4/23/09 (Apple over value? Ebay under value? UPS ouch!)

Traders,


Interesting action yesterday – down, then a solid rally, then a sell-off in the last hour. It seems the market still flirts with the 8000 range in the INDU – above/below/above/below. The bank earnings continue to come out (and for the most part beat estimates – but the earnings are suspect at best). Almost every company reporting has lowered forecast (rightly or wrongly – playing it safe with a more conservative forecast seems to be the game plan.)

As the market flirts above and below the 8000 range, Gold sits between 850 and 900, Silver sits at 12, Oil between 45 and 50, and the world waits for something substantial to hang our collective hat on (good or bad). Will it be the Stress Test, who knows – criticism abounds, the TARP’s popularity in Congress wanes, and commercial paper seems to be the next big concern.

No doubt at some point we will find a bottom and be able to point to it – but the comingling of politics, bailouts, accounting changes, and intervention clouds the ability to see the problem or find a bottom.

The waiting game seems to continue.

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Apple Beats Estimates

Apple – the leader of innovation – has had a couple of setbacks, Jobs being sick, no new surprising innovative technology in the pipe-line, and a consumer with significantly less buying power. Apple had significantly lowered their expectations last year going forward (Apple tends to be conservative in their forecasts). The estimates came in line with those expectations, but Apple surprisingly beat those estimates and surprisingly so. The big strength on their books – the iPhone! The iPhone has become more than just a phone, it is really a small computer – from email, surfing the net, and the massive amount of applications (Apple is about to announce over 1 billion downloads of applications). It certainly has changed the way consumers interact with the market. I don’t even think Apple expected it to carry so strongly in the slow down. All good news…so is there any bad?

The bad news is they (like other companies) are forecasting lower. The see the weakness in the consumer (worldwide) and while they are going to be releasing the next generation iPhone and cutting costs on current models – the reality is that consumers are tapped on credit. The application arena could make up for some short falls in margins on the iPhone side – but there is nothing in the short-term (or the rumor mill) of new innovative technology – just the next generation existing product lines.

The stock in the aftermarket has taken the news well, even with lowered expectations. The stock is back up to yesterday’s highs in the pre-market ($125) – which as an overweight in some of indices – helping drive futures in the pre-market higher.

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EBay Beats!

EBay is one of my favorite companies, from a business model standpoint. They don’t have to spend money on R&D, inventory, shipping, etc. They have eliminated or limited many traditional business model risks. They are a pure transaction business on the internet. As a business plan it is brilliant and a revenue generating machine. Their acquisition of PayPal was one of the best synergistic fits of any merger in the last few years.

It was the most visited U.S. e-commerce site. It best expectations and it looks like many of its changes to their site have been an improvement. So why isn’t it rallying higher like some other stocks? I would say it is all perception – it’s hard to really get excited about a company that has created an online garage sale. They don’t make anything exciting like Apple. I guess for a retail/internet/technology company they are not that sexy. That’s really too bad – because from a business model it is pretty awesome.

We may see EBay sales and transaction expand in a recession – as people sell their own stuff to raise money and those that need to buy things may look at the second hand items on EBay. I expect (from a business model sense) it will continue to do well in the recession.
The stock is up $1 in the pre-market.
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Jobless Claims rose 27,000 to 640,000

The previous week saw a surprise shrink to the jobless claims, but many said that was because of the Easter holiday. Now we are back to the expectations and the 12th straight week it has set a record. The automotive companies led the lay-offs and are expected to cut more in the coming week (GM just announced another 1,600 workers to be dismissed this week.) The number reflects that companies are still in job-cutting mode and as expectations that consumer spending will continue contract, companies need to shore up margins.

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UPS misses big time….

While Apple and EBay looked better than expected, UPS fell flat on its face. UPS reported a 56% drop in profit for the first quarter, as shipments from consumers and companies continue to contract. Net income contracted 40 cents a share, of course if we exclude the costs of the write-downs – profit was 52 cents a share, below the estimated 56 cents a share.
Of course they too lowered forecast next quarter to a 45 to 55 cent range, less than the 66 cent that was previously expected. Expectations are for a recovery in 2010.
Stock is down in the pre-market.

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Futures Pre-market

The futures are getting a good boost in the pre-market, mainly it is Apple grabbing some headlines and driving futures up. The spreads are in so expect Arb traders to short the futures and buy the cash basket, giving the market a gap to the upside at the opening.

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Support / Resistance

Seems to be a battle ground around this 8000 area – more of a pivot point than anything else. On CNBC a trader said the market seems to be range bound and the talk on the floor is the “Summer Doldrums” – which is rather surprising on the back of the recent volatility.

INDU 7750 – 8000 (Yesterday we spent a good part of the day above 8000 only to sell off and head lower. This morning we are getting a slight pop and maybe not enough to get up to 8000 at the opening, but no doubt we could visit it again.)

NDX 1300 – 1360 (What a range yesterday – this morning AAPL is about 9 to 10 points of the futures pre-market rally. If AAPL remains high we will see an opening around 1340 to 1350.)
SPX 835 – 875 (835 seems to be – for whatever reason – a sticky point on the downside that it just can’t get through. We are looking to head higher at the opening by a couple of points.)

RUT 450 – 480 (We closed pretty flat – but are looking to see a pop at the opening.)

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Gold 850 – 900 (We are getting close to 900 again – do we come off or break through)

Silver 12+

Oil 45 – 50 (It seems that we are range bound – we moved down to 45 and now it looks like we are making a move back to 50)

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Conclusion

Apple has made a massive move in the last month from 80 to 125. Now beating earnings is great, but those earnings were still a decline from a year ago and looking to shrink again next quarter. I personally think the news is out and with nothing exciting in the pipeline and expected slowdown – I think it is a little toppy. On the other hand, EBay - I think has a great story for the recession as we may see more consumers look to buy second hand items as well as sell some of their merchandise to raise money.

So for fun – I think we should put on the EBay / Apple long vs. short play – EBay goes up and Apple goes down by next quarter.

Obama and Congress are looking to curtail some of those credit card interest rates – which truly are out of hand (just below 30%). I don’t know how much traction they’ll get and while I agree with them on principal, I am sure there is some legal and contractual issues at play. It will be interesting as Congress is again intervening in business because they “think” people are paying too much interest. It’s tough - even for me – I agree on principal, but why is it the government’s job to set interest rate charges for credit card companies. People were not forced to apply for a credit card and spend money. People could read the fine print and it is not the companies fault that they ignored it. Does it suck that credit card companies charge too much, certainly. Is Obama and Congress right that they should lower it, certainly. However, is it the government’s job to intervene? That is the fundamental problem. When ideology and principals challenge the law and we the government “thinks they know best” we start giving up liberty – one small chip at a time.

Just like a lawyer friend of mine said, the hardest thing about justice is that it is blind.