PLAY of the Week
The Games market Makers/Specialist and brokerage firms play… it looks like they filled the pool with crystal clear sparkling water, and removed the beware of corporate sharks sign beckoning new investors to plunge head first into this beautiful arena. As Clint from dirty Harry fame would say… Do you feel lucky, well do you…go ahead make my day! As soon as jyou jump in ther release a pool of Piranhas.
Now let’s put things into a logical perspective. Since IBM’s close on the 11th $57.58…IBM has made a made dash for the golden ring as it has gained $14.62 as it closed at $72.20 today however the Big-Bad-Bear persona that I attempt to keep in check and repressed is screaming this is a DEAD SHORT….as when we reflect upon the huge move of $14.62 in 5-days that move included $11.06 worth of unfilled Gaps. I am recommending November/December Puts on Big Blue on any sign of strength off of the MSFT earnings Gap/Play today. Please be patient and selective. My optimal entry target is $73.10 - $73.80 ***Disclosurer I still have a straddle on IBM, which I will be legging out of for a pure put position
How the script played out: The Street was touting IBM all day, in an attempt to bring in some new calves into the slaughter house. Most folks did not realize that IBM actually traded down on the day…Wall Street played the game in grand style with IBM in my humble opinion, like a concert violinist playing a Stradivarius.
On October 8th IBM gets down graded by Goldman Sachs as they cut 2002-03 EPS estimates based on expectations that IT spending will remain sluggish at least through 1H03; in addition to weak IT spending, firm expects a drop-off in IP transaction-based royalties as well as incremental pension-related expenses to negatively affect earnings; on the other hand, revised model shows improved profitability in IBM's microelectronics biz and slightly more savings from restructuring; cuts 2002 to $3.90 from $4.00 and 2003 to $4.30 from $4.50
IBM trades down from $58.00 to $54.80
Mid afternoon there is a report that came out that IBM was buying back shares today. An IBM spokesperson is cited, the stock was lifted off the bottom $2.50+ to close at $57.05
IBM Waffles between $54.01 and $58.50 for the next 2-trading days @ 125% normal volume…was under accumulation as we saw many large block orders being filled.
On October 11th Dan the man Niles decided to institute a mother of a Short Squeeze in IBM… He upgrades IBM to Overweight from Equal Weight; and he vaguely cites recent reduction in consensus earnings estimate and resulting ability to meet estimates (double talk for IBM is oversold and I can orchestrate a squeeze based on the recent downgrades by competing firms, especially after we have been buying), US stability offsetting European weakness, possible slight improvement in 2003 IT spending, and likelihood that any 2003 estimate cut will be modest ($0.05-0.10) (He was expecting a reduction in visibility and a slight pullback in IBM’s outlook…not a resounding upgrade at all.).
IBM gapped up to $62.00 a huge $4.42 point gap…on the upgrade and only filled $0.50 of the Gap…thus leaving $3.92 left unfilled. it closed the day out at 63.92
On October 14th Morgan Stanley reduces their estimates on IBM as they believed that IBM did not experience the normal pickup in hardware orders in the last few weeks of the qtr, and that Microelectronics remains a wildcard; cuts 2002 estimates to $3.80 from $3.82 (Wow a hole 2-cents that is a reduction of a ½ of a percent) and 2003 to $4.05 from $4.25 (below consensus of $3.93 and $4.41). The headline was all that was needed to scare some longs
IBM sold off $2.38 (still not filling the $4.41 gap) then low and behold some buyers stepped in and drove up the price to $63.42, a loss of $0.50 for the day. On light volume.
On the 15th after the Holiday the futures were on a tear…IBM again saw a huge Gap up of $4.33, as it opened at $67.75…it traded to an intraday low of $66.58 thus filling in $1.17 of the $4.33 leaving a Gap of $3.16
On October 16th IBM traded down intraday t0 $64.24, which filled in all but $0.81 of the Gap on the 15th After hours IBM reported their lackluster earnings, however they were touted as extraordinary…and the race was on.
On the 17th IBM Gapped up Huge $7.90 it opened at $72.80…and ran to $73.00 before closing at $72.20 …(Intraday low = $71.23…hence it filled $1.57 of the $7.90, leaving $6.33 unfilled). To me this is a bearish sign, to close lower than the gap.
JMHO
AI
