Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Futures took the weak economic data yesterday in stride, marching higher on what appeared to be more new longs. S&P futures buying did seem more heavily driven by hedge funds. Today, SPX options
settle on the opening print meaning SPX-related option hedging activity will be a non-event after the open. Certain single stocks, however, could face pin-risk if the open interest in their
at-the-money calls exceed those of their puts expiring tonight. Names our Derivatives Research team highlights who face this risk include HPQ, EP, CD and S. Technically, we continue to watch 954.80
as our upside target, with 938.00 (50% of week's range) as initial support.
ORCL: one name in the software space in which we have seen good call buying interest, and that has seen building strength is ORCL. Trading above its 200 and 50-day M.A. and outperforming many of its
peers, continued market resilience could see a break-out above its $13 resistance. Over the longer term, $13.50 appears a very significant level, too. The stock could trade well into its earnings
period, as a number of stocks like DELL have. In fact, with DELL's trading pattern showing strength into earnings and fading after it, investors may want to consider a long ORCL, short DELL strategy
via the options.
Retailers: many of the retail stocks have underperformed the market recently, as consumers concerned about the economy and job cuts appeared to trim purchases of both clothes and other household
goods. In addition to seeing put buying across TGT, KSS and other names, one name whose on-balance volume looks particularly negative is WMT (WMT Equity OBV). For strategies on ways to implement
your view, call us.
>
> EQUITY FUTURES OVERVIEW: 05/16/03
>
> YESTERDAY'S TRADING RANGES, VOLUME, OPEN INTEREST AND CONTRACT HIGHS:
>
> INDEX EXPIR OPEN HIGH LOW SETTLE CHANGE JUN VOLU TOTAL O.I. CHANGE
> S&P 500 JUN 940.30 948.50 938.20 946.30 +6.00 52196 641656 +1595
> S&P e-minis 638934 715502 +2101
> +2015.20
> SPX Cash Index 946.67 +7.39
> MIDCAP JUN 455.45 457.25 453.00 456.75 +1.30 752 13356 +119
> RUSSELL JUN 419.75 423.00 419.00 422.50 +2.75 2096 24671 +880
> NASDAQ JUN 1151.00 1167.00 1150.00 1163.50 +12.50 10777 76497 -288
> NDX e-minis 254318 241804 +2194
> +1149.80
>
> YESTERDAY'S MARKET RECAP:
>
> S&P futures closed 6.00 points higher on Thursday, at 946.30
> Open interest increased roughly 2,000 contracts, which suggest new longs. Several dealers appeared to lead futures lower after mixed economic data. Multiple dealers lifted futures higher after the
> Philadelphia Fed Manufacturing number release at 12pm EST into the afternoon. Our desk participated mostly on the buy side for institutional accounts. Immediate resistance appears to exist at
> 948.50 (yesterday's high) and major at 954.80 (five month high, 12/02/02). Immediate support appears to exist at 938.20 (yesterday's low) and then at 918.00 (last week's low, 5/8). Futures closed
> up 6.00 at 946.30.
>
> TODAY'S FAIR VALUE AS ESTIMATED BY MERRILL LYNCH:
> FAIR VALUE RATE BASIS
> S&P 500 JUN -0.01 1.32% -0.37
> S&P JUN-SEP SPREAD -1.16 1.27% -1.10
> S&P 500 SEP -1.17 1.27% -1.46
> NASDAQ MAR 1.39 1.32% 0.57
>
>
> S&P FUTURES TECHNICAL LEVELS:
> RESISTANCE SETTLE SUPPORT
> 948.50 (yesterday's high) 946.30 938.20 (yesterday's low)
>
> NDX FUTURES TECHNICAL LEVELS:
> RESISTANCE SETTLE SUPPORT
> 1167.00 (yesterday's high) 1163.50 1150.00 (yesterday's low)
Senate GOP expands dividend tax cut
WASHINGTON (CBS.MW) -- With the help of Vice President Dick Cheney, the Senate agreed Thursday to phase out for three years the individual income tax paid on corporate dividends.
Although temporary, the provision brings the $350 billion Senate tax-cut package closer to President Bush's centerpiece proposal for the full elimination of the so-called double taxation of dividends.
"This would have, I think, a very significant impact, positive impact on the stock market, on individual's 401(k)s, on people that have teacher retirement accounts and others. It would help them, I believe, dramatically," said Sen. Don Nickles, R-Okla., the amendment's sponsor.
Democrats said the amendment consisted of budget gimmicks that not only disguise its true size but also render it economically ineffective.
"This is a huge yo-yo tax provision. Now you see it, now you don't. ...You tell me if any corporation is going to be able to plan whether or not to pay dividends or not with a tax policy like that," said Sen. Max Baucus, D-Mont. "Of course they're going to wait until it's 100 percent."
Two crucial centrists -- Sens. Ben Nelson, D-Neb., and George Voinovich, R-Ohio -- backed the Nickles amendment, which would allow individuals to exempt half of their dividend income from taxation in 2003. From 2004 to 2006, all dividend income would be exempt. Full taxation of dividends at regular income tax rates would resume in 2007 unless Congress acts in the future to extend the provision.
Nelson joined long-time tax-cut advocate Zell Miller, D-Ga., and 48 Republicans in voting for the amendment. The proposal lost the support of centrist Republican Sen. Olympia Snowe of Maine, but held the support of another key GOP moderate, George Voinovich of Ohio. Two other Republicans -- Rhode Island's Lincoln Chafee and Arizona's John McCain -- voted against the amendment.
Tie breaker
That produced a 50-50 tally, with Cheney then casting the tie-breaker.
Passage of the underlying bill was expected later Thursday.
