RealMoney's Best of Blogs - TheStreet

RealMoney's Best of Blogs

The highlights from our bloggers: Rev Shark, Cody Willard, Steve Smith and Tony Crescenzi.
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The stock market kicked off the second quarter with a holiday-shortened week, but it did so on a high note. Through the four trading days of the past week, the Dow Jones Industrial Average has risen 1.7%, the S&P 500 is up 1.6%, and the Nasdaq has climbed 2.1%.

Once again,

RealMoney's

bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the

TheStreet.com

. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.

Let's take a look at

Rev Shark

on matters of mistrust,

Cody Willard

on earnings-season potential,

Steve Smith

on playing Best Buy vs. Circuit City and

Tony Crescenzi

on service-sector strength.

Click here for information on

RealMoney.com

, where you can see all the blogs -- and reader's comments -- in real time.

Rev Shark's Blog: A Matter of Mistrust

Originally published on 4/3/2007 at 1:41 p.m.

Someone wrote to me today and asked, "Don't you ever trust the market?" The answer is "No I don't." The Market Beast is a mean and nasty SOB always looking for a way to take our hard-earned money. I don't ever trust him. I try to take advantage of his good nature from time to time, but I know he is always out to get us, so I stay prepared and am always ready to seek the safety of cash.

Not trusting the market doesn't mean not holding positions. It means being very aware of how quickly things can change. You can ride a good rally to its bitter end and even continue to buy at frothy extremes, but you can't ever forget how quickly the Market Beast can turn on you. Trusting the market is like trusting my dog to guard a pizza.

I think many people who have been schooled in the "buy and hold" approach to the market have a hard time understanding the "not trusting" mindset. They obviously have to have faith when they relinquish control over their investments for the long term.

To me, good investing is about maintaining control of the situation, and that means being ready to act at any time for any reason. I don't trust that any stock will go higher steadily in the long run. Some will have great runs, but ultimately there will always be better plays. Therefore, I have no qualms about bidding adieu the moment they don't live up to my demanding expectations.

Save your trust for friends and family. The only thing you can trust about the market is that it will always be changing.

Cody Willard's Blog: Potential Playouts for Earnings Season

Originally published on 4/3/2007 at 9:11 a.m.

When trying to gauge the near-term setup, consensus fuels the flame of the analysis. Some fundamental meat, some psychological beans and some sentiment spice, and you've got yourself a spicy enough chili to make a New Mexican's forehead sweat. So what's the story with the three ingredients right now?

As I listened to

CNBC

and

Bloomberg TV

while getting ready for work this morning, I heard, for probably the 298th time in the past week, that profit earnings growth has slowed. Now that's a consensus sentiment. I happen to, for the first time in years, agree with that analysis, which is part of the fundie spice.

Of course, I remember arguing against that same consensus for each of the past three years around the onset of first-quarter earnings season, and the bears (mostly permabears, of course) have been dead wrong each time. Indeed, in tech and away from anything real-estate-related, earnings growth might very well come in with double-digit growth, extending the double-digit streak of double-digit growth. (Nice triple use of the word "double," huh? But I digress.)

What if earnings grow as steadily as they have for the past four years? This market would probably rally nicely, as the consensus about the fundamentals would be way under the reality of the fundamentals.

Meanwhile, if earnings are up about 3% to 5%, in line with what most say they expect, stocks are likely to have a very tough time rallying. Even as folks say they know earnings are slowing, if that reality hits hard this quarter, the guidance for next won't be pretty even as the consensus expects the second half to speed up again. The markets likely won't like estimates having to come down further for the second half of the year.

And if earnings are really putrid, and guidance across the board is mostly down? Downside is most likely in that scenario.

It's possible that the bulls will get it going on when earnings hit next week. I'm eager to hear what the fundies look like at the big cyclicals, including

Alcoa

(AA) - Get Report

, next week. But I continue to think that the risk/reward of being long isn't attractive quite yet.

At the time of publication, the firm in which Willard is a partner had no positions in the stocks mentioned, although positions can change at any time and without notice.

Steven Smith's Blog: Focus on Flat Screens

Originally published on 4/4/2007 at 9:04 a.m.

Both

Best Buy

(BBY) - Get Report

and

Circuit City

(CC) - Get Report

reported earnings this morning, and it looks like option traders played it right, and probably the pretty obvious way. That is, there was much more call-buying than put activity in Best Buy in the days leading up to the report, while Circuit City saw nearly twice as many puts trade compared to calls in the past two days.

Indeed, Best Buy reported a fourth-quarter profit of $1.55 per share, an 18% increase in earnings over the year-ago period. Circuit City posted a loss of 7 cents per share down from a profit of 81 cents per share a year ago.

The response might not be as obvious. Circuit City had already warned that it would post a loss as it took a charge related to closing stores and other cost-cutting measures. Meanwhile, Best Buy continues to see lower profit margins as prices on most items, especially flat-screen TVs, get pressured from low-cost discounters like

Costco

(COST) - Get Report

. Although Best Buy will continue to grow, it appears to be becoming less profitable. So while Wall Street puts a premium on growth, private-equity firms identifying potential takeover candidates would focus on profitability.

That would have me placing my money on Circuit City. I believe that not only has most of the bad news been priced in and the chart bottomed out, but it also may be a takeover candidate, which should put a floor under the stock. I'd look to sell some put spreads as a way to bet that shares of Circuit City won't fall much below $17 in the coming months.

If you want to add a layer to gain upside exposure, you can use the sale of the put spread to finance the purchase of some cheap out-of-the-money calls.

As an ancillary play to growth in flat-screen sales, you might want to look at

Corning

(GLW) - Get Report

. The company doesn't report earnings until April 25, so if you are looking to buy calls, you'd want to go out to at least the May expiration to get you through the earnings date. But be aware, those options will carry higher premium because of the fact that it captures the earnings release.

Tony Crescenzi's Blog: ADP Reflects Strong Service Sector

Originally published on 4/4/2007 at 9:17 a.m.

ADP

(ADP) - Get Report

released its National Employment Report this morning, estimating that employment growth in the private sector increased by 106,000 in March, a figure that's consistent with the consensus forecast for Friday's payroll figure for the month of March, which is seen at +133,000. The ADP estimate fits with recent data on jobless claims, which appear to suggest that labor demand has continued apace.

An interesting aspect of ADP's data is the continued divergence between theservice- and goods-producing sectors, which in March for the fourth consecutive month saw the service sector experience a solid gain, in contrast to a decrease in the goods sector. I have noted recently that the recent slowing in economic growth has been concentrated in the goods-producing sector of the economy and that the service sector has been holding up relatively well.

This is good for the job market, since over 80% of U.S. jobs are in service-producing industries. Personal spending on services increased by an annualized rate of 3.3% in the final three quarters of last year, much stronger than 2.4% growth rate for the overall economy.

ADP's data can be tied into today's ISM non-manufacturing index, which tends to run about 5 points above the ISM manufacturing index. Hence, if job growth is to continue, the ISM non-manufacturing index must maintain its spread to the ISM manufacturing index. If the gap closes, it would suggest an unfavorable shift in the composition of U.S. growth that would likely portend a slowdown in U.S. job growth.