The big move on weak volume that we saw on Monday provided a weak foundation for the market, and we failed to see any notable follow-through today. We had a brief attempt at the open and then at midday, but we ended up with a weak finish and the indices in the red.
This is the first time since July that buyers failed to sustain their buying after a reversal. In July and in early September, once we pulled out of the pullback, we went straight up without a pause, so today is a slight change in character. The buyers aren't being as aggressive, and if we actually have a failed bounce, it will be an indication that a change in character is developing.
I don't want to be too fast to declare that the end is near. It is just one day of selling, and it was not that severe, however the key to this market for months has been dip-buyers, and they are now looking a little less energetic. The failure to immediately follow through after a big gain is notable in a market where chasing strength has been the only choice for so long.
We have economic data and Ben Bernanke coming up in the next few days, and with the end of the quarter upon us, there will be plenty of reasons for the bulls to really press to keep things going. If they show the same sort of weakness that we saw today, then we should be ready to very quickly take some defensive measures....
Tuesday, September 29, 2009
Monday, September 28, 2009
The Market Almost Always Presses Maximum Frustration On The Maximum Number Of Investors.....
It was a good day for the bulls as far as point gains, but the move higher on low volume leaves the market in a rather awkward technical position. A lot of market players were looking for last week's pullback to set us up for a window-dressing bounce to complete the quarter, but many were caught by surprise when we jumped so quickly this morning. It would have been a lot easier if we had some low-volume selling today as a setup for a bounce, but the market always likes to keep us off-balance...
So now if you want to play a potential window-dressing move, you have to trust that a low-volume move will continue and take us right back into obvious resistance at last week's highs. The market has consistently handled such challenges extremely well, but it is faith rather than the charts that has been the winning approach.
Volume will pick up tomorrow, and we'll see if the bulls can build further on this shaky foundation. That hasn't mattered much for a long time, however, and there is little to indicate that conditions have changed....
So now if you want to play a potential window-dressing move, you have to trust that a low-volume move will continue and take us right back into obvious resistance at last week's highs. The market has consistently handled such challenges extremely well, but it is faith rather than the charts that has been the winning approach.
Volume will pick up tomorrow, and we'll see if the bulls can build further on this shaky foundation. That hasn't mattered much for a long time, however, and there is little to indicate that conditions have changed....
Friday, September 25, 2009
Investors Lost Interest?
We had a little follow-through to Wednesday's big reversal and Thursday's selling, but overall it was an uneventful day. Breadth was negative but improved most of the day, and oil reversed after a very poor start, which helped matters. It was still a negative day, but the selling wasn't particularly energetic. It was more a market of disinterest rather than one of overt negativity.
Next week will present a particularly good test of the health of this market. As I've noted numerous times, the hallmark of this market is the aggressiveness of the dip-buying. Once it starts, we have tended to run straight back up without a pause, and that is what has caused such consternation for bears and underinvested bulls in this market.
Technically, such vigorous recoveries aren't to be expected, but they have been the norm for this market. So the big question is whether it is different this time? Will the technical weakness we have seen since the Fed interest rate announcement be what finally leads to a more severe correction, or is it just another trap for the bears, who have been caught so many times, anxiously awaiting the death blow to this uptrend?
As always, there are good bearish arguments for why this market is destined to roll over, but the folks who keep on buying weakness have been so successful for so long that they are likely to keep on doing their thing. It is when they falter and the whole dip-buying game loses some of its appeal that the real danger sets in. Next week, we'll likely be put to the test....
Next week will present a particularly good test of the health of this market. As I've noted numerous times, the hallmark of this market is the aggressiveness of the dip-buying. Once it starts, we have tended to run straight back up without a pause, and that is what has caused such consternation for bears and underinvested bulls in this market.
Technically, such vigorous recoveries aren't to be expected, but they have been the norm for this market. So the big question is whether it is different this time? Will the technical weakness we have seen since the Fed interest rate announcement be what finally leads to a more severe correction, or is it just another trap for the bears, who have been caught so many times, anxiously awaiting the death blow to this uptrend?