As originally written, the tax-cut package would have exempted the first $500 of individual dividend income from taxation, as well as an additional 10 percent of such income above $500. The additional exemption would rise to 20 percent after five years.
The approach was designed Senate Finance Committee Chairman Charles Grassley, R-Iowa, to gain the favor of Snowe, who holds a crucial vote on the panel. The provision, however, disappointed most Senate Republicans and the White House, who had hoped for a bigger and bolder approach.
The temporary nature of Nickles' amendment was necessary to hold the size of the total tax package below the net $350 billion cap required under the "reconciliation" portion of the Senate's budget resolution. The reconciliation process shields tax legislation from Senate rules that would require a 60-vote supermajority.
Critics said the 2007 expiration was a gimmick to disguise the true size of the proposal, particularly since sponsors clearly hope to extend the provision before it expires. Anticipating criticism, Nickles on Wednesday said such accusations were "hogwash" since all tax cuts under reconciliation must expire after 10 years.
Opponents contend that measures that expire before the end of the reconciliation period are particularly deceptive, designed solely to mask their 10-year costs.
The liberal Center for Budget and Policy Priorities estimated the Nickles amendment, if extended beyond 2007, would raise the 10-year size of the tax cut from $350 billion to $660 billion.
As written, the amendment would cut revenues by $124 billion, $44 billion more than the bill's original dividend provision. To make up the difference, the amendment would scale back relief of the so-called marriage penalty and provisions designed to encourage investment by small businesses.
Democrats have sharply opposed efforts to eliminate the dividend tax, saying benefits would go largely to the nation's wealthiest taxpayers while doing little to boost the economy.
Baucus said the provision also strays far from Bush's call to end the double taxation of dividends. Bush has repeatedly said it's "fair" to tax corporate profits once, but unfair to again tax the same money when distributed to shareholders as dividends.
Baucus said the proposal would exempt dividends from taxation even if a corporation had never paid taxes on the earnings.
Any Senate tax bill will need to be reconciled with the $550 billion package that cleared the House earlier this month. That bill scaled back Bush's call for full elimination of the dividend tax, instead cutting the capital gains tax rate and the income tax rate on dividend income to the same 15 percent rate.
House Speaker Dennis Hastert, R-Ill., expressed skepticism Thursday about the temporary nature of the Senate dividend provision.
"Most capital gains are long-term investments. That is what we want people to do. If the dividend is 50 percent and then nothing, and all of a sudden it is back to 100 percent or whatever it is, my feeling is that it does not solve the problem," Hastert told reporters, emphasizing that he hadn't discussed the proposal with Bush.
Tonic for the stock market?
The White House and Republican leaders have argued that eliminating the tax on dividends is crucial to boosting the stock market and improving corporate governance.
Proponents have argued that the proposal could boost the market by anywhere from 5 percent to more than 20 percent.
Skeptics question whether the proposal would have any significant effect. A recent study by the consulting firm McKinsey & Co. predicted the plan would be unlikely to have a lasting impact on the market because the key market players -- tax-exempt institutions and individuals with shares in tax-exempt accounts -- are already shielded from taxes on dividend income.
The Senate bill includes $20 billion in aid for cash-strapped states, a measure that has angered some conservative Republicans but has also served as a potential enticement to some moderate Democrats, including Nelson, to support a bigger tax cut.
An effort by Democrats to double the amount of aid to $40 billion was defeated.
William L. Watts is a reporter for CBS.MarketWatch.com
ISI economy comments:
Good morning. As you know, ED and NANCY are still looking for 1.5-2.0% GDP growth in the 2Q and 4-5% GDP growth in the second half, TOM thinks that we will see 50 bps of easing in June (but if not then, probably not for the remainder of the year), and JASON believes earnings will be up about 10% and the market will end the year up around 8% (950), although between now and the end of the year, we may see an upside breakout. Given that framework, here's where our analysts see some opportunities - all of which can be found in today's reports:
LARGE CAPS: In low nominal environments, large companies have a distinct advantage over small companies. Essentially, large companies can gain share. And as JASON points out in the Portfolio Strategy Report this morning, it may already be happening. S&P 500 Earnings are up 13.1% Y/Y, while the economy as a whole (on a nominal basis) only grew at 3.7%.
SHORT TERM TRADING: Erik generally runs the Valu-Trac model to screen for companies that look cheap on a long-term basis. This morning, he screens for companies that may be currently mis-priced and may provide opportunities over the short-term (4 months or so). He has a list of 72 companies on the cover of his report this morning. Take a look if you get a chance for the full details.
UTILITIES and ALTERNATIVE ENERGY COMPANIES: The energy bill now moves to the Senate, and ANDY has a comprehensive analysis of the provisions that should be of most interest to investors in the Morning Political Report this morning. Look for PUHCA to be repealed (good for utility consolidation), tax incentives to encourage conservation, reliability and production (good for aec's) and more lax rules on energy transmission (good for independent power producers). ANDY thinks there is over a 50/50 chance an energy bill becomes law this year.
BONDS? Seems contradictory to our call - ED and NANCY have bond yields moving higher, but we can't escape our own BOND MANAGERS SURVEY - which suggests that odds of us being wrong on this are higher than usual. Institutional Bond Managers are still short Treasury duration, which from a contrarian viewpoint, argues for lower yields. See pg 3 of the Daily Econ Report for details.
MOT long @ 8 versus SFA short at 15.95.
Shorting Coach (COH) here at 45.25. JNY as a possible long against it.
Now selling the FCX left over from the PD pair on this pop. Made 4 points on PD and 2.3 on FCX.
Market needs a blowoff top to 940-950, then a sideways consolidation in a tight range, maybe 900-920, then higher highs.
