BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Technology longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is lower and volume is about average. Merrill Lynch put out its monthly short interest report today. It said that its composite Average Short Interest Ratio (ASIR) model for the S&P 1500 soared to a record 7.2 during mid-February through mid-March vs. 5.7 the prior month. This is an all-time record high level. The ASIR S&P 1500 model is now above two standard deviations from its historical average. Merrill said that short levels are clearly higher in the small- to mid-cap space with a concentration in the consumer discretionary, utility and financial sectors. This may be why the average stock is holding up better than the major averages. As I said the other day, there is a huge wall of worry for stocks to climb substantially from current levels by year-end. I expect US stocks to trade mixed-to-higher into the close on short-covering and bargain-hunting.
Wednesday, March 28, 2007
Stocks Lower into Final Hour on Iran Concerns, Weakness in Homebuilders
Today's Headlines
Bloomberg:
- Late payments on subprime mortgages that are used in credit indexes rose more slowly in February, according to research reports from firms such as Barclays Capital and Bear Stearns(BSC). The reports suggested the deterioration may be over for the performance of home loans backing bonds in two of three so-called ABX indexes.
- US Treasuries pared gains and declined after Fed Chairman Bernanke told Congress’ Joint Economic Committee that the economy “appears likely to continue to expand at a moderate pace over coming quarters.” Bernanke said the effects of subprime mortgages on the housing market will be moderate.
- Crude oil rose to a six-month high as investment funds speculate tensions with Iran will escalate.
- Prime Minister Tony Blair stepped up a diplomatic push on Iran to release 15 UK sailors and Marines held six days ago, asking for help from allies and saying Britain’s boats were 1.7 miles insides Iraqi waters when the raid occurred.
- AMR Corp.’s(AMR) American Airlines, the world’s largest carrier, will buy 47 Boeing Co.(BA) 737 jets four years earlier than planned to begin replacing some of its oldest planes.
- President Bush attacked the Senate’s $122 billion Iraq war-spending bill, which calls for a troop withdrawal, and said he will hold Democrats responsible if they delay funding military operations. “The clock is ticking for our troops in the field,” Bush said. Money for US military operations in Iraq and Afghanistan begins running out in mid-April.
Wall Street Journal:
- The SEC will from now on exercise more influence over the Financial Accounting Standards Board, a private body that sets accounting rules for public and private companies.
- Best Buy’s(BBY) chief information officer, Robert Willet, said most of the retailer’s merchandise will be tagged with radio-frequency identification chips, or RFID, to permit remote monitoring of inventory.
- Microsoft Corp.(MSFT) is in talks to acquire DoubleClick Inc.(DCLK), the Internet advertising firm owned by private-equity firm Hellman & Friedman LLC.
NY Times:
- Burger King Holdings(BKC) will buy some pork from suppliers who raise uncrated hogs and chickens in order to stay ahead of consumer trends and push farmers into humane practices.
- Wal-Mart Stores(WMT) might never open a store in NYC, CEO Lee Scott Jr. said. At a meeting with the newspaper’s editorial board, Scott said the high cost of conducting business in NYC and the opposition the discount chain has faced makes it less likely Manhattan will have a Wal-Mart.
- A game in which teenagers suffocate themselves to the point of unconsciousness to achieve a high, which has killed several children, is drawing scrutiny by healthy officials, educators and parents. While asphyxiation games aren’t new, the so-called choking game, is getting more attention after several well-publicized deaths in the US, couples with a realization that teenagers are seeing the game on Internet sites like YouTube, and playing it in more threatening variations.
TheDeal.com:
- Initial bids for NBTY(NTI), a nutritional supplement company with a $3.3 billion market value, are due in early April.
National Post:
- US investors in Canadian income trusts may pay twice as much tax on the dividends they receive under a proposed tax change. A bill filed in the US House of Representatives by Democratic Congressman Richard E. Neal would remove a special tax treatment for dividends from foreign investments such as Canadian income and real estate trusts.
USA Today:
- The Transportation Security Administration plans to more closely screen airport workers in a so-called “surge” strategy to increase safety at airports across the country.
AP:
- The Sacramento Country, California, Sheriff’s Dept. will hold an auction April 17 for the rights to OJ Simpson’s book, in which the former star football player tells how he would have murdered his ex-wife Nicole Brown Simpson and her friend Ron Goldman.
CNBC:
- Former Home Depot CEO Nardelli has been offered a position with hedge fund manager Cerberus Capital Management.
