It was a strong week for the major indices, and it ended on a strong note, as evidence of moderating economic growth raised hopes of a halt to the
rate-hike campaign. There were Texas-sized earnings for oil companies and angst over mixed results in technology. Once again,
bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the
. 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
on the consolidation he believes is needed in the tech industry,
with a checklist for trading this market,
and his argument that a southerly turn in the market is making stock selection ever more important than market stance,
on how a "broken stock" strategy can be a great way to get in the earnings game, and
on how builders are controlling the housing glut.
Click here for information on
, where you can see all the blogs -- and reader's comments -- in real time.
Cramer's Blog: Tech Needs More Consolidation
Originally published on 7/26/2006 at 8:25 a.m.
Tech consolidation? Could it be? Or is it that same darned affliction we recently had when
agreed to merge, the deal that drove up all the valuations right before their businesses cratered.
Of course, it could just be coincidence.
Advanced Micro Devices
may just mean that two companies saw some interesting synergies with other companies. We shouldn't read more into the so-called capacity takeout.
But almost no one believes that coincidence. We have been through a year in which lots of companies have been crushed for the usual short-term reasons and then crushed again because of options valuations. In the meantime, the sheer number of companies in tech -- far, far too many -- needs to be cut back dramatically. Tech is the least rational industry I follow. There's simply no way that we
all of these companies.
I am nervous about being too hopeful about a trend that might not exist. I was so excited about the Lucent-Alcatel tie-up, which made so much sense, that I thought it was only a matter of time before we saw combinations among
that would make for one-stop shopping for the Bells. We've got none of that. In fact, the Lucent-Alcatel deal now looks terrible.
We have had some massive declines in companies' stocks that are obviously short-term in nature, and a compression of price-to-earnings that could make ATI Technologies and Mercury Interactive harbingers for a lot more deals.
But because of Lucent-Alcatel, I am reminded, once again, that if you
speculate in takeovers with companies that have poor fundamentals -- Lucent! -- you end up losing far more than you make, as anyone who paid $3 for Lucent knows all too well.
At the time of publication, Cramer had no positions in the stocks mentioned.
Rev Shark's Blog: A Checklist for Trading This Market
Originally published on 7/27/2006 at 9:11 a.m.
"Those whom the Gods would destroy, they first call promising."
-- Cyril Connolly
The market action of the past three days looks quite promising for the bulls. We have had a number of positives, including good breadth, technology leadership, shallow dips that are bought and strong finishes.
That is the stuff that turns are made of, but it is also fertile ground for bitter disappointment. We can't jump to the conclusion that this is now a healthy market that will quickly forget the struggles of the last few months as it gallops steadily higher. We need to stay on guard and not blithely throw caution to the wind. One day of selling can easily undo the good work that has been done over the last three days.
So how do we balance the recent promising action against the danger of being sucked back in just as the market disappoints once again? There are several things you should do. First, make some partial sales in your stocks that have rebounded. Sell some into strength, and don't worry too much about the stock running up further without you. The likelihood is that you will have a chance to buy again at a lower price.
Second, tighten up your stops. After you have made some partial sales into strength, protect yourself further by making sure what you have left doesn't slide back down.
Third, keep some cash on hand. There is no rush to be fully invested at this point, even if you think the market is making a turn. There will be opportunities in individual stocks in the days and weeks ahead, and cash will give you the flexibility to take advantage of it. Few things are more frustrating than jumping into the market in a big way in anticipation of a turn, only to find yourself trapped in an uncooperative market. Keep some cash handy, and don't worry about missing out.
There are reasons to be more optimistic, but that doesn't mean being foolhardy. We need to watch carefully to see how the market acts on a pullback. Do the dip buyers show up, or do the sellers press harder? Are market players starting to worry about missing further upside? Those are the questions we need to answer.
We have gap-up open this morning, which is making me a little nervous. Earnings last night were a mixed bag, with several of the momentum favorites, like
, taking nasty hits. I expect to see sellers hit this open, and then it will be up to the bulls to prove that they are willing to buy a dip. Be careful out there.
At the time of publication, De Porre had no positions in the stocks mentioned, although holdings can change at any time.
Cody Willard's Blog: Bullish on Stock Selection
Originally published on 7/26/2006 at 4:07 p.m.