Subject: Equity Futures Overview - Monday, April 28, 2003
More talk this morning questioning the nature of the above average S&P 500 company earnings (profits up 11.2% vs. 8.5% consensus exp.) with over half coming from the energy sector, and with another good portion coming from foreign currency gains. Meanwhile, the short interest level in the Nasdaq has hit a new high of 4.46 billion shares as of April 15 (with the short interest in the NYSE also rising over 1 over the same period), which set us up for further short covering near term. As we saw plenty of new longs enter the market via S&P futures last week, the small pull backs late in the week could provide some funds to re-enter the markets this week as well (open interest decreased Thursday and Friday a bit after increasing over 20,000 earlier) but not enough to signal strong buying. Thus in the next few days, we would expect to consolidate between last week's ranges of 885 and 919.40, with holding 885 as a very constructive signal.
PG: following its earnings report this morning reflecting a strong quarter, PG shares could see strength today. However if higher beta names continue to outperform staples like PG, the near term upside could be limited. Investors who do, however, want to maintain long-term exposure to PG should consider buying calendar spreads - sell the June 90 call to buy the Oct. 95 call, paying 30 cents for the package. Near term implied vols still appear to be trading well above the recent realized vols on PG. Call us with questions.
> <<...OLE_Obj...>>
>
> EQUITY FUTURES OVERVIEW:
04/28/03
>
> YESTERDAY'S TRADING RANGES, VOLUME, OPEN INTEREST AND CONTRACT HIGHS:
>
> INDEX EXPIR OPEN HIGH LOW SETTLE CHANGE JUN VOLU
TOTAL O.I. CHANGE
> S&P 500 JUN 909.80 910.70 896.20 898.60 -11.20 47552
631293 +1471
> S&P e-minis 538212
640188 -7721
>
-73.20
> SPX Cash Index 898.81 -12.62
> MIDCAP JUN 432.75 432.00 427.50 428.60 -4.15 661
13202 +38
> RUSSELL JUN 392.15 392.00 387.00 388.75 -3.40 1325
21372 -145
> NASDAQ JUN 1108.00 1104.00 1082.5 1085.50 -22.50 11971
74568 -1412
> NDX e-minis 199781
208941 +3672
>
-784.60
>
> YESTERDAY'S MARKET RECAP:
>
> S&P futures closed 11.20 points lower on Friday, at 898.60 Multiple
> dealers bought futures ahead of the University of Michigan
confidence number release at 10am EST. Futures later failed the apparent psychological support level at 900.00. Two dealers
> appeared to participate in bottom buying after futures fell below
> 900.00.
By the end of the session one dealer appeared to lead the day's selling activity. Immediate resistance appears to exist at
> 910.70 (Friday's pit high). Immediate support appears to exist at
> 896.20
(Friday's low) and then at 894.20 (intraday double bottom from 4/22). Futures closed down 11.20 points, at 898.60.
>
> TODAY'S FAIR VALUE AS ESTIMATED BY MERRILL LYNCH:
> FAIR VALUE RATE BASIS
> S&P 500 JUN -0.79 1.31% -0.21
> S&P JUN-SEP SPREAD -1.30 1.28% -1.30
> S&P 500 SEP -2.08 1.28% -1.51
> NASDAQ MAR 1.96 1.31% 2.31
>
> S&P FUTURES TECHNICAL LEVELS (SEP Contract):
> RESISTANCE SETTLE SUPPORT
> 910.70 (Pit High 4/25) 898.60 896.20 (Friday's L 4/25)
>
> NDX FUTURES TECHNICAL LEVELS (SEP Contract):
> RESISTANCE SETTLE SUPPORT
> 1118.00 (Last Week Dbl Top.) 1085.50 1073.50 (4/22 Low)
>
> INDEX CHANGES:
> None
just covered the PD short from the FCX/PD pair for some nice change. Will reshort PD if it rallies or sell FCX outright if it breaks 18.
agree! i've traded that puppy more times than i can count; it's a mover and a great trade but, like most of the semi's, it can bite you in the ass if you turn your back. Btw, thats another "party" i keep waiting to crash that just refuses to comply; the attitude out there continues to believe "that it can't get any worse" so lets just bid'em up. I'm betting against, but we shall see.
we'll see. I haven't hatched that chicken yet, so I'm not counting it until its covered. I'm superstitious. But it looks pretty darn good.
It blows my mind how incredibly overvalued this stock is. I bet if you surveyed the top ten holders to specifically name a single product and identify where it is in its production cycle you wouldn't more than two answers. You'll get plenty of gobbledy gook about how its an early cycle cyclical, and it will lead, etc, etc.
And that tripe about the book to bill being positive! LOL
--peeheew it stinks in there. Somebody open a window.