Financial Times:
- Economic statistics that show a booming Asian economy may demonstrate that investing in the region is a slightly risky bet that the world economy will stay healthy. Domestic consumption in the region is unexceptional, and the economies are very dependent on foreign demand.
- Late payments on subprime mortgages that are used in credit indexes rose more slowly in February, according to research reports from firms such as Barclays Capital and Bear Stearns(BSC). The reports suggested the deterioration may be over for the performance of home loans backing bonds in two of three so-called ABX indexes.
- US Treasuries pared gains and declined after Fed Chairman Bernanke told Congress’ Joint Economic Committee that the economy “appears likely to continue to expand at a moderate pace over coming quarters.” Bernanke said the effects of subprime mortgages on the housing market will be moderate.
- Crude oil rose to a six-month high as investment funds speculate tensions with Iran will escalate.
- Prime Minister Tony Blair stepped up a diplomatic push on Iran to release 15 UK sailors and Marines held six days ago, asking for help from allies and saying Britain’s boats were 1.7 miles insides Iraqi waters when the raid occurred.
- AMR Corp.’s(AMR) American Airlines, the world’s largest carrier, will buy 47 Boeing Co.(BA) 737 jets four years earlier than planned to begin replacing some of its oldest planes.
- President Bush attacked the Senate’s $122 billion Iraq war-spending bill, which calls for a troop withdrawal, and said he will hold Democrats responsible if they delay funding military operations. “The clock is ticking for our troops in the field,” Bush said. Money for US military operations in Iraq and Afghanistan begins running out in mid-April.
Wall Street Journal:
- The SEC will from now on exercise more influence over the Financial Accounting Standards Board, a private body that sets accounting rules for public and private companies.
- Best Buy’s(BBY) chief information officer, Robert Willet, said most of the retailer’s merchandise will be tagged with radio-frequency identification chips, or RFID, to permit remote monitoring of inventory.
- Microsoft Corp.(MSFT) is in talks to acquire DoubleClick Inc.(DCLK), the Internet advertising firm owned by private-equity firm Hellman & Friedman LLC.
NY Times:
- Burger King Holdings(BKC) will buy some pork from suppliers who raise uncrated hogs and chickens in order to stay ahead of consumer trends and push farmers into humane practices.
- Wal-Mart Stores(WMT) might never open a store in NYC, CEO Lee Scott Jr. said. At a meeting with the newspaper’s editorial board, Scott said the high cost of conducting business in NYC and the opposition the discount chain has faced makes it less likely Manhattan will have a Wal-Mart.
- A game in which teenagers suffocate themselves to the point of unconsciousness to achieve a high, which has killed several children, is drawing scrutiny by healthy officials, educators and parents. While asphyxiation games aren’t new, the so-called choking game, is getting more attention after several well-publicized deaths in the US, couples with a realization that teenagers are seeing the game on Internet sites like YouTube, and playing it in more threatening variations.
TheDeal.com:
- Initial bids for NBTY(NTI), a nutritional supplement company with a $3.3 billion market value, are due in early April.
National Post:
- US investors in Canadian income trusts may pay twice as much tax on the dividends they receive under a proposed tax change. A bill filed in the US House of Representatives by Democratic Congressman Richard E. Neal would remove a special tax treatment for dividends from foreign investments such as Canadian income and real estate trusts.
USA Today:
- The Transportation Security Administration plans to more closely screen airport workers in a so-called “surge” strategy to increase safety at airports across the country.
AP:
- The Sacramento Country, California, Sheriff’s Dept. will hold an auction April 17 for the rights to OJ Simpson’s book, in which the former star football player tells how he would have murdered his ex-wife Nicole Brown Simpson and her friend Ron Goldman.
CNBC:
- Former Home Depot CEO Nardelli has been offered a position with hedge fund manager Cerberus Capital Management.
Financial Times:
- Economic statistics that show a booming Asian economy may demonstrate that investing in the region is a slightly risky bet that the world economy will stay healthy. Domestic consumption in the region is unexceptional, and the economies are very dependent on foreign demand.
Durable Goods Orders Rise Less Than Estimates
- Durable Goods Orders for February rose 2.5% versus estimates of a 3.5% gain and a -9.3% decline in January.
- Durables Ex Transportation for February fell -.1% versus estimates of a 1.8% increase and a -4.0% decline in January.
- Durables Ex Transportation for February fell -.1% versus estimates of a 1.8% increase and a -4.0% decline in January.