I told her she could have all of my dough,
she turned around and with a frown,
she said this ain't no circus and I don't need a clown,
Your cash ain't nothin' but trash
-- Charles Calhoun
The good news is that the market continues to treat earnings reports more "
sensibly" (at least in my version of "sensible") than it had been since early April, when the market first started making me
question what had been a very aggressive long stance. The bad news -- at least for the bulls -- is that the reports have been rather weak overall.
The economy seems to have finally turned southerly, and that's going to make stock selection ever more important than market stance. I'm digging in on a bunch of new (and old) names and am, as you might expect, growing ever more excited about building some long positions again.
In many names, such as
, we've really got some binary outcomes to look forward to. Broadcom and many other semis like,
, have been absolutely crushed, dropping by more than 50% in some cases, as the inventory issues roll through the sector. Those issues will either resolve themselves gently as end-user demand accelerates again (as it did in
2005), or those issues will become full-blown problems as end-user demand continues to wane.
I expect I'll be using a lot of long-dated calls rather than common stock to open up long exposure as the summer wears on. Such a strategy will cost me some money in time premiums, but it requires much less capital and limits my downside because the strike price works as a stop loss.
Because, as Steve Miller, Commander Cody and the others who have covered the great Charles Calhoun ditty I quote at the beginning of this post remind us at the end of the song, after he's lost all his money -- "Cash ain't nothing but trash, but I sure better get me some more." This remains a market in which I think keeping the cash remains key, as getting some more remains difficult at best.
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: How to Play the Gaps
Originally published on 7/27/2006 at 1:30 p.m.
Even though I've made it clear that I don't like to play earnings, and I have to admit to feeling a little left out about not catching some of these 10%-plus moves, a man has to know his limitations. Guessing earnings moves is not my strong suit, so I'd rather marvel from the sideline than be flattened on the field.
But in keeping with my approach to be reactive rather than predictive when it comes to earnings, let me review the "broken stock" strategy that -- while offering the big-bang returns of getting in ahead of a large move -- can be a high-probability trade. The basic premise is to sell calls on a stock that has gapped lower and broken down below support on the theory it will take time for the chart to repair itself before mounting a rally.
By selling calls, you are taking advantage of what will likely be a contraction in implied volatility in the next few days as the options lose premium in the post-earnings IV decline and adjust to the new lower trading range. And, of course, as a seller time decay, or theta, is working in your favor.
Some names that have recently broken and then have proceeded to move lower, or at least not exceed the gap-down-day's high, include
Black & Decker
Some candidates today include
, and some casinos, such as
Penn National Gaming
. Though those two are now near session lows, and one of the keys to the strategy is to try to get the calls sold near the opening when IV is still high and the initial trading range is being defined.
Also, it's important to check the charts to see if the stock has truly broken down below important support levels. For example, PENN might find some support at the $30 level. Another name that has a huge gap lower, but I don't consider a candidate, is
, which could get support at the $98 level and bounce sharply.
Here is a
link to my latest video in which I chat with
Tony Crescenzi's Blog: Builders Are Controlling the Housing Glut
Originally published on 7/27/2006 at 11:02 a.m.
New-home sales were weaker-than-expected in June, running at a pace of 1.131million compared to forecasts for a pace of 1.150 million. In addition,data for the previous month were revised sharply downward, with sales nowreported at a 1.166 million pace instead of the 1.234 million pace that waspreviously reported (large revisions to the new-home sales data are common).
I have noted since February that mortgage applications have fallen about 15%from the peak, suggesting that sales would fall similarly. Today's figure puts sales roughly in line with what should be expected, based onmortgage applications -- with sales down about 17% from the peak in the latestmonth and 15% when looking at the average sales pace of the past threemonths. The data, therefore, are hardly a surprise.
A highlight of the home-sales report is the fact that the inventory-to-salesfigure, although up in June, has stabilized. The ratio now stands at 6.1months of supply, up from 5.9 months in May but below the peak of 6.4 monthsset in February. This is in contrast to the I/S ratio for existing-homesales, which reached a nine-year high in June.
A key feature of the housingmarket is likely to be improved inventory control as compared to the lasthousing downturn in the early 1990s. With a greater share of the housingmarket controlled by larger, more capital-rich home builders than was thecase in 1990, inventory control is likely to be better this time around,which should reduce the amount of forced liquidations and help to containprice declines.
David Morrow is editor-in-chief of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
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