PG, looks like you did ok with your klac short; i shorted the semi's and the cubes today, so i was rooting for you(G)! LEON
Mall traffic trends:> Weekly Traffic Trends
> YOY
> Week Ended Sequential Change Change Two Year Trend
>
>
> 11/9/02 0.0% -4.1% -11.1%
> 11/16/02 6.8% -4.0% -8.7%
> 11/25/02 3.6% -10.6% -17.9%
> 11/30/02 13.0% 3.2% -3.1%
> 12/7/02 2.9% -5.5% -12.7%
> 12/14/02 15.5% -6.4% -7.1%
> 12/21/02 23.6% -9.0% -15.7%
> 12/28/02 -7.0% 2.8% 12.1%
> 1/4/03 -30.0% -1.9% 1.7%
> 1/11/03 -20.4% -3.5% -10.3%
> 1/18/03 -1.6% 0.0% -9.6%
> 1/25/03 1.6% -4.9% -4.3%
> 2/1/03 -5.5% -4.7% -9.6%
>
>
> 4Q Average -3.7% -7.4%
>
>
> 2/8/03 7.3% -5.0% -7.3%
> 2/15/03 7.3% -6.1% -7.9%
> 2/22/03 -12.6% -12.4% -15.5%
> 3/1/03 3.5% -3.0% -8.2%
> 3/8/03 0.6% -5.1% -7.9%
> 3/15/03 3.5% -4.0% -6.9%
> 3/22/03 -2.9% -7.0% -11.6%
> 3/29/03 -0.6% -14.8% -8.2%
> 4/5/03 -0.6% 1.4% -10.4%
> 4/12/03 -0.3% -3.2% -19.0%
> 4/19/03 10.4% 4.4% 10.6%
>
>
>
> 1Q Average -5.0% -8.4%
Easter shift was huge (10.4%) yoy
We'll see from here
Subject: Equity Futures Overview - Wednesday, April 23, 2003
Momentum to the upside yesterday appeared to be driven by large amounts of new money being put to work - not just short covering. Open interest in S&P futures increased an impressive 12,000 contracts, representing about $2.8 billion worth of new longs, with particularly good buying out of a couple of European dealers. We also saw bullish QQQ option activity apparently fueling the upside, including an investor who sold about 70,000 QQQ June 24 puts earlier in the day, an another who bought 20k QQQ May 29 calls. On the day's highs, however, we saw investors buying more downside protection via puts -- which may not be a bad idea given the historically low levels of index option implied volatility -- making the options relatively attractive now (see below). Investors who had put on the short SPX butterfly strategy we had discussed in February would be benefitting from this decline in volatility. Technically, the close above 905 is key and paves the way to 916.50 (fills gap from 1/16), and after that, 936.50 (GLX year high). Support moves up to the 900 level.
Risk to the upside or time to buy protection? With investors apparently focusing on the better earnings rather than the tempered guidance and weak economic data, and with the latest short interest increase reflecting potential short squeeze, the near term risk does appear to the upside. Having said that, for investors who are net long for this, yet who are concerned about bigger picture risks to the downside, the recent decline in implied vols makes buying SPX, QQQ or SMH puts attractive at these levels. Our desk is very well set-up to sell QQQ puts with 1 year maturity, and front month SMH puts.
reducing exposure by a third @ SPX 910. Remain net long until BPSPX cross (ie: no price target)
Sounds like my DAD!
amen, lets just keep our eyes open, and let the market tell its tale. My late father used to say, its more important to do it right, than to to do it fast.
Good post and i agree about sentiment and over-bought conditions visi-vi a "bull" mkt.. I guess thats what it comes down to; where are we? Hard for me to believe we've started a new bull ( don't see how thats possible) but than again, i learned a long time ago never to say never; will keep the thought in mind just in case. Thanks!
Yes Leon,
You are right. I had 910-920 as a target and we are rapidly approaching it. I will certainly make some anticipatory sales in the next few days.
But...
There is a possibility that we have begun a new bull market. If so, sentiment and momentum indicators can remain overbought for a very long time. In '96 I remember watching the market catapult higher, and having similar conversations with my peers. But the market relieved its overboughts, and actually consolidated sideways. It never gave a real chance to cover. Vix can and will go below 20. I am reminded of the chapter in "reminiscences of a stock operator" when he is talking to the old timer and asks him if he will sell and the old timer scoffs and says "lose my position?, why its a bull market"
So...
The names I will keep will be the heavily shorted names in my long book-like AMD, OHP, WIN, HD, BBY, JPM, VRTS, BA, LH, CPN, and EP to name a few.
But...
You are right- just dont overcommit.
morning PG! You may be right but i think we're within days of rolling over. I know you focus on BPSPX, but all the sentiment indicators i look at are very excessive relative to both price and volume. Doesn't mean we can't go higher, but i think times running out. LEON
> As investors grapple with the finding the balance between the majority
> of
earnings coming in ahead of expectations yet more companies giving negative outlooks than positive outlooks, futures remain
> within a range and implied volatility (SPX vols and VIX Index)
> continue to
decline. Yesterday marked the lightest pit trading volume in S&P futures this year, at 36k contracts. Today, we continue
> to watch 905 as near term resistance, which is the month high on 4/7.
Support remains at 876.80 (low on 4/16). Looking ahead to next week's economic data, Rosenberg points out that the ISM data
> on May 1 should have risk to the downside (following drop in Philly
> Fed
and NY Index) -- and any drop below 45 is very serious, since it has never failed to coincide with a recession in the past.
>
> Retailers: today we get weekly chain store sales at 9 am for the
> second
week of April, with JCP, WMT and FD recently citing expectations for declines. Yesterday, our desk had good-sized selling
> across the retail sector, primarily from a couple of accounts in the
> RTH
(Retail HOLDR). With the Retailers having held up well over the past month, keep in mind downside risk as Dan Barry points
> to the risks of downward earnings revisions going forward. Consider
buying puts on the RTH - implied vols have declined to the low end of its historic range so buying the May 70 puts would cost
> roughly only $0.65 for downside protection.
>
> EBAY in the WSJ this morning, making cautious comments about
> sustaining
its valuation. But keep in mind that despite the rising and record-breaking short interest in the stock, EBAY continues to
> create pain in the face of the shorts. For investors who want to get
short exposure to EBAY, the safer way to play it may be to buy puts as opposed to outright shorting the stock, given the limited
> risk if the stock continues to go defeat traditional valuation
> metrics.
Also, we can offer downside protection in YHOO and AMZN.