BOTTOM LINE: Orders for durable goods rose less than forecast in February, limited by lower demand for metals, machinery and appliances, Bloomberg reported. Orders for non-defense capital goods excluding aircraft, a gauge of future business investment, fell 1.2% versus a 3.3% decline the prior month. Aircraft orders soared 88% after dropping 60% the prior month. Orders for computers and related products rose 4.8% versus a 3.4% decline the prior month. Motor vehicle and parts bookings gained 1.3% versus a 9.2% decline in January. Other manufacturing reports this month showed factory production may be starting to rebound. Manufacturing gained the most in five months in February, according to the most recent ISM Manufacturing report. I continue to believe manufacturing activity will rebound next quarter and add to economic growth after subtracting from growth this quarter.
Wednesday Watch
Late-Night Headlines
Bloomberg:
- Crude oil is rising $.97/bbl. in NY on investment fund speculation of a confrontation in the Persian Gulf between US or British forces and Iran. US military and State Department officials said they had no information about a naval incident between Iran and the US. There is no US military activity in the Gulf outside of previously scheduled exercises, US Navy Commander Kevin Aandahl, a spokesman for the Fifth Fleet in Bahrain, said. “I’ve seen this happen before where there’s a totally unsubstantiated rumor” that has an effect on world markets, he said.
- China’s failure to curb investment may lead to overcapacity and falling prices, turning its expansion into a “curse,” the Asian Development Bank said.
- The yen strengthened on speculation Japanese investors are bringing funds back before the financial year ends on March 30. Gains may prove short-lived on speculation newly established mutual funds will buy higher-yielding overseas assets when the financial year begins next week.
- Kevin Bannon, who helps oversee $120 billion as chief investment officer at Bank of New York, see US economic growth of 2.5% and says stocks look cheap.
San Francisco Chronicle:
- San Francisco became the first US city to ban Walgreen Co.(WAG), Rite Aid Corp.(RAD) and other chains from using petroleum-based plastic checkout bags. The city’s board of supervisors voted 10-1 today to require that the stores use biodegradable plastic or recyclable paper bags starting in about six months for 50 large supermarkets and in a year for chain drugstores.
London-based Times:
- General Motors(GM) will not take part in the first round of bids for Chrysler. Canadia auto-parts supplier Magna Intl., Cerberus Capital Management LP and a group led by Blackstrone Group LP and Centerbridge Capital Partners LLC may submit bids in the first round.
AFP:
- Germany, which holds the presidency of the European Union, has told Iran it must give the UK consular access to the 15 British sailors and marines it has been holding since March 23.
Late Buy/Sell Recommendations
Citigroup:
- Commentary on overall handset demand has been constructive thus far. Brightpoint(CELL) expects global volumes for 1Q07 to decline around 10% Q-Q, at the high end of its 10%-15% Q-Q decline forecast. They noted that February turned out better than January(A surprise given the sluggish start to the month) and March looks good industry-wide.
CSFB:
- Reiterated Outperform on (GS), raised target to $225-$235.
Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.27%.
NASDAQ 100 indicated -.33%.
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
- (PAYX)/.35
- (RECN)/.27
- (SHFL)/.07
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Durable Goods Orders for February are estimated to rise 3.5% versus a -8.7% decline in January.
- Durables Ex Transportation for February are estimated to rise 1.8% versus a -4.0% decline in January.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil build of 2,025,000 barrels versus a 3,924,000 barrel increase the prior week. Gasoline supplies are expected to fall by -2,050,000 barrels versus a -3,450,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,500,000 barrels versus a -1,710,000 barrel decrease the prior week. Refinery Utilization is expected to rise by .5% versus a .74% increase the prior week.
Bloomberg:
- Crude oil is rising $.97/bbl. in NY on investment fund speculation of a confrontation in the Persian Gulf between US or British forces and Iran. US military and State Department officials said they had no information about a naval incident between Iran and the US. There is no US military activity in the Gulf outside of previously scheduled exercises, US Navy Commander Kevin Aandahl, a spokesman for the Fifth Fleet in Bahrain, said. “I’ve seen this happen before where there’s a totally unsubstantiated rumor” that has an effect on world markets, he said.
- China’s failure to curb investment may lead to overcapacity and falling prices, turning its expansion into a “curse,” the Asian Development Bank said.
- The yen strengthened on speculation Japanese investors are bringing funds back before the financial year ends on March 30. Gains may prove short-lived on speculation newly established mutual funds will buy higher-yielding overseas assets when the financial year begins next week.
