BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Telecom longs and Semi longs. I covered my (IWM)/(QQQQ) hedges into this morning’s weakness, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, sector performance is mixed and volume is above-average. One of the amazing characteristics of the current 18% S&P 500 rally since 2006 lows is how small every pullback is. Besides a great macro backdrop for stocks, I think another main reason for this is the stunning complacency by the bears and relentless rise in short interest. I have seen few signs of short capitulation, notwithstanding the strong market advance. Maybe the macro backdrop will worsen but from my view it is currently improving. The recent trading range to start the year is just allowing the shorts to reload, which makes another upside breakout that much more likely. The 10-year yield remains stable today at 4.88% despite this morning's strong data. I also heard several pundits say that the historic quarterly double-digit earnings growth gains by the S&P 500 is ending this earnings season. I suspect those predictions will be proven incorrect. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, short-covering, more economic optimism and stable long-term rates.
Friday, January 26, 2007
Stocks Mostly Higher Into Final Hour on More Economic Optimism, Short-Covering
Today's Headlines
Bloomberg:
- US Federal Reserve officials on Wednesday may restate an inclination to raise interest rates rather than to lower them because they may be worried about inflation.
- Alan Greenspan’s book, “The Age of Turbulence,” will be published Sept. 17 and the promotional tour may include an appearance with television host Jay Leno.
- John Thain plans to bring the world’s biggest stock exchange back into the market for corporate bonds.
- MH Alshaya, a Kuwaiti retailer, plans to open Starbucks Corp.’s(SBUX) first 10 Russian stores this year as the US coffee-shop chain starts expansion into an economy entering its ninth consecutive year of growth.
- The International Energy Agency’s chief economist, Fatih Birol, said current oil prices of more than $50 a barrel are too high, at about five times the average cost of production.
- Gold prices in NY are falling the most in a week as a rally in the value of the US dollar against the euro eroded the appeal of the metal as an alternative investment.
- Crude oil is rising .90/bbl. increasing speculation by investment funds after recent weather trends have turned colder.
- Copper prices in NY are falling 1% on speculation rising inventories will outpace demand for the metal.
Wall Street Journal:
- Hedge funds are borrowing shares increasingly often to determine the outcomes of company votes, and may thus be undermining efforts to strengthen corporate governance.
- President Bush’s proposed alternative energy agenda may lead to more government subsidies for converting coal into diesel fuel, setting off a battle with environmentalists.
- US Treasury Secretary Henry Paulson said the Bush administration’s budget for fiscal 2008 will include proposals aimed at slowing the rate of growth in Medicare spending.
- Ukrainian Prime Minister Viktor Yanukovych said he’s working to build a pipeline to transport oil from the Caspian Sea area directly to the European Union.
Washington Post:
- Google Inc.(GOOG), Yahoo! Inc.(YHOO) and other search engines are looking to improve the incomplete search results people typically encounter when they comb the Internet for videos.
Financial Times:
- A coalition of leading pension funds wants US regulators and lawmakers to give them the right to vote “no confidence” on executive pay packages.
Nikkei English News:
- Toshiba Corp. is considering delaying construction of a flash-memory plant unit at least next year because of declining prices for the devices.
Cyprus Weekly:
- Exxon Mobil Corp.(XOM) and BP Plc(BP) are among companies that may bid for oil exploration offshore Cyprus, citing Commerce and Industry Minister Antonis Michaelides.
Napi Gazdasag:
- An Australian energy company is planning to construct a $161 million bio-diesel production facility in southern Hungary.
- US Federal Reserve officials on Wednesday may restate an inclination to raise interest rates rather than to lower them because they may be worried about inflation.
- Alan Greenspan’s book, “The Age of Turbulence,” will be published Sept. 17 and the promotional tour may include an appearance with television host Jay Leno.
- John Thain plans to bring the world’s biggest stock exchange back into the market for corporate bonds.
- MH Alshaya, a Kuwaiti retailer, plans to open Starbucks Corp.’s(SBUX) first 10 Russian stores this year as the US coffee-shop chain starts expansion into an economy entering its ninth consecutive year of growth.
- The International Energy Agency’s chief economist, Fatih Birol, said current oil prices of more than $50 a barrel are too high, at about five times the average cost of production.
