Traders,
Those resistance levels pointed out in the Support/Resistance section held fairly well yesterday – we did see a brief pop at the opening – but that quickly faded, most surely the 11500 level was a place to unload those long delta positions (and get short). The earnings are rolling out and while most of the banks are beating expectations (not too hard to do when the bar is set so low a field mouse wouldn’t have problems clearing it) – the continual write downs and credit lines getting the squeeze shows that problems still loom on the horizon. Maybe the thought was to bleed a little each quarter instead of just writing down the whole thing – to the stock from free falling. But these stocks are already at very low levels – I guess they have more room to fall. What I am wondering, if it were not for the opening of the Discount Window to the investment banks – how many MORE Bear Stearns are out there – but we are not able to clearly see them because they have a “Rich Uncle” (Ben and the Discount Window) to keep them going?
________________________________________
WHACKovia – more write-downs – SURPRISE!
WHACHovia reports another record loss of $8.9 billion (I don’t know that those are the kinds of records we want to see broken). The 2nd quarter loss per share of $4.20 is a shocker and I still find it amazing how a company goes from reporting a $2+ billion gain just one year ago for the 2nd quarter to a almost $9 billion loss. That mark-to-market (mark-to-myth) on those illiquid assets are pretty amazing. You have to wonder all those years of MARKING those positions as HUGE profits – were really profits. I think most people fail to realize that we are talking about paper (financial products) that unlike the stock market has really NO price discovery. These banks for years have internally MARKED the positions as to where they THINK they are worth.
Those resistance levels pointed out in the Support/Resistance section held fairly well yesterday – we did see a brief pop at the opening – but that quickly faded, most surely the 11500 level was a place to unload those long delta positions (and get short). The earnings are rolling out and while most of the banks are beating expectations (not too hard to do when the bar is set so low a field mouse wouldn’t have problems clearing it) – the continual write downs and credit lines getting the squeeze shows that problems still loom on the horizon. Maybe the thought was to bleed a little each quarter instead of just writing down the whole thing – to the stock from free falling. But these stocks are already at very low levels – I guess they have more room to fall. What I am wondering, if it were not for the opening of the Discount Window to the investment banks – how many MORE Bear Stearns are out there – but we are not able to clearly see them because they have a “Rich Uncle” (Ben and the Discount Window) to keep them going?
________________________________________
WHACKovia – more write-downs – SURPRISE!
WHACHovia reports another record loss of $8.9 billion (I don’t know that those are the kinds of records we want to see broken). The 2nd quarter loss per share of $4.20 is a shocker and I still find it amazing how a company goes from reporting a $2+ billion gain just one year ago for the 2nd quarter to a almost $9 billion loss. That mark-to-market (mark-to-myth) on those illiquid assets are pretty amazing. You have to wonder all those years of MARKING those positions as HUGE profits – were really profits. I think most people fail to realize that we are talking about paper (financial products) that unlike the stock market has really NO price discovery. These banks for years have internally MARKED the positions as to where they THINK they are worth.
I would hope from this credit crisis that some brilliant mind would create a OPEN MARKET for these SIV, CDO, and other Structure Products – similar to a Mutual Fund – where a price is reported daily and allow for them the trade – instead of keeping them shrouded on off-balance sheet books.
Needless to say this bank is AGAIN cutting their dividend – go figure. Obviously the new CEO Robert Steel is trying to set the bar even lower – so that ANY improvement going forward will look good. Cutting the dividend, firing 6,530 workers, and leaving another 4,440 positions open (as to not take on more overhead) – sounds more in line with Al “Chainsaw” Dunlop’s philosophy – which seems to be what all the new CEO’s of these banks are modeling. Cut, Cut, Cut, Cut! The problem with that model (ask Al) is that while needed – they need to simultaneously continue to understand the need for growth. Hey – it’s all about Revenues and Margin – while cutting may increase the Margins, if the Revenues are also falling they don’t get a handle on that – well they will forever be behind the eight-ball. Furthermore – the housing market is getting worse – not better – in the 2nd quarter for WHACovia. 90% of their option ARM are in 25 metropolitan areas (with the vast majority in California and Florida). That is really putting the hurt on – and more are expected to reset in August. So expect MORE write-downs to come. Uncle Ben – WHERE ARE YOU? I guess CEO Steel will be purchasing a “Fast Pass” to the Discount Window, since he will be visiting often.
