S&P 500 1,095.40 -1.30%
NASDAQ 1,909.90 -1.58%
Leading Sectors
Restaurants +.11%
Defense -.31%
Foods -.68%
Lagging Sectors
Papers -2.72%
Networking -3.20%
Airlines -3.21%
Other
Crude Oil 37.15 +.27%
Natural Gas 5.55 +.07%
Gold 417.20 -.10%
Base Metals 112.31 -.67%
U.S. Dollar 87.81 -.36%
10-Yr. Long-Bond Yield 3.71% -1.55%
VIX 21.58 +12.69%
Put/Call .96 -5.88%
NYSE Arms 3.35 +65.02%
After-hours Movers
PLMO +11.3% after significantly beating 3Q estimates and raising 4Q guidance substantially.
PSRC +5.2% on PLMO earnings report.
SKIL +5.1% on better-than-expected 4Q earnings.
Recommendations
Goldman Sachs reiterated Outperform on AL, sees 31% upside from current levels. GS reiterated Outperform on CCL. Merrill Lynch raised Hong Kong to Overweight and cut Taiwan to Marketweight.
After-hours News
U.S. stocks fell again today as geopolitical concerns weighed heavily on airline and technology shares. Goldman Sachs says pension reform initiatives will have no major impact on equity and fixed income markets. Morgan Stanley and Credit Suisse First Boston Private Equity are the frontrunners to buy eight power plants in the southeastern U.S. from Duke Energy, Power Finance and Risk said. Taiwanese stocks slumped in the U.S., pointing to further declines Tuesday in Taipei, Bloomberg reported.
BOTTOM LINE: The Portfolio was down today as its 100% net long market exposure left it exposed to today's broad-based sell-off. I lowered market exposure to 25% net long in the afternoon. While I think we are getting very close to the bottom of this correction, I am not going to fight the tape. The SOX broke its 200-day moving average, but not convincingly. The NYSE Arms Index reached levels not seen since the bottom last March. However, the Put/Call ratio and VIX, which also spiked today, are still well off levels normally associated with bottoms. Finally, breadth was very bad today on average volume. Thus, I will keep the Portfolio close to market neutral, without adding new shorts, as I believe the major U.S. indices very oversold short-term.
Monday, March 22, 2004
Mid-day Update
S&P 500 1,095.61 -1.28%
NASDAQ 1,907.07 -1.72%
Leading Sectors
Restaurants +.25%
Drugs -.42%
Energy -.64%
Lagging Sectors
I-Banks -2.81%
Networking -3.05%
Airlines -3.17%
Other
Crude Oil 37.15 -2.44%
Natural Gas 5.51 -1.20%
Gold 418.30 +1.36%
Base Metals 112.31 -.67%
U.S. Dollar 87.62 -.58%
10-Yr. Long-Bond Yield 3.74% +.90%
VIX 21.61 +12.85%
Put/Call .82 -19.61%
NYSE Arms 3.18 +56.65%
Market Movers
USON +18.9% on $1.7B buyout by Welsh Carson.
MAGS +26% as investors anticipate increased demand for security systems.
NSSC +21.7% on positive Barron's recommendation.
EWT -11.7% on Taiwan political unrest.
IFF -6.6% after negative "Heard on the Street" column in the WSJ.
SSCC -7.0% after lowering 1Q earnings forecast.
Economic Data
None of note.
Recommendations
Tom Kurlak says in a Street.com editorial that he couldn't disagree more with Wall Street's concern that semiconductors have seen their best earnings growth rates for this cycle. His favorites are INTC, AMAT, TER, MU, BRCM and AVX. Goldman Sachs reiterates Underperform on TE and RKY. GS reiterates Outperform on EBAY, MO, BSX, PAYX, CAKE, WEN, YUM, KO, CCE and PEP. GS raising CBL to Outperform. Goldman becoming more confident in a significant employment pick-up, benefiting SIR, RMK, MLHR and SCS, favorite is KROL. Citi Smith Barney says MU will deliver strong 2Q results and make positive comments on 3Q. HTLD raised to Overweight at Morgan Stanley, $26 target. FON and CCI raised to Overweight at JP Morgan.
