BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is below average. Most professional and individual investors have not embraced the recent rally despite the fact that the S&P 500 is poised to post its best third quarter in 11 years. In fact, short interest on the NYSE and Nasdaq is at all-time highs. Most bearish sentiment readings are still very high considering the DJIA is less than 50 points from an all-time high. The ISE Sentiment Index has bounced around depressed levels for months. The OEX Put/Call ratio has been elevated during this time, as well. Domestic stock mutual funds are still seeing outflows. Commodity and emerging market funds, which have received huge capital infusions this year, will likely see significant outflows at year-end. How many times earlier in the year did we hear investment managers talk about the mid-term election cycle decline they expected and that they were already positioned for it? Historically, the average bottom for mid-term election cycle lows is tomorrow. There is still massive bull firepower available to push the major averages even higher through year-end. I sense we are still in the early stages of a stunning rally. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.
Friday, September 29, 2006
Stocks Lower into Final Hour on Quarter-end Profit-taking
Today's Headlines
Bloomberg:
- OPEC, seeking to stem a two-month plunge in oil prices, said Venezuela and Nigeria will cut crude production by a combined 170,000 barrels a day.
- Pirate Capital founder Thomas Hudson, seeking to calm investors after half of his staff left, told clients of the hedge-fund company that he plans to deliver returns of more than 20%.
- A more rapid slowdown in economic growth and further signs of waning inflation would be needed to prompt the Fed to cut interest rates, St. Louis Fed Bank President William Poole said. Poole also said the “worst inflation news may be behind us.”
- The Fed will probably lower its benchmark interest rate in the first quarter of 2007 as inflation pressures diminish, according to economists at Citigroup(C).
Wall Street Journal:
- President Bush plans to focus on easing bottlenecks slowing the distribution of ethanol during his remaining time in office.
- The SEC relaxed a rule that controls the number of agreements mutual funds must enter and the time they have to file shareholder information.
- The FASB is starting a series of changes in policies that could have a big impact on companies, investors and workers with defined-benefit pension plans.
NY Times:
- New York’s overall crime rate has fallen 5% so far this year compared with the same period in 2005.
Washington Post:
- Muslim leaders in the US said they will try to get more of the country’s 2.2 million voting-age Muslims to vote this year.
- Iran may be moving more slowing to enrich uranium than previously believed because of technical difficulties with the process.
Boston Globe:
- Harvard University and four other colleges have agreed to donate $10 million in cash and services to 10 of Boston’s poorly performing public shools.
CNBC:
- Amaranth Group’s talks with Citigroup to gain working capital ended last night, which may force the hedge fund to begin liquidating all its positions.
Variety:
- Apple Computer(AAPL) and Wal-Mart(WMT) are in talks to form an alliance that would allow the retailer to profit from iTunes downloads and give Apple(AAPL) access to more film titles from the major Hollywood studios.
Oriental Morning Post:
- Wal-Mart Stores(WMT) may pay $200 million to buy 27 stores from Trust-Mart, a Taiwan-based mainland China supermarket chain operator.
El Universal:
- A Florida lawmaker is calling for sanctions against Citgo Petroleum, the US subsidiary of Venezuela’s state oil company, after Venezuelan President Hugo Chavez called President Bush “the devil” at the United Nations meeting last week in New York. State Representative Hasner asked Florida’s Transportation Dept. to force Citgo-affiliated gasoline stations from the Florida Turnpike because of Chavez’s remarks. Chavez should be given a clear message that “Florida won’t support institutions that seek the destabilization of the US,” Hasner said. 7-Eleven, the largest US operator of convenience stores, said it will start selling gasoline under its own brand after a 20-year relationship with Citgo Petroleum.
- OPEC, seeking to stem a two-month plunge in oil prices, said Venezuela and Nigeria will cut crude production by a combined 170,000 barrels a day.
- Pirate Capital founder Thomas Hudson, seeking to calm investors after half of his staff left, told clients of the hedge-fund company that he plans to deliver returns of more than 20%.