- Kevin Bannon, who helps oversee $120 billion as chief investment officer at Bank of New York, see US economic growth of 2.5% and says stocks look cheap.
San Francisco Chronicle:
- San Francisco became the first US city to ban Walgreen Co.(WAG), Rite Aid Corp.(RAD) and other chains from using petroleum-based plastic checkout bags. The city’s board of supervisors voted 10-1 today to require that the stores use biodegradable plastic or recyclable paper bags starting in about six months for 50 large supermarkets and in a year for chain drugstores.
London-based Times:
- General Motors(GM) will not take part in the first round of bids for Chrysler. Canadia auto-parts supplier Magna Intl., Cerberus Capital Management LP and a group led by Blackstrone Group LP and Centerbridge Capital Partners LLC may submit bids in the first round.
AFP:
- Germany, which holds the presidency of the European Union, has told Iran it must give the UK consular access to the 15 British sailors and marines it has been holding since March 23.
Late Buy/Sell Recommendations
Citigroup:
- Commentary on overall handset demand has been constructive thus far. Brightpoint(CELL) expects global volumes for 1Q07 to decline around 10% Q-Q, at the high end of its 10%-15% Q-Q decline forecast. They noted that February turned out better than January(A surprise given the sluggish start to the month) and March looks good industry-wide.
CSFB:
- Reiterated Outperform on (GS), raised target to $225-$235.
Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.27%.
NASDAQ 100 indicated -.33%.
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
- (PAYX)/.35
- (RECN)/.27
- (SHFL)/.07
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Durable Goods Orders for February are estimated to rise 3.5% versus a -8.7% decline in January.
- Durables Ex Transportation for February are estimated to rise 1.8% versus a -4.0% decline in January.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil build of 2,025,000 barrels versus a 3,924,000 barrel increase the prior week. Gasoline supplies are expected to fall by -2,050,000 barrels versus a -3,450,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,500,000 barrels versus a -1,710,000 barrel decrease the prior week. Refinery Utilization is expected to rise by .5% versus a .74% increase the prior week.
BOTTOM LINE: Asian indices are mixed as slight gains in energy shares are offsetting slight losses in automaker shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
Tuesday, March 27, 2007
Stocks Finish Lower on Economic Concerns and Profit-taking
Indices
S&P 500 1,428.61 -.62%
DJIA 12,397.29 -.58%
NASDAQ 2,437.43 -.74%
Russell 2000 802.36 -.81%
Wilshire 5000 14,420.19 -.61%
Russell 1000 Growth 561.76 -.73%
Russell 1000 Value 826.67 -.48%
Morgan Stanley Consumer 702.25 -.96%
Morgan Stanley Cyclical 958.28 -.89%
Morgan Stanley Technology 562.65 -.38%
Transports 4,852.60 -1.15%
Utilities 501.63 -.23%
MSCI Emerging Markets 115.80 -.49%
Sentiment/Internals
Total Put/Call .95 -4.04%
NYSE Arms 1.20 +24.73%
Volatility(VIX) 13.48 +2.43%
ISE Sentiment 131.0 -14.94%
Futures Spot Prices
Crude Oil 63.01 +.16%
Reformulated Gasoline 207.20 +.26%
Natural Gas 7.50 +3.39%
Heating Oil 178.91 +.73%
Gold 662.40 -.23%
Base Metals 246.74 -.04%
Copper 304.55 -2.96%
Economy
10-year US Treasury Yield 4.61% +1 basis point
US Dollar 82.97 -.13%
CRB Index 311.85 -.13%
Leading Sectors
Biotech +.59%
Telecom +.24%
Alternative Energy +.08%
Lagging Sectors
Homebuilders -1.04%
Airlines -1.10%
Gold -1.28%
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
Oppenheimer:
- Rated (TWC) Buy, target $47.
Lehman Brothers:
- Rated (BSC) and (MER) Overweight.
AG Edwards:
- Rated (GOOG), (AQNT), (MNST), (YHOO), (VCLK) Buy.
Afternoon/Evening Headlines
Bloomberg:
- Goldman Sachs’(GS) sixth buyout fund may top $20 billion, CEO Blankfein told shareholders at today’s annual meeting.
- Accenture Ltd.(ACN), the world’s second-biggest consulting firm, said profit soared. The shares rose $1 to $77.22 in after-hours trading.
- US imports of finished steel products fell 10% in February from a month earlier after rising inventories led customers to hold off placing new orders.