>
EQUITY FUTURES OVERVIEW:
04/22/03
YESTERDAY'S TRADING RANGES, VOLUME, OPEN INTEREST AND CONTRACT HIGHS:
INDEX EXPIR OPEN HIGH LOW SETTLE CHANGE JUN VOLU
TOTAL O.I. CHANGE
S&P 500 JUN 891.20 897.70 887.00 893.00 +1.80 36643 623307 +624
S&P e-minis 472416
583587 +10683
+2760.60
SPX Cash Index 892.01 -1.57
MIDCAP JUN 421.75 424.50 421.50 423.50 +1.75 649 13103 +96
RUSSELL JUN 382.00 385.50 382.00 385.5 +3.50 829
21295 +143
NASDAQ JUN 1083.00 1092.5 1073 1084.5 +1.50 9305 74162
+1030
NDX e-minis 217324
198968 -3575
+554.00
YESTERDAY'S MARKET RECAP:
S&P futures closed 1.80 points higher on Monday, at 893.00 Futures traded slightly higher on the lightest pit volume of the year. Futures opened slightly higher, but four dealers appeared to drive the selling from the day's high at 897.70. Scattered dealer buying and selling kept futures in a range with European markets closed and the first session since options expiration. The holiday weekend in the U.S. may have contributed to the tepid volume. Futures closed up 1.90 points, at 893.00.
TODAY'S FAIR VALUE AS ESTIMATED BY MERRILL LYNCH:
FAIR VALUE RATE BASIS
S&P 500 JUN -0.74 1.32% 1.00
S&P JUN-SEP SPREAD -1.19 1.32% -1.10
S&P 500 SEP -1.94 1.32% -0.11
NASDAQ MAR 2.19 1.32% 3.46
S&P FUTURES TECHNICAL LEVELS (SEP Contract):
RESISTANCE SETTLE SUPPORT
905.00 (Month High 4/7) 893.00 876.80 (4/16 Low)
NDX FUTURES TECHNICAL LEVELS (SEP Contract):
RESISTANCE SETTLE SUPPORT
1095.00 (Month High 4/7) 1084.5 1054.00 (Thursday Low 4/17)
INDEX CHANGES:
None
CSFB- Midday report
ECONOMIC FOCUS TODAY
US Leading Indicators Fell for a Second Straight Month, as Expected
* The US index of leading economic indicators fell 0.2% in March, in line with expectations. This was the second straight monthly decline, but it looks like old news considering that some of the components are enjoying a post-Iraq rebound in April (i.e. stocks and consumer expectations are up; 10-year/funds spread wider). The biggest negatives for March were building permits and jobless claims.
TRADING COMMENTARY
EXCHANGE TRADED FUNDS: Active 2-way in QQQ, with buyers on the highs. Seeing buyers in XLF (-0.3%) and DIA (+0.2%).
PROGRAM TRADING: Light flows; over the day VWAP trading.
OPTIONS: Seeing buyers of Jan 10 EP (+10%) calls, and buyers of Jan 7.50 TYC (+2%) puts.
INTERNATIONAL: Europe is closed. In Asia, TSM (+2%) strong after local strength for the past two trading days. Samsung earnings were slightly weaker, but guidance and the tone on the conf call were both positive.
CASH TRADING
HEALTHCARE: Major pharma names act well off MRK (+2%) earnings with the exception of SGP (-0.5%) after new CEO announced, but earnings release was pushed back. DRG Index (+0.8%) trading near the top of its range. Hospitals mixed ahead of earnings this week from HCA (+0.4%), HMA (-0.6%), TRI (-1%). HGSI (+4%) strong after receiving fast track approval for its Lupus treatment.
ENERGY: Crude is stronger ahead of OPEC Meeting on Thursday.
UTILITIES: UTY Index (-0.1%) can't break through the 255 level. Seeing some institutional sellers and hedge fund buyers in the group.
RETAIL: Seeing buyers below the market, but trading is quiet. Easter sales not expected to have an impact, but today WMT (-0.8%) and JCP (-1.8%) announced Same Store Sales will be at the low end of the range. Competitor downgrade putting pressure on FD (-0.7%), JCP. Seeing buyers in BBY (-0.5%). OTC names mixed to weaker.
SOFTWARE: SYMC (-1%) weaker ahead of earnings on Wednesday. ISSX (+11%) strong after better than expected quarter. Seeing buyers in DCTM (+10%) after earnings on Thursday after the close.
INTERNET: Group is strong, seeing short covering and institutional buying. EBAY (+1%) reports tomorrow after the close. OVER (+12%) outperforming.
SEMICONDUCTORS: Thin trading in the group. Earnings this week from several mid-cap companies.
CONTRACT MANUFACTURING: Earnings this week from SANM (-1.7%) and FLEX (+0.1%).
MACHINERY/CONGLOMERATES: OSK (-9%) weak after not being selected as a U.S. Army supplier. WHR (+0.7%) strong off short covering after earnings; the company gave weaker guidance. Seeing buyers in TYC (+1.8%).
HOMEBUILDERS: Group is mixed on light volume.
FINANCIALS: Group is mixed overall.
Goldman, Sachs & Co.
April 21, 2003
DJIA: 8349.07 +0.14%
COMP: 1422.64 (0.20%)
S&P: 893.58 unch
Overall Market Comment:
Markets are hovering around the unchanged mark after major indices posted gains last week on earnings that overall have been better than expected. The majority of the S&P companies that reported thus far have reported better than expected earnings.