Mid-day News
U.S. stocks are falling mid-day on numerous geopolitical concerns, led by weakness in airline and technology shares. WalMart said same-store sales for March are tracking at the high end of the company's plan. Citi Smith Barney Chief North American Economist says that the recent Manpower employment survey is indicative of 700,000 new jobs being created in the second quarter, but that must be seen for investors to be convinced. Makers of antidepressants should better warn doctors and patients about suicide risk for people taking the medicines, the U.S. FDA said. Crude oil futures fell after officials from 2 members of OPEC said the group may postpone a cut in production quotas that was due to start April 1. Concerns that inflation will soon begin increasing are "premature" and it is unlikely inflation will increase significantly said Michael Moskow, president of the Federal Reserve Bank of Chicago. Moskow also said employment will pick-up as the economy continues to expand and that the Fed can be "patient" on policy accommodation.
BOTTOM LINE: The Portfolio is 100% net long and is down today on weakness in almost every sector. The NYSE Arms Index reached 4.52 this morning. The last time it reached such an extreme level was at the lows last March right before the bull market began. I have not traded as of yet. I am waiting to see if the morning lows on the S&P 500 will hold. I will likely cut market exposure significantly in the afternoon on a convincing break of the morning lows.
NASDAQ 1,907.07 -1.72%
Leading Sectors
Restaurants +.25%
Drugs -.42%
Energy -.64%
Lagging Sectors
I-Banks -2.81%
Networking -3.05%
Airlines -3.17%
Other
Crude Oil 37.15 -2.44%
Natural Gas 5.51 -1.20%
Gold 418.30 +1.36%
Base Metals 112.31 -.67%
U.S. Dollar 87.62 -.58%
10-Yr. Long-Bond Yield 3.74% +.90%
VIX 21.61 +12.85%
Put/Call .82 -19.61%
NYSE Arms 3.18 +56.65%
Market Movers
USON +18.9% on $1.7B buyout by Welsh Carson.
MAGS +26% as investors anticipate increased demand for security systems.
NSSC +21.7% on positive Barron's recommendation.
EWT -11.7% on Taiwan political unrest.
IFF -6.6% after negative "Heard on the Street" column in the WSJ.
SSCC -7.0% after lowering 1Q earnings forecast.
Economic Data
None of note.
Recommendations
Tom Kurlak says in a Street.com editorial that he couldn't disagree more with Wall Street's concern that semiconductors have seen their best earnings growth rates for this cycle. His favorites are INTC, AMAT, TER, MU, BRCM and AVX. Goldman Sachs reiterates Underperform on TE and RKY. GS reiterates Outperform on EBAY, MO, BSX, PAYX, CAKE, WEN, YUM, KO, CCE and PEP. GS raising CBL to Outperform. Goldman becoming more confident in a significant employment pick-up, benefiting SIR, RMK, MLHR and SCS, favorite is KROL. Citi Smith Barney says MU will deliver strong 2Q results and make positive comments on 3Q. HTLD raised to Overweight at Morgan Stanley, $26 target. FON and CCI raised to Overweight at JP Morgan.
Mid-day News
U.S. stocks are falling mid-day on numerous geopolitical concerns, led by weakness in airline and technology shares. WalMart said same-store sales for March are tracking at the high end of the company's plan. Citi Smith Barney Chief North American Economist says that the recent Manpower employment survey is indicative of 700,000 new jobs being created in the second quarter, but that must be seen for investors to be convinced. Makers of antidepressants should better warn doctors and patients about suicide risk for people taking the medicines, the U.S. FDA said. Crude oil futures fell after officials from 2 members of OPEC said the group may postpone a cut in production quotas that was due to start April 1. Concerns that inflation will soon begin increasing are "premature" and it is unlikely inflation will increase significantly said Michael Moskow, president of the Federal Reserve Bank of Chicago. Moskow also said employment will pick-up as the economy continues to expand and that the Fed can be "patient" on policy accommodation.
BOTTOM LINE: The Portfolio is 100% net long and is down today on weakness in almost every sector. The NYSE Arms Index reached 4.52 this morning. The last time it reached such an extreme level was at the lows last March right before the bull market began. I have not traded as of yet. I am waiting to see if the morning lows on the S&P 500 will hold. I will likely cut market exposure significantly in the afternoon on a convincing break of the morning lows.
