Traders,
Another unusual and mixed day – even the indices closed mixed. We did see some pressure all day until the close and then we saw a strong rally in the INDU, with the RUT also seeing gains. It seemed that after the financials had pulled off the previous day, they came back again into the close. INTC was still a drag on the tech sector and it would seem that we are starting to see a sector driven market – banks the winners and tech the losers (for now).
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JPM earnings…
JPM beat estimates and came in at 40 cents a share - however down from a year ago. There was some mix reaction in the stock price as it initially started to sell off as CEO Jamie Dimon – reflecting concerns for the rest of 2009. They are “hording” more cash that is set aside for bad loans (an increase of $4.2 billion for a total of $28 billion) – which did create some concern initially as it reflects a continued bumpy road. Their credit card unit lost $547 million and he didn’t expect it to be profitable in 2009. The default rate climbed to 7.72% and he expects continuing pressure on the consumer loan side. He mentioned the integration of Washington Mutual was “on track” – but beyond that it was rather a unknown. He did say that the firm was eager (like Goldman) to pay back the TARP money – but is waiting for government guidance.
JPM remains volatile during the conference call down, flat, up, flat, up – at this point it is reading into the forecast….
The ongoing problem is that JPM as well as Goldman and Morgan Stanley is what business model, since they have become more banks (with access to the FED/TARP). Will they be focusing on – traditional banking (mortgage, credit cards, consumer loans, etc.) or investment banking (trading, private/public investments, etc.)? The model in the short-term of traditional banking looks flat to weak – as consumer spending has fallen, their debt increase, job losses, and the limit access to credit.
Another unusual and mixed day – even the indices closed mixed. We did see some pressure all day until the close and then we saw a strong rally in the INDU, with the RUT also seeing gains. It seemed that after the financials had pulled off the previous day, they came back again into the close. INTC was still a drag on the tech sector and it would seem that we are starting to see a sector driven market – banks the winners and tech the losers (for now).
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JPM earnings…
JPM beat estimates and came in at 40 cents a share - however down from a year ago. There was some mix reaction in the stock price as it initially started to sell off as CEO Jamie Dimon – reflecting concerns for the rest of 2009. They are “hording” more cash that is set aside for bad loans (an increase of $4.2 billion for a total of $28 billion) – which did create some concern initially as it reflects a continued bumpy road. Their credit card unit lost $547 million and he didn’t expect it to be profitable in 2009. The default rate climbed to 7.72% and he expects continuing pressure on the consumer loan side. He mentioned the integration of Washington Mutual was “on track” – but beyond that it was rather a unknown. He did say that the firm was eager (like Goldman) to pay back the TARP money – but is waiting for government guidance.JPM remains volatile during the conference call down, flat, up, flat, up – at this point it is reading into the forecast….
The ongoing problem is that JPM as well as Goldman and Morgan Stanley is what business model, since they have become more banks (with access to the FED/TARP). Will they be focusing on – traditional banking (mortgage, credit cards, consumer loans, etc.) or investment banking (trading, private/public investments, etc.)? The model in the short-term of traditional banking looks flat to weak – as consumer spending has fallen, their debt increase, job losses, and the limit access to credit.
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Stress Test
We are hearing all about this stress test for the top 19 banks to determine how much more money they may need. Ken Langone (founder of Home Depot and chairman of Invermed) said on CNBC yesterday – “the fix is in”. That is a pretty bold statement, but we are beginning to hear that none of the banks will fail the stress test, but what does that mean. I think that it is not about failure – but about a measurement.
Stress Test
We are hearing all about this stress test for the top 19 banks to determine how much more money they may need. Ken Langone (founder of Home Depot and chairman of Invermed) said on CNBC yesterday – “the fix is in”. That is a pretty bold statement, but we are beginning to hear that none of the banks will fail the stress test, but what does that mean. I think that it is not about failure – but about a measurement. Since there has been so much heat on this stress test – as to the results and the measure – the U.S. Regulators have caved and will not only make some of the results public, but also some of the test methods. One of the issues that critics have is that it does not stress higher unemployment numbers, but rather uses existing unemployment rates. One economist said that it needs to stress an increase of unemployment – which is a variable for determining default rates and revenues. There were other criticisms as well.
Whatever the method – it will have its critics – however I think it does need to reflect STRESS and not just CURRENT market conditions.
We await the method and the results – which should not only determine the strength (and/or weakness) of the banks – but also how much (if any) more money the government is going to give these banks.
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Hewlett-Packard taking top spot
Tech stocks are getting a little boost in the pre-market as a research firm reports that HPQ has gained in world-wide market share to claim top spot in personal computer maker (stealing it from Dell), 27.6%.
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General Growth Properties files bankruptcy
The largest real estate bankruptcy in U.S. history ($27 billion of debt) was filed by General Growth Properties, the second largest mall owner in the U.S.. The company had lost more than 80% of its market value in the last six months as it struggled to avoid bankruptcy. The stock closed at $1.05 yesterday, prior to bankruptcy filings. The company will continue to operate over the 200 commercial properties and work with creditors.
http://www.bloomberg.com/apps/news?pid=20601087&sid=apSnp51kWD4E&refer=home
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Jobless Claims drop
Weekly 1st time jobless claims drops - which could suggest that layoffs have slowed, but it was pointed out that a holiday was included in the data, which may reflect an anomaly. The news did send a spike up in the futures.
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Futures Pre-market
The futures had been down in the pre-market and began getting a solid boost moving into positive territory in the pre-market. The spread is in – expect ARB traders to short futures and buy the cash at the opening. If the spread remains expect a small gap to the upside at the opening.
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Support / Resistance
It looked like the previous numbers were going to be resistance yesterday, until the close when we got a good rally and moved back into the higher part of the range.
INDU 8000! (This seems to be the pivot point – we have broken down through it and rallied back above it. It would seem a resistance, but then again not. It is certainly being tested. Do we close above or below it today? Futures have been volatile this morning – as of now it looks like we will open above it, but watch the close.)
NDX 1300 – 1350 (We seem to be bouncing between these numbers for now)
SPX 830 – 870 (The SPX is the same – still playing with these two numbers)
RUT 450 – 470 (We are also in a range here.)
I would say hold off taking a long or short bias – we keep testing the range in here. We did make a massive recent rally and the momentum seems to have slowed, but has it?
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Conclusion
It seems the market is in a pause – we had fear the first two months which drove stocks down hard, then it was optimistic euphoria which drove stocks up one of the biggest one month rallies in history. Now we seem to be reflecting on what has happened, where we are, and what is in store for the future.
Banks continue to shore up capital – CEO of JPM said as much this morning in the conference call ($28 billion in reserves – expecting more defaults). Jobless remains high, defaults continue. The question on everyone’s mind is “Have we found a bottom?” – so far none of the data has indicated that we have or have not.
So we wait - the market moves on perception and it was fear that quickly turned to greed and now it is in a wait and see period. So far the government money pumped into the banking sector has not trickled down to the consumer. The stimulus money has been barely deployed. So we haven’t (and should not expect to) seen if Obama’s plan is working or not. The big concern that has been in the papers is the state governments are looking worse for wear and are seeing a serious short fall of revenue. Bailing out the states may be the next stop for the federal bailout train.
For now – we wait…
Two days for expiration – so make sure to check those OTM options, which could come into play in the next day.
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