COMMUNICATIONS, MEDIA, & ENTERTAINMENT (CME) & TECH:
LXK is up 1% after reporting earnings and giving a wide range for 2Q expectations. The SOX is enjoying small gains after Samsung raised their 2003 cap-ex budget late Thursday. The index headed towards its 340 resistance level and failed to break above it. BRCM continues to make gains after reporting earnings last week. EDS is off over 3.5% after the company stated that it will delay reporting its earnings results. PMCS is up over 5.5% after reporting better than consensus earnings Thursday after the close. ATML is off over 14.5% after reporting a wider than expected loss on Thursday after the close. CME continues to underperform, as the desk sees selling in the RBOCs. FON is the lone positive name amongst the telcos ahead of today's earnings announcement after the close. After a solid week last week, VIA.B attempted to break through $41, but continues to stall at that level. Resistance levels: NDX 1100, SOX 340, COMP 1425.
CONSUMER:
The retail space is very quiet today, ahead of a full week of earnings. Retail sales figures from WMT and FD were weak, leading to a dip by the retail names. The desk is seeing two way flows in SWY, with selling by institutions, and momentum money buying. Elsewhere, the desk is seeing selling in high flying names that were bought by momentum accounts last week, which are taking profits today after failing to see a continuation to that trend. The desk is seeing supply in COST (down over 0.5%); short-selling in AMZN (up over 1.5%) which the desk feels is well bid for at the $25.60 level.
CYCLICALS:
The group is quiet today, with defense and steel outperforming, ahead of earnings from RTN and LMT, and after good earnings from STTX (up over 12%) respectively. A highlight underperformer is AMR - down over 16% after Friday's outperformance and on negative news over the weekend. UTX is up nearly 2%, rebounding from Friday's sell off, and despite news on Bloomberg this morning that the company is in talks to buy British security firm CHB. In terms of earnings, MMM reported slightly better numbers and is up slightly, while LUV reported inline numbers, but is off almost 1% after making cautious comments on the next quarter.
ENERGY:
Crude is up around $0.57 to $31.12 as we head into this Thursday's OPEC meeting. OPEC cut its forecast for global crude demand this past Friday and investors speculate that there will be a production at the Thursday meeting as Iran, Indonesia and Venezuela have been outspoken about reducing quotas. The OSX is managing to hold above its 50-day moving average of 85.20 as many drillers report this week.
FINANCIALS:
FBF is up over 0.5%, mostly as some shorts get squeezed, after a negative WSJ article exposed a NYSE fine connected to its specialist operation from last week. The timing seems to be a bit confusing, but shares are up, along with LAB, up over 0.5%. CBH is down over 1% after a negative Philadelphia Inquirer article reported a management investigation. We've seen short selling recently, and those investors who have been short are remaining so on this news. Subprime credit cards are particularly underperforming, with MXT down over 3% and ACF down over 4%, but on very light volume. PGR is outperforming after solid earnings last week, and we are seeing good two-way institutional flow.
HEALTHCARE:
MRK is up over 2% and leading the group higher after reporting solid numbers. We've seen steady demand all day. The DRG index is performing well up over 0.5%. SGP is the notable laggard after announcing a new CEO but delaying their 1Q results. We've seen supply in the stock. BSX down over 1.5% ahead of earnings after the close. We've seen selling. HMOs are in the red after outperforming on Thursday. One possible reason could be a competitor downgrade of UNH and WLP. THC is down over 4.5% after receiving a US government subpoena. The stock is holding the $14 level. AMGN tried to break through $61 earlier this morning but failed. Company reports tomorrow.
The ISI company Surveys Average hopped higher this past week
Spring weather, Easter, and an end to the War helped boost surveys
Our airline contacts reported that domestic bookings have begun to improve
Retailers helped by warmer weather; overall tone remains mixed
Tech and chemical activity improved
PG, if you've got some time this week-end, i'd be curious as to the exit strategy's you employ; stop methodology and profit extraction to be more precise. THANKS! LEON
CPN looking like a squeeze play. GS purchase of EP's plant tips hat on refinance of CPN's Bank debt, IMO
Equity Futures Overview - Thursday, April 17, 2003
Equity futures trade slightly higher - fading some of the bounce on decent earnings with the weak payrolls data. Key today will be the Philly Fed number at noon (risk to the downside given high correlation to recent terrible Empire State data). What appeared to be primarily new shorts sending S&P futures lower yesterday, turned out to be largely due to long liquidation, as one stand-out seller yesterday apparently unwound a $550 million notional long position. Our desk had institutional buyers near the day lows buying into the bell. In options, our desk had good sellers of tech option premium into strength, particularly in the SOX Index (Semiconductor Index), where we sold May 320 calls 2000 times for an institution ($64 million notional, roughly equal selling 25,000 SMH options).
Expiration: with SPX options settling on the open today, we could see some volatility just out of the gate as dealers hedge the remainder of their positions, but then no SPX option expiration-related flows for the rest of the day. Some single stocks, however, face pin risk with expiration tonight (stock prices trading within a tighter and tighter range around the particular strike as we approach the close, as market makers hedge their expiring option positions). Based on our analysis of the large outstanding call option open interest near the at-the-money strike, some key names that could be pinned at the following strikes include: AMGN at $60, TGT at $32.5, L at $10, MWD at $45 and a few others.
Open Question: How on earth does AAPL stay in business?
AMD looks pretty good- we'll see what the guidance is.
For those inclined to gold shares:
I don't play golds. But I don't fight the tape either.
A pair that's been working for me is long FCX (freeport copper and gold) versus short PD (Phelps Dodge).
Basically you are net long a gold stock, and you are playing a huge valuation gap between two commodity copper miners.
Goldman, Sachs & Co.