- Gold prices in NY are falling the most in a week as a rally in the value of the US dollar against the euro eroded the appeal of the metal as an alternative investment.
- Crude oil is rising .90/bbl. increasing speculation by investment funds after recent weather trends have turned colder.
- Copper prices in NY are falling 1% on speculation rising inventories will outpace demand for the metal.
Wall Street Journal:
- Hedge funds are borrowing shares increasingly often to determine the outcomes of company votes, and may thus be undermining efforts to strengthen corporate governance.
- President Bush’s proposed alternative energy agenda may lead to more government subsidies for converting coal into diesel fuel, setting off a battle with environmentalists.
- US Treasury Secretary Henry Paulson said the Bush administration’s budget for fiscal 2008 will include proposals aimed at slowing the rate of growth in Medicare spending.
- Ukrainian Prime Minister Viktor Yanukovych said he’s working to build a pipeline to transport oil from the Caspian Sea area directly to the European Union.
Washington Post:
- Google Inc.(GOOG), Yahoo! Inc.(YHOO) and other search engines are looking to improve the incomplete search results people typically encounter when they comb the Internet for videos.
Financial Times:
- A coalition of leading pension funds wants US regulators and lawmakers to give them the right to vote “no confidence” on executive pay packages.
Nikkei English News:
- Toshiba Corp. is considering delaying construction of a flash-memory plant unit at least next year because of declining prices for the devices.
Cyprus Weekly:
- Exxon Mobil Corp.(XOM) and BP Plc(BP) are among companies that may bid for oil exploration offshore Cyprus, citing Commerce and Industry Minister Antonis Michaelides.
Napi Gazdasag:
- An Australian energy company is planning to construct a $161 million bio-diesel production facility in southern Hungary.
Durable Goods Orders Surge, New Home Sales Jump, Housing Inventories Fall Again
- Durable Goods Orders for December rose 3.1% versus estimates of 3.0% and an upwardly revised 2.2% in November.
- Durables Ex Transports for December rose 2.3% versus estimates of a .5% gain and a -1.0% decline in November.
- New Home Sales for December rose to 1120K versus estimates of 1052K and an upwardly revised 1069K in November.
- Durables Ex Transports for December rose 2.3% versus estimates of a .5% gain and a -1.0% decline in November.
- New Home Sales for December rose to 1120K versus estimates of 1052K and an upwardly revised 1069K in November.
BOTTOM LINE: Orders for US-made durable goods increased in December by the most in three months, reflecting more demand for business equipment, motor vehicles and aircraft, Bloomberg reported. Durables ex Transports rose 2.3%, the most since March 2006. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, rose 2.4%, also the most since 2006. Orders for commercial aircraft soared 27% after a 3.8% gain the prior month. The worst of the manufacturing downturn, related to housing and autos, appears over. I suspect activity will accelerate back to more average levels throughout the year.
New Home Sales in the US rose more than forecast in December, showing the real-estate market is improving, Bloomberg said. The median price of a new home rose 1.8% for all of 2006 to $245,300. The supply of new homes available at the current sales pace is 5.9 months’ worth versus 7.2 months’ worth in July of last year. Sales soared 27% in both the Midwest and Northeast. Sales in the South rose .3%. They fell 4.4% in the West. I continue to believe housing has stabilized and will continue to improve modestly throughout most of the year.
Thursday, January 25, 2007
Friday Watch
Late-Night Headlines
Bloomberg:
- China will tighten environmental controls to restrain investment in factories after two interest-rate increases since April failed to slow economic expansion, Deputy Central Bank Governor Wu Xiaoling said. “We’re going to put forth more effort this year in meeting energy consumption controls,” Wu said. The country’s planners aim for a 20% reduction in energy consumption per unit of gross domestic product, a 10% cut in pollutants and a 60% increase in the recycle rate of industrial waste within three years.
- Consumer Reports magazine sent letters today apologizing to its 7 million readers for making a mistake in its crash testing of infant car seats and having to retract the results.
- Japan’s inflation unexpectedly slowed in December as oil prices declined, undermining the central bank’s case that interest rates should be raised.
- Rioting broke out in Beirut hours after Saudi Arabia, the US and France led donors pledging a total of $7.6 billion in new funds to help rebuild Lebanon and lend support to Prime Minister Fouad Siniora’s government.