As always, there are good bearish arguments for why this market is destined to roll over, but the folks who keep on buying weakness have been so successful for so long that they are likely to keep on doing their thing. It is when they falter and the whole dip-buying game loses some of its appeal that the real danger sets in. Next week, we'll likely be put to the test....
Thursday, September 24, 2009
Time To Get More Defensive?
A 42-point pullback in the DJIA looks quite mild, but it was the action under the surface things that was worrisome. Breadth was solidly negative, with about 1,370 gainers to 4,325 decliners. All major sectors finished in the red, with oil and commodity-related stocks being the biggest laggards due to strength in the dollar.
There was a mild bounce attempt late in the day, but the bulls never really gained much traction. We finished off the lows, but it wasn't a very convincing flourish of buying to end the day. I suspect there was some nervousness about RIMM's earnings tonight, and that may have been well justified, as the stock is down 8 points or so after a slight top-line miss and a minor EPS beat.
Since March, the pattern of this market has been to come back very quickly just when we looked like we were on the verge of a major technical breakdown. That catches folks by surprise, and we end up with extremely strong moves straight back up. I'm sure many folks are looking for this to occur again, but as I keep writing, the tipoff will be the strength of the bounce. The bounce this afternoon was not very strong, but overall, the pullback from the highs is still fairly minor.
There is no question that a higher level of defensiveness is now warranted, but we don't yet have a major change in trend. The bulls can afford to let things slip a bit more, but watch what happens on the bounce attempts. The dip-buyers are the key to the market, and when they weaken, the downtrend will pick up momentum....
There was a mild bounce attempt late in the day, but the bulls never really gained much traction. We finished off the lows, but it wasn't a very convincing flourish of buying to end the day. I suspect there was some nervousness about RIMM's earnings tonight, and that may have been well justified, as the stock is down 8 points or so after a slight top-line miss and a minor EPS beat.
Since March, the pattern of this market has been to come back very quickly just when we looked like we were on the verge of a major technical breakdown. That catches folks by surprise, and we end up with extremely strong moves straight back up. I'm sure many folks are looking for this to occur again, but as I keep writing, the tipoff will be the strength of the bounce. The bounce this afternoon was not very strong, but overall, the pullback from the highs is still fairly minor.
There is no question that a higher level of defensiveness is now warranted, but we don't yet have a major change in trend. The bulls can afford to let things slip a bit more, but watch what happens on the bounce attempts. The dip-buyers are the key to the market, and when they weaken, the downtrend will pick up momentum....
Wednesday, September 23, 2009
Should Much Be Made About Today's Reversal?
It has been a very long time since we've seen this sort of market action. It turned out to be a classic "sell the news" reaction to the FOMC. Although there wasn't anything surprising or negative in the FOMC policy statement, it served as a very good catalyst for sellers. We initially spiked up in almost giddy fashion, and once the selling started, we ran straight down, and even the dip buyers stood aside and just watched.
I can't even remember the last time we had an ugly reversal like this and finished at the lows. A lot of folks have been looking for some selling to kick in and the Fed today just turned into a very convenient excuse.
I don't want to make too much out of this reversal as the market still hasn't done that much wrong. It is the first poor day in weeks, and the market can easily afford it without destroying its uptrend. Nonetheless, some increased defensiveness is warranted.
Moving forward, what we have to look for is a change in the aggressiveness of the dip buying. That has been the key to this market since March. If the dip buyers lose some of their enthusiasm and we start seeing strength sold, then it will really be significant.
The bears finally put a couple points on the board, but the score is still very lopsided in favor of the bulls. The bears have a very long way to go before they shift the tide, but at least they showed up for once.....
I can't even remember the last time we had an ugly reversal like this and finished at the lows. A lot of folks have been looking for some selling to kick in and the Fed today just turned into a very convenient excuse.
I don't want to make too much out of this reversal as the market still hasn't done that much wrong. It is the first poor day in weeks, and the market can easily afford it without destroying its uptrend. Nonetheless, some increased defensiveness is warranted.
Moving forward, what we have to look for is a change in the aggressiveness of the dip buying. That has been the key to this market since March. If the dip buyers lose some of their enthusiasm and we start seeing strength sold, then it will really be significant.
