold Berkshire's stakes in Burlington's competitors Union Pacific and Norfolk Southern. His recent collection of Goldman Sachs, General Electric and Burlington Northern now gives Buffett three solid CEOs to work with now that the economy in America is starting to prosper again.
Position: none
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