- The UN development Program Executive Board suspended budget approval for its Norh Korean operations pending the outcome of a probe into whether the agency funneled money to the government of Kim Jong-il.
- Refined nickel imports by China, the world’s biggest consumer of the metal, may fall 11% this year as the country steps up production from low-grade nickel ores bought from the Philippines.
- Helmut Sohmen, whose BW Group owns the largest privately held fleet of oil supertankers, says the industry may experience a severe downturn in 2008 as deliveries from shipbuilders cause a glut of new vessels.
- Kim Jong-il is unlikely to be under house arrest, an official in South Korea’s presidential office said, casting doubt on a Jiji Press report that North Korea’s leader is absent from Pyongyang and may be under detention.
Late Buy/Sell Recommendations
Business Week:
- Louisiana-Pacific(LPX) is a buyout target for private equity groups because it has cash and assets. The company could be worth more than $27 a share in a buyout deal, said Michael Metz, chief investment strategist at Oppenheimer Holdings.
- McDonald’s Corp.(MCD) has increased outlet hours since 2003 to boost sales, a shift from its traditional strategy of relying on opening new stores to bolster revenue.
Night Trading
Asian Indices are -1.75% to -1.0% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated -.17%.
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
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (AAI)/-.04
- (CAT)/1.34
- (CDWC)/.91
- (FO)/1.35
- (HAL)/.61
- (HON)/.72
- (JCOM)/.28
- (HCR)/.64
- (MLNM)/.07
- (PCU)/2.13
- (TROW)/.51
Upcoming Splits
- (VOL) 3-for-2
Economic Releases
8:30 am EST
- Durable Goods Orders for December are estimated to rise 3.0% versus a 1.6% increase in November.
- Durables Ex Transports for December are estimated to rise .5% versus a -1.1% decline in November.
10:00 am EST
- New Home Sales for December are estimated to rise to 1052K versus 1047K in November.
Bloomberg:
- China will tighten environmental controls to restrain investment in factories after two interest-rate increases since April failed to slow economic expansion, Deputy Central Bank Governor Wu Xiaoling said. “We’re going to put forth more effort this year in meeting energy consumption controls,” Wu said. The country’s planners aim for a 20% reduction in energy consumption per unit of gross domestic product, a 10% cut in pollutants and a 60% increase in the recycle rate of industrial waste within three years.
- Consumer Reports magazine sent letters today apologizing to its 7 million readers for making a mistake in its crash testing of infant car seats and having to retract the results.
- Japan’s inflation unexpectedly slowed in December as oil prices declined, undermining the central bank’s case that interest rates should be raised.
- Rioting broke out in Beirut hours after Saudi Arabia, the US and France led donors pledging a total of $7.6 billion in new funds to help rebuild Lebanon and lend support to Prime Minister Fouad Siniora’s government.
- The UN development Program Executive Board suspended budget approval for its Norh Korean operations pending the outcome of a probe into whether the agency funneled money to the government of Kim Jong-il.
- Refined nickel imports by China, the world’s biggest consumer of the metal, may fall 11% this year as the country steps up production from low-grade nickel ores bought from the Philippines.
- Helmut Sohmen, whose BW Group owns the largest privately held fleet of oil supertankers, says the industry may experience a severe downturn in 2008 as deliveries from shipbuilders cause a glut of new vessels.
- Kim Jong-il is unlikely to be under house arrest, an official in South Korea’s presidential office said, casting doubt on a Jiji Press report that North Korea’s leader is absent from Pyongyang and may be under detention.
Late Buy/Sell Recommendations
Business Week:
- Louisiana-Pacific(LPX) is a buyout target for private equity groups because it has cash and assets. The company could be worth more than $27 a share in a buyout deal, said Michael Metz, chief investment strategist at Oppenheimer Holdings.
- McDonald’s Corp.(MCD) has increased outlet hours since 2003 to boost sales, a shift from its traditional strategy of relying on opening new stores to bolster revenue.
Night Trading
Asian Indices are -1.75% to -1.0% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated -.17%.
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
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (AAI)/-.04
- (CAT)/1.34
- (CDWC)/.91
- (FO)/1.35
- (HAL)/.61
- (HON)/.72
- (JCOM)/.28
- (HCR)/.64
- (MLNM)/.07
- (PCU)/2.13
- (TROW)/.51
Upcoming Splits
- (VOL) 3-for-2
Economic Releases
8:30 am EST
- Durable Goods Orders for December are estimated to rise 3.0% versus a 1.6% increase in November.