The bears finally put a couple points on the board, but the score is still very lopsided in favor of the bulls. The bears have a very long way to go before they shift the tide, but at least they showed up for once.....
More On PALM
PALM priced 20 million shares at $16.25 - that's just huge. The stock's really in the no - resistance zone, and, with massive short interest. The bullish over-allotment means that PALM, if they so choose, could wipe out all of their LTD in one fell swoop....
A buyout for PALM? I still kind of doubt it - in spite of all the NOK for PALM rumors out there - but if I ran RIMM I'd buy PALM right now north of $25....Why? Because they could keep the Pre (and the next-gen versions of it) out of NOK's hands and, frankly, the Pre in RIMM's channel would be superior to many of RIMM's current offerings.....
long PALM
A buyout for PALM? I still kind of doubt it - in spite of all the NOK for PALM rumors out there - but if I ran RIMM I'd buy PALM right now north of $25....Why? Because they could keep the Pre (and the next-gen versions of it) out of NOK's hands and, frankly, the Pre in RIMM's channel would be superior to many of RIMM's current offerings.....
long PALM
A Few Thoughts On The Internet Tsunami; And Stocks Like T And AAPL....
The internet tsunami rolls on - the shorts are most likely panicking here ahead of RIMM's numbers and starting to take the stock ahead of tomorrow night's eps. They had hoped that the PALM deal would be loose--it was tight as a drum. They were hoping that there would be a raised whisper for RIMM but there hasn't been. I read and hear of people being fearful for their jobs being short these names...Meanwhile T is catching a second-wind from the tsunami....I also must emphasize that the points T raised last week in Communicopia at Goldman are finally trickling into the marketplace. When you combine South Korea, China and USA (T) you know that the AAPL numbers for next year are ridiculously low. AAPL will, I think, earn at least $12 a share. It should not be this low......
long AAPL
long AAPL
Tuesday, September 22, 2009
Alot Going On Under The Surface............
Another positive day for the market isn't anything unusual, but under the surface, the action was a bit different from what we've been seeing. There was heavy speculative action in lower-priced stocks, many of which are in sectors that have been troubled, like REITS, title insurance, credit services and mortgage investment.
We had some strong action in some of the more standard names as well, like HPQ, GOOG, AMZN and GS, but the interest in lower-priced stocks is an illustration of how aggressive speculation has become and how little fear there is out there.
The conventional wisdom is that when market players are anxious chasing highly speculative names, it is a sign that a top is near. The logic is that folks are overconfident and are so unconcerned about risk that they are becoming reckless.
This isn't the first time we've had this sort of speculative action in low-priced and low-quality stocks since the March low. It has happened several times, and while we did have some slow periods subsequently, it obviously didn't harm the market for long.
The buyers just aren't going away yet, and while it is easy to try to color the action as somehow being indicative of toppy action, we still don't have any negative price action to support the bears. Until the market actually starts to show some weakness, talk about a top is meaningless..........
We had some strong action in some of the more standard names as well, like HPQ, GOOG, AMZN and GS, but the interest in lower-priced stocks is an illustration of how aggressive speculation has become and how little fear there is out there.
The conventional wisdom is that when market players are anxious chasing highly speculative names, it is a sign that a top is near. The logic is that folks are overconfident and are so unconcerned about risk that they are becoming reckless.
This isn't the first time we've had this sort of speculative action in low-priced and low-quality stocks since the March low. It has happened several times, and while we did have some slow periods subsequently, it obviously didn't harm the market for long.
The buyers just aren't going away yet, and while it is easy to try to color the action as somehow being indicative of toppy action, we still don't have any negative price action to support the bears. Until the market actually starts to show some weakness, talk about a top is meaningless..........
Monday, September 21, 2009
Hanging In There
Much of the time in life simply "hanging in there" and weathering tough times is the key...Although the major indices finished the day well off the early lows, there were a few signs of deterioration in the market. Most notably, breadth was fairly poor, especially on the NYSE, where there were more than two decliners for every advancer. There were still some pockets of strong momentum in airlines, education stocks and small-cap biotechnology, but there was a lot of junk on the screens today. The moves in the bailout names such as AIG were a particularly good example of how bulls are still aggressively chasing. The hot money continues to be hungry for action, but it is narrowing, and the trading is thinner and of smaller names with questionable fundamentals.