April 16, 2003
DJIA: 8318.67 -0.99%
COMP: 1403.60 +0.90
S&P: 886.20 -0.51
Overall Market Comment:
Markets are mixed as earnings from large cap tech leads that sector higher with the desk seeing broad institutional participation. But the SPX is being led lower by low quality / mixed earnings from lower beta sectors such as consumers and healthcare. The desk is also seeing a rotation out of the telecoms into higher beta stocks. The SPX support level is 883.
COMMUNICATIONS, MEDIA, & ENTERTAINMENT (CME) & TECH:
The desk is seeing broad institutional participation in tech today as the group is led higher by large caps. MSFT (up over 2.5%) is trading right around its 200-day moving average of $25.29. The desk is seeing institutional buyers but there is supply at $25.50. MOT is off over 1.5% and below its $8 trading range support level after disappointing guidance. The desk is seeing institutional selling. INTC is up over 6% on good institutional demand. The stock is trading above the $18 level and it would be considered a bullish signal if it closes above that. EMC is up over 6% after reporting earnings this morning as the desk sees institutional buying in the entire storage space. Internet retailers are down on the day but the desk is seeing demand coming into the names especially from the derivatives standpoint. The desk is seeing short covering in semi cap equipment. SUNW is off over 1.5% as it heads into earnings tonight as investors appear to be trimming back long positions. In CME we are seeing a rotation out of telecom and media and into higher beta tech names. BLS, SBC and VZ are down around 2% each. Selling continues and shorts are being put on in T. In media, TRB reported in-line numbers but the whole publishing space is seeing across the board selling. CCU and VIA are giving back approximately 2.5% of their recent gains.
CYCLICALS:
AMR continues to be a highlight, with the company's potential bankruptcy seemingly on a knife edge. The stock is up over 4% as the market seems confident that the vote by flight attendants will affirm the concessions on the table. The desk feels that if the vote is lost, and AMR files for bankruptcy, then the stock will trade down substantially, and if the vote is won then the stock will be limited on the upside. The desk has been seeing profit taking in the name today. In autos, F reported better than expected numbers and the stock has rallied up over 13%, and the desk has seen selling in the name, both by short money and traders selling long positions. CAT is off under 1% despite raising guidance, though the desk feels the stock was overdone going into earnings. Finally, GD is up over 3% after good earnings, giving a bid to some of the defense names, and the desk is seeing two way flows in the group.
ENERGY:
Crude was initially trading up on bullish API numbers but took a hit after the terrorist threat level was lowered. XOI is trading with the broader market and the OSX feels heavy as the group starts to report earnings.
FINANCIALS:
JPM and MER both reported better than expected earnings but while , and both stocks are up over 1.5%. Today's strength is a continuation of recent momentum, and our trading desk expects this trend to continue. HRB is down over 7% as we see sellers continue to drive the stock lower on continued concerns over their tax business. Regional banks are mixed on the back of earnings.
HEALTHCARE:
Health care underperforming across the board. BAX down over 2.3% as investors seem disappointed with the lowered 2Q guidance. We're seeing an absence of buyers on the desk. STJ is also down over 2% after reporting numbers. We're seen supply in STJ. HMOs and Hospitals underperforming with both groups down 3-4%. UNH reported strong numbers but a competitor downgraded the name due to reserve concerns. Distributors weak on disappointing IMS data. GILD outperforming the broader biotech space. We are seeing institutional demand. MLNM down over 5% after reporting below street estimates. GENZ down over 4% after reporting in line numbers but lower than expected gross margins.
RETAIL:
Much of the consumer space is under pressure today due to a combination of bearish comments relating to earnings in the space. Firstly, KO made bearish comments on volume trends, and the stock is down over 6%. Secondly, SWY is off over 16% after making cuts to its guidance, leading to weakness in the other food retailers today such as ABS and KR both down over 4%, and the desk is seeing short and long selling in both of these names. Also in retail, the desk is seeing selling of JCP and CVS, and buying in SYY on weakness. In consumers, MYG is off over 13% after weak earnings and the announcement of job cuts, bringing WHR ( off nearly 3%) with it. The desk has seen buying in MYG at the $18 level, and the stock is currently holding near long term support of $18.60.
Well done Leon. With the 200day moving average on the S&P at 880.52, I suspect the market may stop there, chop around without any resolution till next week. Burden of proof remains with bears, until $BPSPX rolls over.
Just took off all my shorts; all nicely profitable. May leave some on the table here but this just doesn't feel right to me. Anyway, i generally don't play on the week-end "bracket" days, so my plan at present is to reposition next week.
Ugly bar in HDI on better than exp. earnings. Watching.
Tech recap from soundview:
After 2 big days of tech earnings reports, I think the phrase that sums it up best is a "relieved yawn". The environment is tough, investors' expectations are pretty low and no one feels optimistic about the June quarter (yawn!). Yet, there is an underlying fear that we'll be disappointed even more, as in past quarters, and so far that hasn't happened (phew!). A "relieved yawn" resounds through the street!
EMC just reported and like reports from companies such as MSFT and MOT, the commentary seems to be that the report wasn't as bad as feared, guidance is still cautious, and we're relieved with the outcome. There it is again! The "relieved yawn". EMC reported revs of $1.384 vs SNDV $1.39 (Concensus $1.38) and eps of .02 vs SNDV .01. Sym 6 DMX actually managed to make the 50% revenue target for the quarter and gross margins came in at 43% (6 pts better than what we were estimating). Hardware looks to be in line, while software is a little light. Guidance is $1.42 - $1.475, which is light, but eps is .03, which is better.