Monday Watch
Earnings Announcements
Company/Estimates
AMHC/.15
CCL/.22
PLMO/-.33
WAG/.42
Splits
DCI 2-for-1
Economic Data
None of note.
Weekend Recommendations
Louis Rukeyser's Wall Street had featured guests that were positive on AXP, TRV, SPLS, CMCSK, XOM, FDC, LXK, DEO,MCY,PRV, LPNT and CPWM. Forbes on Fox had guests that were positive on BUD, MDT,HIBB, DKS, NKE and FL. Bulls and Bears had guests that were positive on OMM, ALVR, ING, OSTK, mixed on FAF, NT, AZO and negative on Airlines. Cashin' In had guests that were positive on LLL, PAL and mixed on GS, SIRI and MOT. Wall Street Week had guests that were positive on SYNM, FCEL, PLUG, AES, RRI, DPL, WTR, PNR and CUNO. Goldman Sachs says Airline Index has dropped 25% in six weeks and prices are below 9/11 lows. GS thinks top-line growth will accelerate in spring and any sign of a continuation of the profit recovery could result in dramatic outperformance, favorites are ALK, AMR and CAL. Barron's has positive columns on IDG, NSSC, MDT, BBH and SNE. It has negative pieces on the AAPL, the overall market and the U.S. dollar.
Weekend News
Iraq plans to boost crude oil production by 720,000 barrels a day to 2.6 million barrels a day this month. Some Syrians are openly questioning their government and challenging state oppression after watching the overthrow of Saddam Hussein across the border in Iraq, the NY Times reported. Cholesterol reduction and lowering blood pressure may be more effective at preventing heart attacks than medical procedures, the NY Times reported. Yahoo! Inc.'s revenue from its search engine is expected to exceed $3B this year, up from $400M in 2000, the NY Times reported. Taiwan President Chen Shuibian won election to a second term a day after he was shot. Nationalist Party leader Lien Chan, who lost by a quarter of a percentage point, said he will seek to overturn the poll. Lien said the shooting incident looked suspicious and had affected the outcome. Taiwan protestors demanding a recount in Saturday's election blocked a main Taipei boulevard for a second day, prompting a 6.7% decline in the TWSE Index, its worst decline in eight years. China put its army on alert on concern about the political crisis in nearby Taiwan, the South China Morning Post said. Al-Qaeda bought nuclear suitcase bombs on the black market from disgruntled Russian scientists, reported the Sydney Morning Herald. Pakistan's army halted an offensive against a force of suspected al-Qaeda and Taliban supporters to allow tribal leaders to negotiate a surrender, the military said. Rumors continue to swirl regarding al-Zawahiri, al-Qaeda's number 2 man, without confirmation regarding his whereabouts. 25% of all retail shopping will be done over the internet within five years compared to 4.2% last year, the Financial Times reported.
Late-Night Trading
Asian indices are mostly lower, with Taiwan's TWSE Index falling substantially. Losses range from -1.0% to -2.0%. Taiwan is down 6.7%.
S&P 500 indicated -.10%.
NASDAQ indicated -.14%.
BOTTOM LINE: Weakness in Asia will likely result in morning losses for U.S. stocks. I will closely monitor the breadth and volume readings on any gap down open. I will not sell into any substantial weakness in the morning. However, I will make a decision later in the day on whether or not to cut market exposure substantially. The Portfolio is currently 100% net long.
Company/Estimates
AMHC/.15
CCL/.22
PLMO/-.33
WAG/.42
Splits
DCI 2-for-1
Economic Data
None of note.