Overall, it was a chaotic and messy day of trading, but the bulls continue to hold up well. This market has consistently come back very quickly any time it looks like we are starting to slip. The upside momentum is slow, but the underlying support is still extremely strong.
The biggest danger for the bears is that the market will work off its overbought characteristics by churning like it did today for a while longer. If we simply run in place for a couple days, it won't take long to set the stage for another leg up.
It is a balancing act right now, but the bulls continue to have the advantage...
Overall, it was a chaotic and messy day of trading, but the bulls continue to hold up well. This market has consistently come back very quickly any time it looks like we are starting to slip. The upside momentum is slow, but the underlying support is still extremely strong.
The biggest danger for the bears is that the market will work off its overbought characteristics by churning like it did today for a while longer. If we simply run in place for a couple days, it won't take long to set the stage for another leg up.
It is a balancing act right now, but the bulls continue to have the advantage...
Friday, September 18, 2009
Market Is Proving "Stickier" Than Most Had Thought Possible....
The market continues to refuse to roll over. After a little more weakness than has been usual this morning, the dip buyers finally showed up just in time for lunch and did a nice job of taking things back up before a little last-minute selling.
But the real stars of the show today were the stodgy consumer staples stocks such as PG, KO, PEP, PM and CL. They were joined by some other old names such as T, SHLD and SBUX, and there was plenty of activity in small caps as well. If folks are worried about this market being overextended, we didn't see many signs of it today.
The market continues to be in difficult position of being obviously technically extended but having enough momentum and underlying support to prevent any meaningful weakness. It is a little bit more volatile lately, which is an indication that there is more short-term flipping. Market players tend to be more aggressive with their flipping when they want to stay long but are becoming more concerned about the market being too overbought.
One can find many reasons to be skeptical of this market, but the technical action is still supportive of the bulls. Until that changes, we have to continue to look for opportunities on the long side......
But the real stars of the show today were the stodgy consumer staples stocks such as PG, KO, PEP, PM and CL. They were joined by some other old names such as T, SHLD and SBUX, and there was plenty of activity in small caps as well. If folks are worried about this market being overextended, we didn't see many signs of it today.
The market continues to be in difficult position of being obviously technically extended but having enough momentum and underlying support to prevent any meaningful weakness. It is a little bit more volatile lately, which is an indication that there is more short-term flipping. Market players tend to be more aggressive with their flipping when they want to stay long but are becoming more concerned about the market being too overbought.
One can find many reasons to be skeptical of this market, but the technical action is still supportive of the bulls. Until that changes, we have to continue to look for opportunities on the long side......
Another New Idea - PALM
I'm not super-crazy about PALM; it's really too bad they've gone with the hapless S network - and I'd still favor AAPL and even NOK (and I'm warming to RIMM again) for smartphone exposure, I feel there are several reasons to re-look at the bullish thesis on PALM:
* Small market cap relative to forward sales (roughly one-times sales)
* Monster-short interest of 30% of float, which may have grown in recent days/weeks due to concerns about the weak quarter. So a short squeeze alone could be worth a quick $5 to $6.
* Aside from the panic lows in late 2008, the stock has a long base of support on the weekly chart going back to 2005.
* Still largely negative analyst coverage and skepticism about the long-term viability of Palm's story.
* Last but not least is the fact that GS is doing the secondary (this alone could get the stock to $20) and my take is they will do a good job of highlighting the potential positives of this story moving forward.
The balance sheet isn't a thing of beauty but it's relatively strong with about $211 million in cash against nearly $400 million in long-term debt. Thus, after the secondary, PALM will again have a healthy net cash position.
A move to new highs puts the stock firmly in the no-resistance zone and upside could be stunning.
And I'm not even mentioning the potential interest from much larger players on the acquisition front.....
long AAPL and PALM
* Small market cap relative to forward sales (roughly one-times sales)
* Monster-short interest of 30% of float, which may have grown in recent days/weeks due to concerns about the weak quarter. So a short squeeze alone could be worth a quick $5 to $6.