- A more rapid slowdown in economic growth and further signs of waning inflation would be needed to prompt the Fed to cut interest rates, St. Louis Fed Bank President William Poole said. Poole also said the “worst inflation news may be behind us.”
- The Fed will probably lower its benchmark interest rate in the first quarter of 2007 as inflation pressures diminish, according to economists at Citigroup(C).
Wall Street Journal:
- President Bush plans to focus on easing bottlenecks slowing the distribution of ethanol during his remaining time in office.
- The SEC relaxed a rule that controls the number of agreements mutual funds must enter and the time they have to file shareholder information.
- The FASB is starting a series of changes in policies that could have a big impact on companies, investors and workers with defined-benefit pension plans.
NY Times:
- New York’s overall crime rate has fallen 5% so far this year compared with the same period in 2005.
Washington Post:
- Muslim leaders in the US said they will try to get more of the country’s 2.2 million voting-age Muslims to vote this year.
- Iran may be moving more slowing to enrich uranium than previously believed because of technical difficulties with the process.
Boston Globe:
- Harvard University and four other colleges have agreed to donate $10 million in cash and services to 10 of Boston’s poorly performing public shools.
CNBC:
- Amaranth Group’s talks with Citigroup to gain working capital ended last night, which may force the hedge fund to begin liquidating all its positions.
Variety:
- Apple Computer(AAPL) and Wal-Mart(WMT) are in talks to form an alliance that would allow the retailer to profit from iTunes downloads and give Apple(AAPL) access to more film titles from the major Hollywood studios.
Oriental Morning Post:
- Wal-Mart Stores(WMT) may pay $200 million to buy 27 stores from Trust-Mart, a Taiwan-based mainland China supermarket chain operator.
El Universal:
- A Florida lawmaker is calling for sanctions against Citgo Petroleum, the US subsidiary of Venezuela’s state oil company, after Venezuelan President Hugo Chavez called President Bush “the devil” at the United Nations meeting last week in New York. State Representative Hasner asked Florida’s Transportation Dept. to force Citgo-affiliated gasoline stations from the Florida Turnpike because of Chavez’s remarks. Chavez should be given a clear message that “Florida won’t support institutions that seek the destabilization of the US,” Hasner said. 7-Eleven, the largest US operator of convenience stores, said it will start selling gasoline under its own brand after a 20-year relationship with Citgo Petroleum.
Personal Incomes Rise, Spending Decelerates, Confidence Increases and Chicago Manufacturing Surges
- Personal Income for August rose .3% versus estimates of a .3% gain and a .5% increase in July.
- Personal Spending for August rose .1% versus estimates of a .2% increase and a .8% gain in July.
- The PCE Core for August rose .2% versus estimates of a .2% increase and a .1% gain in July.
- Final Univ. of Mich. Consumer Confidence for Sept. rose to 85.4 versus estimates of 85.0 and a reading of 84.4 in August.
- The Chicago Purchasing Manager Index for Sept. rose to 62.1 versus estimates of 55.7 and a reading of 57.1 in August.
- Personal Spending for August rose .1% versus estimates of a .2% increase and a .8% gain in July.
- The PCE Core for August rose .2% versus estimates of a .2% increase and a .1% gain in July.
- Final Univ. of Mich. Consumer Confidence for Sept. rose to 85.4 versus estimates of 85.0 and a reading of 84.4 in August.
- The Chicago Purchasing Manager Index for Sept. rose to 62.1 versus estimates of 55.7 and a reading of 57.1 in August.
BOTTOM LINE: Consumer spending in the US rose .1% last month, Bloomberg reported. This comes on the heels of a .8% surge in July. Disposable income rose .4% and is now 8.8% higher from year-ago levels, almost three times the rate of inflation. The core pce, the Fed’s favorite inflation gauge, rose .2%. I expect consumer spending to accelerate over the next few months as stocks rise more, interest rates remain low, sentiment improves, energy prices fall further and the job market remains healthy. I expect the core pce to decelerate over the intermediate-term.