The stock is getting a good smack down in the pre-market – so expect that to drag on the financials fairly well.
____________________________________________________________
CAT – The beacon of light.
While the U.S. Financials look like the Miami Dolphins in 07 (I really hated to say that – since they are my team) – the Multi-nationals – especially construction is ramping fast and hard overseas. While true China and India are seeing inflation that may curtail growth – one thing IS for sure – they are STILL GROWING. Caterpillar can’t keep up actually – they net sales climbed a whopping 34% on Asia sales. The weak dollar is also giving them a boost against foreign competition. The Storm and Earthquake damage throughout the Asian region recently is also contributing to sales increase as more equipment is needed to rebuild. Additionally – mining equipment is on the rise as commodity prices continue to increase – mines get bigger, deeper, and longer (FASTER). Add to that the massive increase of transportation needs (more roads, rail, power, etc.) You need equipment to build and dig – putting CAT squarely in the Cross-Hairs of every buyer in that sector. Expectations are for CAT to increase sales overseas – as the home front falters seriously.
The stock is getting a good smack down in the pre-market – so expect that to drag on the financials fairly well.
____________________________________________________________
CAT – The beacon of light.
While the U.S. Financials look like the Miami Dolphins in 07 (I really hated to say that – since they are my team) – the Multi-nationals – especially construction is ramping fast and hard overseas. While true China and India are seeing inflation that may curtail growth – one thing IS for sure – they are STILL GROWING. Caterpillar can’t keep up actually – they net sales climbed a whopping 34% on Asia sales. The weak dollar is also giving them a boost against foreign competition. The Storm and Earthquake damage throughout the Asian region recently is also contributing to sales increase as more equipment is needed to rebuild. Additionally – mining equipment is on the rise as commodity prices continue to increase – mines get bigger, deeper, and longer (FASTER). Add to that the massive increase of transportation needs (more roads, rail, power, etc.) You need equipment to build and dig – putting CAT squarely in the Cross-Hairs of every buyer in that sector. Expectations are for CAT to increase sales overseas – as the home front falters seriously. However – with good news there is also bad – the bad news is commodity prices (steel, copper, and oil) all affect CAT – because you have to build these monster machines out of Metal and then SHIP them. While the weak dollar is making CAT equipment attractive to foreign buyers – the commodity prices are forcing CAT to raise prices. They do have some room on prices – with the dollar – but by how much before foreign competition starts becoming tight again?
Also on the bad news front is domestic sales – which have almost come to a halt. There is so many used machines out there not being used because of the fall off in construction in the US that CAT sales are falling in the US. Additionally – financing of equipment in the US when it IS needed is becoming tight as lending and credit lines falter and tighten.
Cat is truly a tale of two cities – abroad they are rock stars and locally they are falling. Let’s hope they are able to navigate these difficult times – so far looking good!
_____________________________________________________________
Rotten Apple?
Apple – the leader in personal technology and an innovator of design is seeing it share price get the serious smack-down. The big problem that Apple has is that they continue to set their own bar very high. The IPOD, they top that with the IPHONE, then the Air Book, now what? Everyone expects Jobs to be a magician and with every word some new magic device appears and boom – APPLE stock rips to the upside. It is clearly the story of “What have you done for me lately?” – Iphone and Air Book are old news in technology now – so show me something new!
While Apple products are no doubt awesome, so is the share price and maybe TOO MUCH so. The stock moves ridiculously on one thing – HYPE. Well – Apple has now lowered the bar for the year and forecasted a $1 a share profit, well below the $1.24 a share anticipated by analyst. That put some serious smack down on the stock in after-hours trading – down over $16 points and it doesn’t look to make any recovery soon – as I think for the time being Jobs has pulled back the curtain and nothing revolutionary is on the horizon – for now.