* Aside from the panic lows in late 2008, the stock has a long base of support on the weekly chart going back to 2005.
* Still largely negative analyst coverage and skepticism about the long-term viability of Palm's story.
* Last but not least is the fact that GS is doing the secondary (this alone could get the stock to $20) and my take is they will do a good job of highlighting the potential positives of this story moving forward.
The balance sheet isn't a thing of beauty but it's relatively strong with about $211 million in cash against nearly $400 million in long-term debt. Thus, after the secondary, PALM will again have a healthy net cash position.
A move to new highs puts the stock firmly in the no-resistance zone and upside could be stunning.
And I'm not even mentioning the potential interest from much larger players on the acquisition front.....
long AAPL and PALM
Thursday, September 17, 2009
Still Bullish Action
The bears finally gave it a try today, but the best they could manage was some mixed action. The indices were slightly red, and breadth was flat on the Nasdaq. Oil was the major drag today, along with semiconductors. Some of the momentum stocks suffered a bout of aggressive profit-taking, but then stocks like GOOG, AAPL and GS were solid.
I don't think anyone seriously questions the fact that the market is technically extended. It is painfully obvious, especially to those who have been trying to find some good entry points. The big question is how we work off this overbought condition. Either we can sell off and pull back sharply, or we can churn for a while and go nowhere. The bears and the underinvested bulls will be rooting for lower prices, but with the huge supply of dip-buyers out there, the more likely scenario is that we simply run in place for a while.
The action today was a good illustration of how the market is likely to stay very sticky to the upside despite many good reasons for some profit-taking and pullbacks. There is still a plentiful supply of would-be buyers who have had it beaten into them recently that buying any and all dips is the way to go. Until the Market Monster catches them by surprise and turns on that thinking, they are going to be extremely aggressive in buying pullbacks.
The fundamental bearish arguments against this market continue to sound quite compelling, but the technical action is still supportive of the bulls. The indices definitely need a rest, but that isn't a sufficient reason to be aggressively bearish....
long AAPL
I don't think anyone seriously questions the fact that the market is technically extended. It is painfully obvious, especially to those who have been trying to find some good entry points. The big question is how we work off this overbought condition. Either we can sell off and pull back sharply, or we can churn for a while and go nowhere. The bears and the underinvested bulls will be rooting for lower prices, but with the huge supply of dip-buyers out there, the more likely scenario is that we simply run in place for a while.
The action today was a good illustration of how the market is likely to stay very sticky to the upside despite many good reasons for some profit-taking and pullbacks. There is still a plentiful supply of would-be buyers who have had it beaten into them recently that buying any and all dips is the way to go. Until the Market Monster catches them by surprise and turns on that thinking, they are going to be extremely aggressive in buying pullbacks.
The fundamental bearish arguments against this market continue to sound quite compelling, but the technical action is still supportive of the bulls. The indices definitely need a rest, but that isn't a sufficient reason to be aggressively bearish....
long AAPL
A New Idea: Buy LIZ
LIZ was smashed too hard by the market downturn; management's now on the ball with new products and greatly improved finances. recent operational improvements at the company lead me to believe it will trade to $12 or so in the not-too-distant future, and then on to the low to mid $20s in a few years.........
long LIZ leaps (and looking to buy alot more)
long LIZ leaps (and looking to buy alot more)
Wednesday, September 16, 2009
That Freight Train You Heard Was The Buyers Rushing To Buy
We had a couple minor dips during the day, but they hardly deserve the name. It was up, up and away, with small banks and big technology leading the charge. My AAPL stuff did extremely well today. Breadth was very strong, volume heavy, and the only sector that looked a bit shaky was semiconductors.
What is most notable about the action now is that the bears aren't even trying to call a top. They are just shaking their heads in disbelief at the persistent strength and trying not to get run over.
I read of a trader who characterized the position of many in this market by saying, "I can't find much to buy that is new, and I'm underinvested." It isn't that there are a lot of bears, but there are a lot of folks who have been slow to embrace the market after the pain of a terrible bear market, and they now can't find a way to jump in. They kept cash levels very high for a while, and trying to deploy it in stocks that are technically set up and/or a good value is tough.