Falling gasoline prices pushed confidence among American consumers to the highest level in five months in September, Bloomberg reported. The expectations component of the index, which economists link to future consumer spending, surged to 78.2 from 68 the prior month. Consumers expect inflation to moderate to 3.1% over the next 12 months versus expectations of a 3.8% gain in the prior survey. The average price of a gallon of regular gasoline fell to $2.34 on Sept. 27 from $2.79 at the end of August, according to the American Auto Assoc. 33% of Americans said they are spending more on other goods after the fall in gas prices, a recent Bloomberg survey showed. A 7.7% gain in Americans’ wages during the second quarter is also boosting sentiment. I still expect consumer sentiment to reach new cycle highs over the intermediate-term as stocks rise, inflation decelerates, energy prices continue to decline, interest rates remain low, housing stabilizes at relatively high levels, the job market remains healthy and irrational pessimism lifts further.
Manufacturing in the Chicago area unexpectedly accelerated this month to the highest since July 2005 as new orders picked up, Bloomberg said. Strong profits, rising confidence, falling energy prices and inventory rebuilding are spurring companies to boost production. The new orders component of the index jumped to an 11-month high of 67.3 from 59.6 the prior month. The prices paid component of the index fell to 69.8, the lowest in 13 months from 75.2 the prior month. The Chicago Fed said its district makes 40% of US motor vehicles. I am surprised by the strength in Chicago manufacturing considering auto production cutbacks. Plunging energy prices are so far offsetting this. I will closely monitor the ISM Manufacturing report next week.
Thursday, September 28, 2006
Friday Watch
Late-Night Headlines
Bloomberg:
- Crude oil is falling a second day in NY on signs slowing demand growth may extend above-average fuel stockpiles in the US.
- Research In Motion Ltd.(RIMM), maker of the BlackBerry device, said second-quarter profit rose 27% as more consumers sought phones with e-mail service and Internet access. The shares surged 20% in after-hours trading.
- The US Senate joined the House in authorizing President Bush to begin military war-crimes trials of suspected terrorists detained at the US Navy Base at Guantanamo Bay, Cuba.
- Japan’s industrial production rebounded as accelerating export growth prompted manufacturers to increase output.
- Copper in Shanghai declined on signs of slowing demand in the US, the world’s second-largest user of the metal.
Wall Street Journal:
- Goldman Sachs(GS) was the top-earning investment bank in Asia, excluding Japan, in the first nine months of the year, according to figures provided by Dealogic Plc.
Financial Times:
- Time Warner Inc.(TWX), the world’s largest media company, is putting its cable network at the center of a strategy to capture a large part of the digital distribution of movies and television shows.
Chronicle of Philanthropy:
- Hispanic charities in the US saw their contributions more than double as they attracted the attention of some of the country’s largest charitable foundations.
Late Buy/Sell Recommendations
Citigroup:
- Lowered its estimates for the euro and yen against the dollar heading into next year, on the expectation the US currency will stage a rally in 2007.
Night Trading
Asian Indices are -.25% to +.505% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.25%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (COCO)/.13
- (GPN)/.43
Upcoming Splits
- (ATE) 1-for-2
- (PCU) 2-for-1
- (GEO) 3-for-2
Economic Releases
8:30 am EST
- Personal Income for August is estimated to rise .3% versus a .5% gain in July.
- Personal Spending for August is estimated to rise .2% versus a .8% gain in July.
- PCE Core for August is estimated to rise .2% versus a .1% gain in July.
9:45 am EST
- Final Univ. of Mich. Consumer Confidence for September is estimated to rise to 85.0 versus a reading of 84.4 in August.
10:00 am EST
- The Chicago Purchasing Manager for September is estimated to fall to 55.7 versus a reading of 57.1 in August.