Positive Earnings Changes:
LLTC: N F03: $596 to $603 and .73 to .74 F04: $713 to $725 and .89 to .90
CDN: N F03: $1.1 and .49 to .51 F04: $1.3 and .80 to .82
TER: OP F03: $1.4 and (.40) to (.37) F04: $1.9 and 1.00
PHTN: OP F03: $66.7 to $68.4 and (.84) to (.81) F04: $113 and .81 to .79
MSFT: N F03: $32 and 1.02 to 1.04 F04: $33.8 to $33.5 and 1.03 to 1.05
Negative Earnings Changes:
CLS: N F03: $6.5 to $6.6 and .35 to (.06) F04: $6.7 and .18
MOT: OP F03: $27.3 to $27.6 and .40 to .37 F04: $28.9 to $29.1 and .60 to .55
Notable Reports Tonight:
EMC: OP 1Q: $1.39 and .01 2Q: $1.48 and .02
NOK: OP 1Q: $7.13 and .16 2Q: $7.9 and .19
h recap from Soundview:
Starbucks looking bitter off Lehman downgrade. I'm short this one from about 26, looking for 22, covering at 26.5.
I'll let you know if I take it. Took S this morning. With a tight stop. Will take either SMH or QQQ but no triggers so far. A third position I have not completely decided on. I am thinking strongly about IBM puts. But, I will likely not go above 3 positions in this news driven environment.
GT
Yes, I usually have a pair in mind, even when I start with only one. I try to trade for a 1-3 month time frame, but with volatility so high, I like to have an opposing long or short, to temporarily offset the position when I think we are set up for a counter trend move. Sometimes they work out for long time horizons. sometimes they dont...
Helps with tax management too. I bought JPM last Oct. and 15 and change. Lately, I have it paired. Hopefully, I can get it to a year, and get the 20% cap gains treatment.
PG, interesting take on the retailers; i'll keep that in mind,thx.. An accountant, huh! You don't practice anymore? BTW, thats my background also. One last thought regarding pairs trading; is that your usual modus operandi? LEON
I think you and are are on the same page. I will get more aggressive on the short side when $BPSPX crosses over and turns down. Right now, occilators on it have peaked and crossed, but BPSPX itself remains in buy territory.
The wedges, if they play out, should be big. Let me know when you pull the trigger on DELL, I may join you.
Leon- one more thought.
Avoid shorting retailers for the next coupla weeks. I think they're good shorts too, but I'll tell you why.
In the institutional world, retailer earnings growth can be broken down as Comps(Same Store Sales)+SqFt growth+change in margin. Thats the way the big buy side shops buy and sell these things.
Since Easter and Passover are on the first Full Moon sabbath after the equinox, every four years or so we get a big calendar shift, so that last year it was the 4th week of March, this year its the 3rd week of April. No matter what sales are for April, the comps are going to look really good. Some people are aware of this, but in my opinion, the risk reward will be better after comps. then sell the rally.
I never win when I argue with price. So I stopped. This is just one example of what I see happening all over the place. Especially on many of the indexes.
http://stockcharts.com/def/servlet/SC.web?c=dell,uu[g,a]dhclyyay[pc13!c20!c50!c200!b200!d20,2][vc60]...
I would be surprised to see $SPX over 900. Overnight ES, however, did reach 903.50. (actually, no, i would not be surprised. why would anything surprise me any more)
GT
EDIT: in my preview the link does not work. hope it works here. DELL daily chart. rising wedge. declining volume. CMF negative divergence.
From ISI:
"The Valu-Trac(tm) model has recently recognized an important change in the US equity market: for the first time since 2Q of 2002 price momentum for the overall market has stopped falling. We will be watching price momentum closely in the coming months to see if the turn is sustained. The noteworthy positive turn does suggest a base is being built and that the primary bear market may finally be coming to an end. Stay tuned."
You're preaching to the choir. But look at the tape. I'm thinking another leg down, to say 880, because the bonds are up strong, but then maybe another move to a higher high, say 900-910. That will be the "bell ringing" so to speak. Over the next 5-10 days. Otherwise plan A is still that the market has topped short-term.
In Allergan, the issue is its valuation, which is quite excessive, versus the pure sex appeal of Botox, their anti wrinkle (and possibly other things: Migraines, Cerebral Palsy, Obesity) injectable drug. Botox's competitor is Restinyl (sp?) which most doctors say is better than botox. Other than botox you have a small pipeline and legacy business that has a large presence in opthalmic indications.
As an accountant I can say that I screen for "cashless growth" and thats how I found it.
Occasionally, if you want a pair to offset the short exposure, you can use ACL (Alcon) as a long.
If perceived good numbers from IBM, MSFT, INTC (he says with a straight face) and the Iraq victory doesn't break the market out, what will? Better get some heavy buying later today.
GT
Thanks for the info. I've been circling the gambit of consumer related issues; currently short GM, COF and BZH. I've also got orders in on BJ and NCEN that have yet to fill; and got a little to cute yesterday on MYG and missed it. May happen again(BJ/NCEN)but i generally like them to come to me before i pull the trigger. BTW, i'm going to take a harder look at your AGN later; looks promising. LEON
I'm beginning to wonder if I'm positioned wrong. I'm about 50% net long- more or less sector neutral, and we got this G&C selloff, but now the action looks like consolidation. If we consolidate at these levels, we could be going much higher.
Leon,
PG, WMT, TGT, G, and KO were specifically mentioned. He also mentioned that the whole restaurant and homebuilding groups were targeted.
Are there any that you have in mind that you'd like to share?
Followers
|
2
|
Posters
|
|
Posts (Today)
|
0
|
Posts (Total)
|
55
|
Created
|
04/16/03
|
Type
|
Free
|
Moderator phineas gage | |||
Assistants |
Volume | |
Day Range: | |
Bid Price | |
Ask Price | |
Last Trade Time: |