One of the repercussions of this situation is that we have a tremendous amount of underlying support. This market is going to pull back, but it isn't going to fall apart easily. There are just too many folks who missed out for too long who will keep looking for opportunities to jump in.
Straight-up markets are a lot harder to trade than a casual market observer might think. Buying and holding is what works best in a market like this, but that is exactly the approach that resulted in huge losses last year and early this year. It is a constant battle between doing some disciplined selling, making prudent buys and letting things ride as the momentum continues. In this market, doing anything other than being fully long and holding has been wrong, and that is why frustration is so high....
long AAPL
What is most notable about the action now is that the bears aren't even trying to call a top. They are just shaking their heads in disbelief at the persistent strength and trying not to get run over.
I read of a trader who characterized the position of many in this market by saying, "I can't find much to buy that is new, and I'm underinvested." It isn't that there are a lot of bears, but there are a lot of folks who have been slow to embrace the market after the pain of a terrible bear market, and they now can't find a way to jump in. They kept cash levels very high for a while, and trying to deploy it in stocks that are technically set up and/or a good value is tough.
One of the repercussions of this situation is that we have a tremendous amount of underlying support. This market is going to pull back, but it isn't going to fall apart easily. There are just too many folks who missed out for too long who will keep looking for opportunities to jump in.
Straight-up markets are a lot harder to trade than a casual market observer might think. Buying and holding is what works best in a market like this, but that is exactly the approach that resulted in huge losses last year and early this year. It is a constant battle between doing some disciplined selling, making prudent buys and letting things ride as the momentum continues. In this market, doing anything other than being fully long and holding has been wrong, and that is why frustration is so high....
long AAPL
Tuesday, September 15, 2009
Should We Be Nervous About The Lack Of Nervousness?
I have to head out early, but given how predictably strong this market has been lately, I don't even need to watch the finish. Today was almost a carbon copy of yesterday. After a little hesitation and some mild selling, the dip-buyers jumped in and soon had us back at the early highs. Once we traded through that level, the stops were triggered, and we spiked up to another new high.
Breadth was quite good once again, with retailers being the laggard, primarily due to WMT. Weakness in the dollar drove oil, agriculture and commodity stocks. Gold regained its momentum after pausing for a couple days and now looks poised to make a run at its all-time high.
There isn't any great new insight that can be added about this market. It is tremendously strong, going straight up and acting like it is never going to go down again. The big-picture bears are tired of repeating their arguments, which are being completely ignored.
We are ramping up again as I write, and the lack of nervousness has to make you at least a little nervous.
Breadth was quite good once again, with retailers being the laggard, primarily due to WMT. Weakness in the dollar drove oil, agriculture and commodity stocks. Gold regained its momentum after pausing for a couple days and now looks poised to make a run at its all-time high.
There isn't any great new insight that can be added about this market. It is tremendously strong, going straight up and acting like it is never going to go down again. The big-picture bears are tired of repeating their arguments, which are being completely ignored.
We are ramping up again as I write, and the lack of nervousness has to make you at least a little nervous.
Monday, September 14, 2009
Please Don't Think This Market (Or Any Market) Will Slow Down For You Or "Let You On"
We closed strong once again, and the indices ended up with pretty good gains, but it felt like a huge win for the bulls. Chatter about the possibility of a trade war with China had the market looking shaky to start the day, but for the dip-buyers it was just another buying opportunity. They ran them up all day long, and by the finish we had almost 2 to 1 positive breadth and a lot of very frustrated bears.
The difficulties the bears are encountering are very obvious, but it also isn't that easy for bulls who are trying to put money to work. There are folks who are willing to buy stocks that are up six, seven and eight days in a row, but many refuse to chase stocks in that manner, and they are left standing on the sidelines. If you want to ride this train, you have to be brave enough to jump on when its going 50 mph. We aren't getting entries other than the minor pullbacks like we had this morning.
I've been a bit sarcastic in the past about how this market punishes those who think too much. It is so easy to argue against this market, but the folks who are making money are those who embrace it and don't let go. There isn't anything complicated about it, but it sure isn't very easy to do.
The trend is still up, the bulls remain firmly in control, and all the insightful, compelling and profound bearish arguments remain irrelevant....