Bloomberg:
- Crude oil is falling a second day in NY on signs slowing demand growth may extend above-average fuel stockpiles in the US.
- Research In Motion Ltd.(RIMM), maker of the BlackBerry device, said second-quarter profit rose 27% as more consumers sought phones with e-mail service and Internet access. The shares surged 20% in after-hours trading.
- The US Senate joined the House in authorizing President Bush to begin military war-crimes trials of suspected terrorists detained at the US Navy Base at Guantanamo Bay, Cuba.
- Japan’s industrial production rebounded as accelerating export growth prompted manufacturers to increase output.
- Copper in Shanghai declined on signs of slowing demand in the US, the world’s second-largest user of the metal.
Wall Street Journal:
- Goldman Sachs(GS) was the top-earning investment bank in Asia, excluding Japan, in the first nine months of the year, according to figures provided by Dealogic Plc.
Financial Times:
- Time Warner Inc.(TWX), the world’s largest media company, is putting its cable network at the center of a strategy to capture a large part of the digital distribution of movies and television shows.
Chronicle of Philanthropy:
- Hispanic charities in the US saw their contributions more than double as they attracted the attention of some of the country’s largest charitable foundations.
Late Buy/Sell Recommendations
Citigroup:
- Lowered its estimates for the euro and yen against the dollar heading into next year, on the expectation the US currency will stage a rally in 2007.
Night Trading
Asian Indices are -.25% to +.505% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.25%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (COCO)/.13
- (GPN)/.43
Upcoming Splits
- (ATE) 1-for-2
- (PCU) 2-for-1
- (GEO) 3-for-2
Economic Releases
8:30 am EST
- Personal Income for August is estimated to rise .3% versus a .5% gain in July.
- Personal Spending for August is estimated to rise .2% versus a .8% gain in July.
- PCE Core for August is estimated to rise .2% versus a .1% gain in July.
9:45 am EST
- Final Univ. of Mich. Consumer Confidence for September is estimated to rise to 85.0 versus a reading of 84.4 in August.
10:00 am EST
- The Chicago Purchasing Manager for September is estimated to fall to 55.7 versus a reading of 57.1 in August.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.
Dow Jones Industrial Average Finishes 4 Points from All-time Closing High
Indices
S&P 500 1,339.15 +.19%
DJIA 11,718.45 +.25%
NASDAQ 2,270.02 +.29%
Russell 2000 732.56 +.00%
Wilshire 5000 13,360.81 +.16%
S&P Barra Growth 621.96 +.17%
S&P Barra Value 715.05 +.21%
Morgan Stanley Consumer 656.04 +.13%
Morgan Stanley Cyclical 825.39 +.50%
Morgan Stanley Technology 534.84 +.76%
Transports 4,466.54 -.31%
Utilities 432.90 -.44%
Put/Call .85 +1.19%
NYSE Arms 1.03 -7.07%
Volatility(VIX) 11.72 +1.21%
ISE Sentiment 101.0 -12.17%
US Dollar 85.76 +.08%
CRB 305.13 +.27%
Futures Spot Prices
Crude Oil 62.51 -.71%
Unleaded Gasoline 150.00 -2.59%
Natural Gas 5.37 -5.19%
Heating Oil 170.90 -.30%
Gold 607.50 -.56%
Base Metals 233.87 +.28%
Copper 342.65 -.04%
10-year US Treasury Yield 4.61% +.34%
Leading Sectors
Semis +.95%
Computer Services +.83%
Internet +.67%
Lagging Sectors
Gold & Silver -.61%
Airlines -1.35%
Oil Tankers -1.66%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
- None of note
Afternoon/Evening Headlines
Bloomberg:
- OPEC members are cutting production on a “voluntary basis,” Platts reported, citing acting secretary-general, Mohammed Barkindo. Barkindo said he met with Saudi Arabian Oil Minister Ali al-Naimi earlier this week and that the country is already reducing output. Kuwait won’t cut production based on current prices. Oil is trading down .50 despite this news.
