Monday, July 27, 2009

7/14/09 (Goldman Trades for Profit, CIT concerns!)

Traders,

A rocket move off the support level, lead by the upgrade on Goldman going into earnings this morning. The CIT news (as serious as it is) was overshadowed by new found optimism. Goldman stock took off after Meredith Whitney gave it a “Buy” rating yesterday, it had been in a tight 135 to 150 range and ran from 140 to 150 yesterday after her recommendation.
Earnings is in full swing and while revenues maybe down sharply, cost cutting may have helped margins. That will be the key, but the guidance (if the companies even give it now days) will probably be lower revenue warnings. Between JNJ and Goldman earnings we should see some volatility today.

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JNJ profits decline


Johnson & Johnson saw profits decline 3.6%, in part from increase in generic drug competition. JNJ also took advantage of the weak economic conditions facing competitors and bought Cougar Biotechnology as well as taking a large stake in √Član Corp – which expands their future pipeline. However, that means in the short-term capital outlay (whether it is cash or stock). The investment/acquisition decisions is to help reduce the decline in their existing pipeline (primarily Topamx and Risperdal) which are facing strong generic competition.
Net income dropped to 3.21 billion (down from 3.33 billion). While a decline in profits, they still beat estimates by 3 cents - $1.15 per share (vs. expected 1.12 per share). Sale have declined from 15.2 billion from 16.5 billion – but management efforts help keep margins wider than expected, helping them beat estimates.
Stock is up .75 cents in the pre-market, but volume is light and that could change.

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Goldman beats !


Whitney made a “buy” recommendation yesterday, sending the stock up almost 10 points. But the stock is near its recent high range at 150, which could be a resistance point. Earnings come out in the pre-market and expectations were for another massive profit, ironically after they have been the recipients of many benefits (including the TARP, record borrowing from the Discount Window, backdoor payments via AIG bailout, reporting advantage when they changed their standings to become a bank, and that doesn’t include the $5 billion dollar investment from Buffet), and while I have a clearing relationship with Goldman it does leave a little bit of a bad taste in your mouth that the company is reporting record profits in this economy (with huge government borrowing).
Goldman has recently been in an awkward situation as their “trading program” had been stolen and there was statements made that those in possession of such a program “could” manipulate the market. I asked myself isn’t that a self admital that your software CAN “manipulate “ the market? Goldman has more people working in their programming and technology department, than any other department in their firm (according to Bloomberg this morning) – additionally a look at the revenue shows that the trading desk is the largest profit center. There has also been some skeptical stories (emails) that have circled that concludes that their “trading program” may have front-running algorithms, but that is not proven (but wouldn’t be surprising – based on the kind of profits they are reporting).
Goldman beat estimates with record earnings over $4 per share, but the stock is seeing some pressure on some rather large volume in the pre-market and is currently down about $1 dollar (but with volatility) this of course could change in a second. Of course 150 was a resistance level and reports have indicated an increase in insider selling. However, the pre-market is not necessarily indicative of how the market will react after the opening when the retail world joins the fray. However it is seeing negative pressure.
Expect some pressure around the 150 area, but if it can break through with any strength we could see it rip to the upside. 150 will be the pivot point.

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CIT concern has reached Congress


Talk is starting about a bailout of CIT as 100s of thousands of companies rely on their financial arm. Most of their debt is rated junk, FDIC will not back their debt, and they haven’t been made the “team” like other banks. Right now they are on the edge and something quickly needs to be decided – or we could see some negative pressure on small to mid-size businesses throughout the country. Keep an eye on this as it could have economic fallout if something is not done.

More news at Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ak7fEvfw4y7E


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Futures Pre-market


Futures had seen a good pop going into the JNJ and Goldman earnings, but are now coming off their highs – still up on the day. If they can hold here expect a slightly higher market, but they seem to be weakening.

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Support / Resistance



INDU 8000 (8250) 8500 (Sure it is a wide range, but it is also earnings season. I wouldn’t get long or short at the 8250 range as it could be a serious pivot point, we busted through it yesterday and could stay above it, but visiting that level intra-day is a real possibility.)

NDX 1400 (1450) 1500 (We are right in the middle – nice pop off the lows – but can we continue up to 1500?)

SPX 900! (As I mentioned 900 was key – we got there, just there – but we need to stay above it now. Visiting 900 doesn’t mean a turn around, closing above it on strength will help confirm. I still have a feeling that 880 will be revisited.)

RUT 500 (We didn’t get to 500, but made a good run, watch the close.)

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Conclusion


Inflation concerns continue to mount and while eyes are on PPI and CPI as more government data is released, the other factor is watching those treasury auctions and interest rates. It seemed that we were seeing some strength return to bonds until yesterday’s equity move as money rushed out of bonds and back into equities. The 10 year was close to 3.25, but then quickly popped and is looking above 3.40 this morning (for now). Second stimulus talk is making the rounds in Congress, CIT is starting to get Congressional and media coverage (a serious concern), and we are still not seeing recovery traction yet.
Jimmy Rogers the other day on Bloomberg was becoming more concern with the dollar as rates go up and Bernanke can’t seem to stop it, the Fed is buying more and more treasuries, there is over another $1 trillion in treasuries to be sold. He stated unless something can be done quickly it is quite possible to see a serious currency crisis by year end. Interestingly and ironic that we see states fail, California is tapped out and giving out IOUs and can’t get a loan (or credit) to save themselves, other states are following suit. While we seem to be concerned about the states, no one seems to be concerned about the Federal government. The only difference between the states and Federal government, is that the Fed can PRINT money and the states can’t. The question is can we inflate (print) our way out of this without the loss in faith in our currency. We are riding on faith at this point. Let’s hope that Obama, Geithner, and Bernanke can continue to sell it.

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