The difficulties the bears are encountering are very obvious, but it also isn't that easy for bulls who are trying to put money to work. There are folks who are willing to buy stocks that are up six, seven and eight days in a row, but many refuse to chase stocks in that manner, and they are left standing on the sidelines. If you want to ride this train, you have to be brave enough to jump on when its going 50 mph. We aren't getting entries other than the minor pullbacks like we had this morning.
I've been a bit sarcastic in the past about how this market punishes those who think too much. It is so easy to argue against this market, but the folks who are making money are those who embrace it and don't let go. There isn't anything complicated about it, but it sure isn't very easy to do.
The trend is still up, the bulls remain firmly in control, and all the insightful, compelling and profound bearish arguments remain irrelevant....
a recommendation
buy the radiolarians series from medeski, martin and wood - they're fantastic (all of their stuff is fantastic)
long mmw (i'm very biased)
long mmw (i'm very biased)
Friday, September 11, 2009
Nothing Day; What Will Next Week Bring?
After five straight up days, the bears finally managed a little profit-taking, but it was very meager and goes to show the very strong undercurrent of support that is out there. We had almost no dips at all this week, and that has created a large amount of anxiety for both the over-anticipatory bears and the underinvested bulls.
The market is certainly a bit extended and in need of a rest, but the fear of being left out of what some people think is the greatest bull market ever that is completely unlike anything we have ever seen before is providing tremendous support.
What was particularly tricky about the action this week was that we just kept on going straight up once we started to bounce. That just wasn't what you'd expect from the technical picture that was developing after a breakdown the week before, but what has been so impressive about this market since March is how vigorously we run up. If you haven't stayed very aggressively bullish, you have been lagging this market.
The good news for the bulls is that it still doesn't feel like there is much love for this market. Sure, you have some traders who are riding the momentum, but they have no loyalty and will hit the sell button at the first sign of problems. There are some true believers like Jim Cramer, but they are few and far between. Many others like Doug Kass and Bob Marcin think we are very close to topping out, although trying to get the timing just right isn't easy. With all that skepticism out there, the market is in good shape to continue to confound the bulls.
Weeks like this can be very difficult, because it is very hard to keep pace unless you just have held on and stayed extremely bullish. If you have taken profits or been underinvested, which seemed like very prudent things to do, you aren't going to be keeping pace with your fully invested friends. But that is the way it goes in this game...
The market is certainly a bit extended and in need of a rest, but the fear of being left out of what some people think is the greatest bull market ever that is completely unlike anything we have ever seen before is providing tremendous support.
What was particularly tricky about the action this week was that we just kept on going straight up once we started to bounce. That just wasn't what you'd expect from the technical picture that was developing after a breakdown the week before, but what has been so impressive about this market since March is how vigorously we run up. If you haven't stayed very aggressively bullish, you have been lagging this market.
The good news for the bulls is that it still doesn't feel like there is much love for this market. Sure, you have some traders who are riding the momentum, but they have no loyalty and will hit the sell button at the first sign of problems. There are some true believers like Jim Cramer, but they are few and far between. Many others like Doug Kass and Bob Marcin think we are very close to topping out, although trying to get the timing just right isn't easy. With all that skepticism out there, the market is in good shape to continue to confound the bulls.
Weeks like this can be very difficult, because it is very hard to keep pace unless you just have held on and stayed extremely bullish. If you have taken profits or been underinvested, which seemed like very prudent things to do, you aren't going to be keeping pace with your fully invested friends. But that is the way it goes in this game...
Thursday, September 10, 2009
This Is One Hated Rally....
The market makes new highs for the year as one of the most hated rallies I have ever experienced continues. After looking like we were on the verge of breaking the uptrend last Tuesday, we have now managed five straight up days on mediocre volume, although on good breadth. It isn't what looked likely from the charts last week, and the big-picture bears would be laughing at how ludicrous the move is if they weren't in so much pain from being squeezed so hard...
I'm hearing talk now about how this is a typical "late in the rally"-type action or a 'blow off' top. The bears just become so frustrated that they give up, and the bulls run amok. You get the feeling that the market will never pull back again and that you are a fool if you aren't just loaded up and riding the momentum train.