- Durables Ex Transports for December are estimated to rise .5% versus a -1.1% decline in November.
10:00 am EST
- New Home Sales for December are estimated to rise to 1052K versus 1047K in November.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
Stocks Finish Lower on Profit-taking and Rising Long-Term Rates
Indices
S&P 500 1,423.90 -1.13%
DJIA 12,502.56 -.94%
NASDAQ 2,434.24 -1.30%
Russell 2000 784.19 -1.24%
Wilshire 5000 14,299.17 -1.10%
Russell 1000 Growth 561.80 -1.09%
Russell 1000 Value 817.54 -1.12%
Morgan Stanley Consumer 705.22 -.89%
Morgan Stanley Cyclical 917.13 -.72%
Morgan Stanley Technology 559.54 -.79%
Transports 4,754.86 -1.39%
Utilities 450.62 -.59%
Put/Call 1.20 +44.58%
NYSE Arms .85 +12.68%
Volatility(VIX) 11.22 +13.45%
ISE Sentiment 103.00 -9.65%
US Dollar 85.09 +.19%
CRB 293.49 -.88%
Futures Spot Prices
Crude Oil 54.31 -1.91%
Reformulated Gasoline 145.10 -.73%
Natural Gas 6.85 -7.75%
Heating Oil 155.34 -1.93%
Gold 652.00 -.38%
Base Metals 235.85 +.60%
Copper 263.60 +1.33%
10-year US Treasury Yield 4.87% +1.36%
Leading Sectors
Steel +1.21%
REITs +.64%
Semis -.56%
Lagging Sectors
Homebuilders -2.27%
Oil Service -2.56%
I-Banks -2.68%
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
Bear Stearns:
- Rated (CNH) Outperform.
Afternoon/Evening Headlines
Bloomberg:
- Natural gas plunged over 7% in NY as record-high inventories for this time of the year caught up with massive speculation by investment funds on the commodity.
- Crude oil fell over $1/bbl. after Energy Secretary Bodman said the US tariff on ethanol imports will probably need to be lifted to meet President Bush’s goal of increasing the use of renewable fuels.
- Amgen Inc.(AMGN) said fourth-quarter profit rose 1% as research spending climbed faster than sales of its anemia and cancer drugs.
- General Motors(GM) said it will delay filing fourth-quarter and 2006 results because it has to restate earlier financial reports.
- Microsoft’s(MSFT) second-quarter earnings fell less than analysts predicted after the world’s largest software maker sold more Xbox video games and database programs. The company raised its profit forecast for this year.
- US treasuries fell, pushing yields to the highest level since August, as an industry report showed housing inventories continue to fall.
- Petroleo Brasileiro SA, Brazil’s state-controlled oil company, plans to begin shipments of ethanol to Nigeria in February, part of the African nation’s plan to add the sugar-based fuel to gasoline.
- WFR, IRF and VSEA are semiconductor companies that are trading substantially higher in after-hours trading on positive earnings reports.
CNBC:
- Georgia Gulf Corp.(GGC), Gateway Inc. and 1-800-Flowers.com Inc. may see their share prices more than double during the next year, Arne Alsin, the founder of Alsin Capital Management.
- Some Harrah’s Entertainment(HET) shareholders think the $90 per share price offered for the company by Apollo Management LP and Texas Pacific Group is too low.
Cnet’s News.com:
- Google is again buying Intel Corp.(INTC) chips to run server computers after the search engine switched to processors from Advanced Micro Devices(AMD) last year.
Miami Herald:
- The number of Venezuelans seeking asylum in the US has risen since President Hugo Chavez came to power in the South American nation, citing the US Office of Immigration Statistics.
Financial Times:
- China’s President Hu Jintao said he wants to “purify the Internet environment” and called for officials to step up efforts to control online activity.
AP:
- NYC may wrap its free condoms in a subway-themed design to boost safe sex and reduce the number of HIV/AIDS cases, citing Health Commissioner Thomas Frieden.