- Petroleo Brasileiro SA(PBR), Brazil’s state-controlled oil company, may help upgrade two Brazilian rivers to transport sugar cane-based ethanol from the country’s agricultural frontier to export markets.
- Merck’s(MRK) Vioxx painkiller didn’t contribute to an Illinois woman’s fatal heart attack in 2003, an Illinois jury decided, giving the company its 10th victory in a trial involving the drug.
Business Week:
- Beazer Homes USA(BZH), the ninth largest US homebuilder by revenue, is the target of a federal investigation into its lending and financial practices. Beazer’s mortgage arm is being probed for possible mortgage fraud by a group including the FBI, Justice Dept., Inspector General of Housing and Urban Development and IRS. The stock is falling 14% in after-hours trading.
S&P 500 1,428.61 -.62%
DJIA 12,397.29 -.58%
NASDAQ 2,437.43 -.74%
Russell 2000 802.36 -.81%
Wilshire 5000 14,420.19 -.61%
Russell 1000 Growth 561.76 -.73%
Russell 1000 Value 826.67 -.48%
Morgan Stanley Consumer 702.25 -.96%
Morgan Stanley Cyclical 958.28 -.89%
Morgan Stanley Technology 562.65 -.38%
Transports 4,852.60 -1.15%
Utilities 501.63 -.23%
MSCI Emerging Markets 115.80 -.49%
Sentiment/Internals
Total Put/Call .95 -4.04%
NYSE Arms 1.20 +24.73%
Volatility(VIX) 13.48 +2.43%
ISE Sentiment 131.0 -14.94%
Futures Spot Prices
Crude Oil 63.01 +.16%
Reformulated Gasoline 207.20 +.26%
Natural Gas 7.50 +3.39%
Heating Oil 178.91 +.73%
Gold 662.40 -.23%
Base Metals 246.74 -.04%
Copper 304.55 -2.96%
Economy
10-year US Treasury Yield 4.61% +1 basis point
US Dollar 82.97 -.13%
CRB Index 311.85 -.13%
Leading Sectors
Biotech +.59%
Telecom +.24%
Alternative Energy +.08%
Lagging Sectors
Homebuilders -1.04%
Airlines -1.10%
Gold -1.28%
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
Oppenheimer:
- Rated (TWC) Buy, target $47.
Lehman Brothers:
- Rated (BSC) and (MER) Overweight.
AG Edwards:
- Rated (GOOG), (AQNT), (MNST), (YHOO), (VCLK) Buy.
Afternoon/Evening Headlines
Bloomberg:
- Goldman Sachs’(GS) sixth buyout fund may top $20 billion, CEO Blankfein told shareholders at today’s annual meeting.
- Accenture Ltd.(ACN), the world’s second-biggest consulting firm, said profit soared. The shares rose $1 to $77.22 in after-hours trading.
- US imports of finished steel products fell 10% in February from a month earlier after rising inventories led customers to hold off placing new orders.
- Petroleo Brasileiro SA(PBR), Brazil’s state-controlled oil company, may help upgrade two Brazilian rivers to transport sugar cane-based ethanol from the country’s agricultural frontier to export markets.
- Merck’s(MRK) Vioxx painkiller didn’t contribute to an Illinois woman’s fatal heart attack in 2003, an Illinois jury decided, giving the company its 10th victory in a trial involving the drug.
Business Week:
- Beazer Homes USA(BZH), the ninth largest US homebuilder by revenue, is the target of a federal investigation into its lending and financial practices. Beazer’s mortgage arm is being probed for possible mortgage fraud by a group including the FBI, Justice Dept., Inspector General of Housing and Urban Development and IRS. The stock is falling 14% in after-hours trading.
BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Retail longs and Technology longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was about average. Measures of investor anxiety were above-average into the close. Today's overall market action was mildly bearish as the major averages and breadth finished lower, but off session lows. While breadth was weak today, I had an abnormal number of stocks on my monitor pages that rose. Biotech was a standout sector today, rising about 0.59%, with a number of small/mid-cap biotechs breaking out on volume. The Homebuilding Index finished 1.04% lower; however, Lennar (LEN) finished near session highs. As well, the Case-Shiller August housing futures ticked higher today to $214,400 from $214,000. The 10-year yield was stable throughout the day at 4.61%. The U.S. Dollar Index was also stable. The underlying action today was more constructive than the major averages suggest. My intraday gauge of investor angst finished at an above-average level. I suspect we will see some more short-covering and bargain-hunting into the last few days of the quarter, considering the extent to which massive hedges were put in place earlier this month.
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