Weekend Recommendations
Louis Rukeyser's Wall Street had featured guests that were positive on AXP, TRV, SPLS, CMCSK, XOM, FDC, LXK, DEO,MCY,PRV, LPNT and CPWM. Forbes on Fox had guests that were positive on BUD, MDT,HIBB, DKS, NKE and FL. Bulls and Bears had guests that were positive on OMM, ALVR, ING, OSTK, mixed on FAF, NT, AZO and negative on Airlines. Cashin' In had guests that were positive on LLL, PAL and mixed on GS, SIRI and MOT. Wall Street Week had guests that were positive on SYNM, FCEL, PLUG, AES, RRI, DPL, WTR, PNR and CUNO. Goldman Sachs says Airline Index has dropped 25% in six weeks and prices are below 9/11 lows. GS thinks top-line growth will accelerate in spring and any sign of a continuation of the profit recovery could result in dramatic outperformance, favorites are ALK, AMR and CAL. Barron's has positive columns on IDG, NSSC, MDT, BBH and SNE. It has negative pieces on the AAPL, the overall market and the U.S. dollar.
Weekend News
Iraq plans to boost crude oil production by 720,000 barrels a day to 2.6 million barrels a day this month. Some Syrians are openly questioning their government and challenging state oppression after watching the overthrow of Saddam Hussein across the border in Iraq, the NY Times reported. Cholesterol reduction and lowering blood pressure may be more effective at preventing heart attacks than medical procedures, the NY Times reported. Yahoo! Inc.'s revenue from its search engine is expected to exceed $3B this year, up from $400M in 2000, the NY Times reported. Taiwan President Chen Shuibian won election to a second term a day after he was shot. Nationalist Party leader Lien Chan, who lost by a quarter of a percentage point, said he will seek to overturn the poll. Lien said the shooting incident looked suspicious and had affected the outcome. Taiwan protestors demanding a recount in Saturday's election blocked a main Taipei boulevard for a second day, prompting a 6.7% decline in the TWSE Index, its worst decline in eight years. China put its army on alert on concern about the political crisis in nearby Taiwan, the South China Morning Post said. Al-Qaeda bought nuclear suitcase bombs on the black market from disgruntled Russian scientists, reported the Sydney Morning Herald. Pakistan's army halted an offensive against a force of suspected al-Qaeda and Taliban supporters to allow tribal leaders to negotiate a surrender, the military said. Rumors continue to swirl regarding al-Zawahiri, al-Qaeda's number 2 man, without confirmation regarding his whereabouts. 25% of all retail shopping will be done over the internet within five years compared to 4.2% last year, the Financial Times reported.
Late-Night Trading
Asian indices are mostly lower, with Taiwan's TWSE Index falling substantially. Losses range from -1.0% to -2.0%. Taiwan is down 6.7%.
S&P 500 indicated -.10%.
NASDAQ indicated -.14%.
BOTTOM LINE: Weakness in Asia will likely result in morning losses for U.S. stocks. I will closely monitor the breadth and volume readings on any gap down open. I will not sell into any substantial weakness in the morning. However, I will make a decision later in the day on whether or not to cut market exposure substantially. The Portfolio is currently 100% net long.
Sunday, March 21, 2004
Charts of the Week
BOTTOM LINE: The above chart(shaded areas are recessions) shows the current unemployment rate of 5.6% is below the average for any ten-year period during the last 30 years. However, many say that this number isn't relevant as the number of people dropping out of the labor force is rising. These people are said to be so discouraged that they have given up on looking for a job. A recent Business Week article suggests that this is not the case. The article says that almost all of the drop in labor participation is in the 16-24 age group, specifically the 20-24 year olds. The above charts verify this analysis. It is my contention that with American's net worth at all-time highs, more and more 20-24 year olds are attending college and graduate school, thus resulting in a lower labor participation rate by this age group.
Weekly Outlook
The coming week is relatively light on market-moving economic reports and earnings releases. Durable Goods Orders, New Home Sales, 4Q Final GDP, Existing Home Sales, Help Wanted Index, Personal Income, Personal Spending and the Final U. of Mich. Confidence reading for March are scheduled for release next week. Durable Goods Orders and Consumer Confidence are the most important releases. Durable Goods Orders are estimated +1.5% versus -2.3% in January. The Final reading from the U. of Mich. Consumer Confidence Index for March is expected to be 93.5 vs. a prior estimate of 94.1.