- Natural gas dropped another 5% on record-high inventories and mild weather.
- Former American International Group(AIG) Chairman Maurice “Hank” Greenberg and the Starr Foundation will give Yale University $50 million to support China-related education program.
- Vega Select Opportunities hedge fund, known for making large bets on the bond market, dropped 8.3% in the first three weeks of September as prices for US Treasuries climbed.
- Lumber prices in Chicago fell to the lowest in more than three years on speculation Canadian suppliers are boosting shipments to the US to earn more before implementation of a softwood-lumber trading accord.
- Starbucks(SBUX) will begin selling warm breakfast sandwiches at NY-area stores next week after testing them in Seattle and Chicago.
CNBC:
- Most of Pirate Capital LLC’s analyst quit this morning following a dispute with Thomas Hudson, the founder of the $1.8 billion hedge fund.
S&P 500 1,339.15 +.19%
DJIA 11,718.45 +.25%
NASDAQ 2,270.02 +.29%
Russell 2000 732.56 +.00%
Wilshire 5000 13,360.81 +.16%
S&P Barra Growth 621.96 +.17%
S&P Barra Value 715.05 +.21%
Morgan Stanley Consumer 656.04 +.13%
Morgan Stanley Cyclical 825.39 +.50%
Morgan Stanley Technology 534.84 +.76%
Transports 4,466.54 -.31%
Utilities 432.90 -.44%
Put/Call .85 +1.19%
NYSE Arms 1.03 -7.07%
Volatility(VIX) 11.72 +1.21%
ISE Sentiment 101.0 -12.17%
US Dollar 85.76 +.08%
CRB 305.13 +.27%
Futures Spot Prices
Crude Oil 62.51 -.71%
Unleaded Gasoline 150.00 -2.59%
Natural Gas 5.37 -5.19%
Heating Oil 170.90 -.30%
Gold 607.50 -.56%
Base Metals 233.87 +.28%
Copper 342.65 -.04%
10-year US Treasury Yield 4.61% +.34%
Leading Sectors
Semis +.95%
Computer Services +.83%
Internet +.67%
Lagging Sectors
Gold & Silver -.61%
Airlines -1.35%
Oil Tankers -1.66%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
- None of note
Afternoon/Evening Headlines
Bloomberg:
- OPEC members are cutting production on a “voluntary basis,” Platts reported, citing acting secretary-general, Mohammed Barkindo. Barkindo said he met with Saudi Arabian Oil Minister Ali al-Naimi earlier this week and that the country is already reducing output. Kuwait won’t cut production based on current prices. Oil is trading down .50 despite this news.
- Natural gas dropped another 5% on record-high inventories and mild weather.
- Former American International Group(AIG) Chairman Maurice “Hank” Greenberg and the Starr Foundation will give Yale University $50 million to support China-related education program.
- Vega Select Opportunities hedge fund, known for making large bets on the bond market, dropped 8.3% in the first three weeks of September as prices for US Treasuries climbed.
- Lumber prices in Chicago fell to the lowest in more than three years on speculation Canadian suppliers are boosting shipments to the US to earn more before implementation of a softwood-lumber trading accord.
- Starbucks(SBUX) will begin selling warm breakfast sandwiches at NY-area stores next week after testing them in Seattle and Chicago.
CNBC:
- Most of Pirate Capital LLC’s analyst quit this morning following a dispute with Thomas Hudson, the founder of the $1.8 billion hedge fund.
BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Medical and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was modestly bullish. The Dow Jones Industrial Average finished 4 points from an all-time closing high. However, the ISE Sentiment Index dropped another 12% to a very low 101.0. What is even more interesting is the persistent bearishness displayed by this group of options traders during the entire rally since July. The 50-day moving average of the ISE Sentiment Index is now the furthest below its 200-day moving-average since its inception in 2004. This bodes well for a continuation of recent broad market strength and a convincing breakout to new highs on the DJIA.
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