S&P 500 1,423.90 -1.13%
DJIA 12,502.56 -.94%
NASDAQ 2,434.24 -1.30%
Russell 2000 784.19 -1.24%
Wilshire 5000 14,299.17 -1.10%
Russell 1000 Growth 561.80 -1.09%
Russell 1000 Value 817.54 -1.12%
Morgan Stanley Consumer 705.22 -.89%
Morgan Stanley Cyclical 917.13 -.72%
Morgan Stanley Technology 559.54 -.79%
Transports 4,754.86 -1.39%
Utilities 450.62 -.59%
Put/Call 1.20 +44.58%
NYSE Arms .85 +12.68%
Volatility(VIX) 11.22 +13.45%
ISE Sentiment 103.00 -9.65%
US Dollar 85.09 +.19%
CRB 293.49 -.88%
Futures Spot Prices
Crude Oil 54.31 -1.91%
Reformulated Gasoline 145.10 -.73%
Natural Gas 6.85 -7.75%
Heating Oil 155.34 -1.93%
Gold 652.00 -.38%
Base Metals 235.85 +.60%
Copper 263.60 +1.33%
10-year US Treasury Yield 4.87% +1.36%
Leading Sectors
Steel +1.21%
REITs +.64%
Semis -.56%
Lagging Sectors
Homebuilders -2.27%
Oil Service -2.56%
I-Banks -2.68%
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
Bear Stearns:
- Rated (CNH) Outperform.
Afternoon/Evening Headlines
Bloomberg:
- Natural gas plunged over 7% in NY as record-high inventories for this time of the year caught up with massive speculation by investment funds on the commodity.
- Crude oil fell over $1/bbl. after Energy Secretary Bodman said the US tariff on ethanol imports will probably need to be lifted to meet President Bush’s goal of increasing the use of renewable fuels.
- Amgen Inc.(AMGN) said fourth-quarter profit rose 1% as research spending climbed faster than sales of its anemia and cancer drugs.
- General Motors(GM) said it will delay filing fourth-quarter and 2006 results because it has to restate earlier financial reports.
- Microsoft’s(MSFT) second-quarter earnings fell less than analysts predicted after the world’s largest software maker sold more Xbox video games and database programs. The company raised its profit forecast for this year.
- US treasuries fell, pushing yields to the highest level since August, as an industry report showed housing inventories continue to fall.
- Petroleo Brasileiro SA, Brazil’s state-controlled oil company, plans to begin shipments of ethanol to Nigeria in February, part of the African nation’s plan to add the sugar-based fuel to gasoline.
- WFR, IRF and VSEA are semiconductor companies that are trading substantially higher in after-hours trading on positive earnings reports.
CNBC:
- Georgia Gulf Corp.(GGC), Gateway Inc. and 1-800-Flowers.com Inc. may see their share prices more than double during the next year, Arne Alsin, the founder of Alsin Capital Management.
- Some Harrah’s Entertainment(HET) shareholders think the $90 per share price offered for the company by Apollo Management LP and Texas Pacific Group is too low.
Cnet’s News.com:
- Google is again buying Intel Corp.(INTC) chips to run server computers after the search engine switched to processors from Advanced Micro Devices(AMD) last year.
Miami Herald:
- The number of Venezuelans seeking asylum in the US has risen since President Hugo Chavez came to power in the South American nation, citing the US Office of Immigration Statistics.
Financial Times:
- China’s President Hu Jintao said he wants to “purify the Internet environment” and called for officials to step up efforts to control online activity.
AP:
- NYC may wrap its free condoms in a subway-themed design to boost safe sex and reduce the number of HIV/AIDS cases, citing Health Commissioner Thomas Frieden.
BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Medical longs and I-banking longs. I added IWM/QQQQ hedges in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, almost every sector declined and volume was above-average. Measures of investor anxiety were higher into the close. Today's overall market action was bearish. Today's selling felt forced to me. While most sectors declined, many small-to-mid-cap stocks were higher beneath the surface. The U.S. Dollar and 10-year yield are near session highs on more economic optimism after housing inventories fell again. Oil is near session lows, after a 7% plunge in natural gas as record inventories for this time of the year are catching up with the massive speculation that has been propping up prices. I sense that a very large percentage of investors are down for the year after underperforming last year. This, combined with confusion over economic readings, is leading to increased volatility in the major averages. I continue to believe the next meaningful move is higher for stocks.
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