The love affair with Apple products has never translated well to the stock – as it is one of the monster volatility stocks in the market. It single handily drives the NDX to new highs and lows (being about 1.5:1 overweight) – yeah that $16 point move to the down side is about $24 points of the NQ futures in the pre-market. The stock has moved from 200 to 120 back to 200 in the span of 6 months – we are talking 30-50% moves in a stock up and down. You get on the wrong side of that – and WHACK – you might as well of bought Bear Stearns at $50!
Expect the NDX to be down hard at the opening – we might see a little recovery in AAPL – as $150 is a support area – if it doesn’t hold 120 here we come – AGAIN!
_____________________________________________________________
Lending problems are not just about houses – credit cards!
As I pointed out in the past, while AMEX model is different – it is still about lending money. And now the failure to repay (defaults and late payments) are increasing. This defaults and late payments hurt AMEX faster than traditional credit card companies , since they can carry balances. AMEX is not in the same boat – so when money is NOT paid – well then Huston we have a problem. Their model is more transaction business – a fee charged. I have heard the arguments that AMEX will not suffer as compared to traditional credit card companies (since balances need to be paid in full). True – but what about the transaction business? Sales in the U.S. are slowing down as consumer spending slows. That means FEWER AMEX purchases.The company saw profit fall 37% - so whether you want to chalk that up to fail to pay or lower transaction business – it is a one-two punch that is affecting the bottom line. Expect more pressure in this sector today.
___________________________________________________________
Futures Pre-Market
The futures are getting the smack down since late trading yesterday when Apple lowered their forecast and we saw shares tumble in the after-market. Load up WHACKovia into the mix and we are seeing pressure across the board. The futures are front running the cash by a fairly good margin – so expect the Arb traders to leg long into the futures to short the cash basket at the opening. That will put more pressure on the market at the opening.
___________________________________________________________
Support / Resistance
The resistance was solid in the INDU and RUT fell off in the mid-day. Today we are seeing the effects of the pile on after the more rally failed going into the close. The story has changed from resistance to supports.
INDU 11,000 / 11,500 (Well we broke through for a bit yesterday on the up side. That was IT for getting your long deltas off your sheets and to get short. If you didn’t – well I hope you have gamma – because today we are back on the road to supports.)
NDX 1800 / 1850 (The 1800 line looks to fail this morning – it will be KEY for it to close above there. The futures show a 1790 opening – keep an eye on AAPL!)
SPX 1250??? ( As I said yesterday 1250 is NOT really a support area! It is more of a straddle strike. Owning gamma on this line is going to be a winner – volatility will pop to the downside – giving long contracts the added boost on top of short deltas. Watch the close for 1250 – but I don’t think we will close above it.)
RUT 650 / 700 (700 was the resistance and we can’t get our head above water. Get ready for the ride back to 650. For now don’t be long up at these levels.)
______________________________________________________________
Conclusion
The bank stocks earning reports are not as important as looking at what is actually going on. Toss the forecasts into the toilet and start looking at the math and numbers (David Enihorn is right – it’s all about the math). When perception falls to the wayside – it is the fundamental values that determine if the solvency is a reality.
The wild card is the Government – they are taking a bigger active role in the market and are to a certain extent participating. This makes it more difficult for both the longs and shorts.
Should you buy a stock, well you can’t really get a handle on value if the government is floating them, also what is the risk of a government take over and shareholders losing everything?
Should you short a stock, well if the government is going to price protect a stock – we could have a massive short covering rally?
The only thing the government has added to his market is MORE volatility. Who do they save, who do they let fail, which do they take over? Add to that – the government’s own books looks pretty crappy. Top that with a weak dollar policy (yeah – I know they say they ARE “strong dollar people” – but action speaks louder than words) – well this is going to be one very volatile market. Ignore the VIX – it is NOT got a handle on real intra-day volatility.
No comments:
Post a Comment