To date, there have been only 1.7 earnings warnings for the upcoming quarter to every positive preannouncement, significantly lower than the average of 2.5. Walgreen(WAG), Micron(MU), Carnival Corp.(CCL), Goldman Sachs(GS) and EchoStar(DISH) are some of the more important companies that release quarterly earnings this week. PeopleSoft's(PSFT) annual stockholder meeting on Thurs. will be of interest as investors look for comments on Oracle's takeover bid. Several Fed Governors speak throughout the week as well. The CTIA Wireless Conference lasts all week. Amgen's Research and Development Day is Tues. Applied Materials(AMAT) annual meeting is Wed. Finally, Nokia's(NOK) annual meeting is scheduled for Thur.
BOTTOM LINE: The Portfolio is 100% net long heading into the week. I am overweight gaming, base metal and homebuilding stocks on the long-side. I would like to see 466 hold on the Morgan Stanley High-tech Index and 463 hold on the Semiconductor Index. In my opinion, these levels are crucial to the short-term direction of the entire market. I will likely reduce market exposure substantially on a convincing break of these levels. A rally early next week will likely lead me to increase tech exposure. I would like to reiterate that the S&P 500 2004 P/E is 17.9(where it is was in the late 80's and down over 60% from its high set in 02) and falling, the economy is growing the fastest since the mid-80's, interest rates are still near 46-year lows, corporate profitability is at all-time highs, American's net-worth is at all-time highs, corporate spending is improving, consumer spending remains strong, the Fed remains on hold as inflation hovers near all-time lows, energy prices will likely fall into the spring, the unemployment rate is falling with improvement in job creation around the corner and the U.S. dollar has stabilized. These are all very important reasons that I believe the recent weakness is just a healthy correction in a bull market that began a year ago.
To date, there have been only 1.7 earnings warnings for the upcoming quarter to every positive preannouncement, significantly lower than the average of 2.5. Walgreen(WAG), Micron(MU), Carnival Corp.(CCL), Goldman Sachs(GS) and EchoStar(DISH) are some of the more important companies that release quarterly earnings this week. PeopleSoft's(PSFT) annual stockholder meeting on Thurs. will be of interest as investors look for comments on Oracle's takeover bid. Several Fed Governors speak throughout the week as well. The CTIA Wireless Conference lasts all week. Amgen's Research and Development Day is Tues. Applied Materials(AMAT) annual meeting is Wed. Finally, Nokia's(NOK) annual meeting is scheduled for Thur.
BOTTOM LINE: The Portfolio is 100% net long heading into the week. I am overweight gaming, base metal and homebuilding stocks on the long-side. I would like to see 466 hold on the Morgan Stanley High-tech Index and 463 hold on the Semiconductor Index. In my opinion, these levels are crucial to the short-term direction of the entire market. I will likely reduce market exposure substantially on a convincing break of these levels. A rally early next week will likely lead me to increase tech exposure. I would like to reiterate that the S&P 500 2004 P/E is 17.9(where it is was in the late 80's and down over 60% from its high set in 02) and falling, the economy is growing the fastest since the mid-80's, interest rates are still near 46-year lows, corporate profitability is at all-time highs, American's net-worth is at all-time highs, corporate spending is improving, consumer spending remains strong, the Fed remains on hold as inflation hovers near all-time lows, energy prices will likely fall into the spring, the unemployment rate is falling with improvement in job creation around the corner and the U.S. dollar has stabilized. These are all very important reasons that I believe the recent weakness is just a healthy correction in a bull market that began a year ago.
Market Week in Review
S&P 500 1,109.78 -.96%
U.S. stocks fell last week, sending the S&P 500 to its first back-to-back weekly decline since November. Benchmark indices reached new lows for the year Monday on a possible al-Qaeda link to the March 11 attack in Madrid. Airline and Semiconductor companies led the way on the downside. Stubbornly high energy prices and fears that terrorism would slow travel hurt the Airline Index. Semiconductors were weaker on fears that a significant increase in Chinese production next year will result in overcapacity and price erosion. Base metal and mining stocks were the only consistently positive groups on the week as Nucor, the largest U.S. maker of steel using recycled metal, boosted its profit forecast dramatically and commodity prices continued their rise on insatiable Chinese demand.
Positive comments by the Fed with respect to the timing of a possible rate hike and reports that al-Qaeda's al-Zawahri was surrounded on the Afghan border provided the catalyst for a brief rally mid-week. Very good earnings reports from 3M, GE, Bear Stearns, Lehman Brothers and Morgan Stanley also contributed to the short-lived rally. By Friday, the bears had regained control as rumors surfaced that al-Zawahri had escaped the Pakistani-led assault. Reports that Microsoft failed to reach an agreement in settlement talks with the EU and extreme weakness in semiconductors on negative comments by Taiwan Semi also contributed to Friday's sell-off.
BOTTOM LINE: The Semiconductor Index(SOX) is trading right on its 200 day moving average at 463. If the recent correction is nearing an end I would expect to see this level hold. However, if the SOX breaks 463 convincingly I will anticipate further down-side in the NASDAQ which will in turn lead to further overall market erosion and a continuation of the recent correction. I doubt that China will be able to produce enough high-quality semiconductors next year to significantly hurt global pricing. This will likely become a problem at some point in the future, but not next year. While foreign travel may be hurt as a result of terrorism, I believe that domestic travel will be exceptionally strong this season on American's record-high net-worth, tax-cut stimulus and historically low interest rates. However, a continuation of the recent increases in crude oil prices will seriously damage the financial health of some U.S. airlines in the future. I view Microsoft's problems as mostly temporary and would recommend long-term conservative investors seeking tech exposure to begin buying at current levels. Overall, last week saw quite a bit of fundamentally positive news. Earnings at major U.S. corporations continue to surprise analysts on the up-side, leading to rapidly falling price/earnings ratios. With interest rates remaining near 46-year lows, the strongest economic growth since the mid-80's and record-high corporate profitability I continue to believe that the recent decline is just a healthy correction within the confines of a bull market that began a year ago.
U.S. stocks fell last week, sending the S&P 500 to its first back-to-back weekly decline since November. Benchmark indices reached new lows for the year Monday on a possible al-Qaeda link to the March 11 attack in Madrid. Airline and Semiconductor companies led the way on the downside. Stubbornly high energy prices and fears that terrorism would slow travel hurt the Airline Index. Semiconductors were weaker on fears that a significant increase in Chinese production next year will result in overcapacity and price erosion. Base metal and mining stocks were the only consistently positive groups on the week as Nucor, the largest U.S. maker of steel using recycled metal, boosted its profit forecast dramatically and commodity prices continued their rise on insatiable Chinese demand.
Positive comments by the Fed with respect to the timing of a possible rate hike and reports that al-Qaeda's al-Zawahri was surrounded on the Afghan border provided the catalyst for a brief rally mid-week. Very good earnings reports from 3M, GE, Bear Stearns, Lehman Brothers and Morgan Stanley also contributed to the short-lived rally. By Friday, the bears had regained control as rumors surfaced that al-Zawahri had escaped the Pakistani-led assault. Reports that Microsoft failed to reach an agreement in settlement talks with the EU and extreme weakness in semiconductors on negative comments by Taiwan Semi also contributed to Friday's sell-off.
BOTTOM LINE: The Semiconductor Index(SOX) is trading right on its 200 day moving average at 463. If the recent correction is nearing an end I would expect to see this level hold. However, if the SOX breaks 463 convincingly I will anticipate further down-side in the NASDAQ which will in turn lead to further overall market erosion and a continuation of the recent correction. I doubt that China will be able to produce enough high-quality semiconductors next year to significantly hurt global pricing. This will likely become a problem at some point in the future, but not next year. While foreign travel may be hurt as a result of terrorism, I believe that domestic travel will be exceptionally strong this season on American's record-high net-worth, tax-cut stimulus and historically low interest rates. However, a continuation of the recent increases in crude oil prices will seriously damage the financial health of some U.S. airlines in the future. I view Microsoft's problems as mostly temporary and would recommend long-term conservative investors seeking tech exposure to begin buying at current levels. Overall, last week saw quite a bit of fundamentally positive news. Earnings at major U.S. corporations continue to surprise analysts on the up-side, leading to rapidly falling price/earnings ratios. With interest rates remaining near 46-year lows, the strongest economic growth since the mid-80's and record-high corporate profitability I continue to believe that the recent decline is just a healthy correction within the confines of a bull market that began a year ago.
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