My main thesis for a while now is that no matter how good the bearish arguments may sound, we have to respect the price action, and there is no question that it is positive. We are a bit extended now after moving up five days in a row, but you just know that there are dip-buyers lurking about. Given that we haven't had any dips, you can be sure that the first one or two are going to be snapped up quickly.
The action today felt a bit like 1999 to me. We even had names like YHOO, EBAY and CSCO running. The bulls just ran over anyone who had any doubts about this market, and if you aren't willing to chase, then you aren't getting in. That sort of action can persist much longer than you think. In fact it already has for most folks. Just be careful about trying to time a top here. It is a lot harder than it looks...
I'm hearing talk now about how this is a typical "late in the rally"-type action or a 'blow off' top. The bears just become so frustrated that they give up, and the bulls run amok. You get the feeling that the market will never pull back again and that you are a fool if you aren't just loaded up and riding the momentum train.
My main thesis for a while now is that no matter how good the bearish arguments may sound, we have to respect the price action, and there is no question that it is positive. We are a bit extended now after moving up five days in a row, but you just know that there are dip-buyers lurking about. Given that we haven't had any dips, you can be sure that the first one or two are going to be snapped up quickly.
The action today felt a bit like 1999 to me. We even had names like YHOO, EBAY and CSCO running. The bulls just ran over anyone who had any doubts about this market, and if you aren't willing to chase, then you aren't getting in. That sort of action can persist much longer than you think. In fact it already has for most folks. Just be careful about trying to time a top here. It is a lot harder than it looks...
the bull and bear case for aapl
here's what some bears on aapl are saying:
peaked margins - their gross margin reached 36.9% in 6/07 and has since declined to 34.7% in 12/08. this trend should continue as pricing pressure will intensify going forward as the company aims to maintain its market share in a declining economic environment. asp's will simply decrease faster than cost of goods sold, thus negatively impacting the gross margin.
the iphone will cannibalize the ipod family - the iphone has successfully integrated the functionality of an ipod into a sleek smartphone and has effectively rendered a significant portion of the ipod product family obsolete. ever since the 6/07 introduction of the iphone, there has been a marked deceleration of unit sales of ipods on a year over year basis. this presents a serious problem, as ipods generated 28% of Apple’s total revenue in fy 08.
the stratospheric carrier subsidies are unsustainable - it is estimated that aapl receives approximately $450 from at and t wireless on the activation of an iphone 3GS as part of a carrier subsidy program. it is also estimated that aapl receives an average subsidy of ~$300 from its international carrier partners as well. these subsidies are well above average of what other vendors (even rimm) collect. after the introduction buzz of the iphone 3gs has worn off and the subsidy agreements expire, the wholesale asp of the iphone will likely take a significant step down.
here's what the bulls are saying:
the iphone ramp is in the early innings - with the iphone now available in 80+ countries (in-line with 81 in 3/09, 70 in 12/08, 51 in 9/08 and 6 in 6/08, the global ramp has just begun (recall rimm has over 400 carriers now). cumulative shipments of the iphone since its 6/07 inception now total 26.4 million units. (note: jobs on wednesday put iphone sales at 30 million).
they are the best positioned company in the technology sector - aapl continues to gain share across its major product lines (macbook notebooks, mac desktops, ipod digital music players, iphone smartphone and the itunes application). its business model is becoming stronger over time as well with continued penetration of international markets (the opposite of most of its competitors).
the bank of aapl - aapl generated $2.3bil in cash flow from operations in the 6/09 quarter and its cash hoard now stands at $31.1bil (or $34 per share) – the single largest in the technology industry. Only csco has a comparable cash balance to aapl when analyzing the leading technology companies' balance sheets. with aapl shares currently trading at ~$171, the cash balance represents ~20% of the market capitalization.
i've made no secret of where i come down in this debate. i think aapl is the undisputed growth name in tech, and i expect it to trade to about $200 by the end of 2009.
peaked margins - their gross margin reached 36.9% in 6/07 and has since declined to 34.7% in 12/08. this trend should continue as pricing pressure will intensify going forward as the company aims to maintain its market share in a declining economic environment. asp's will simply decrease faster than cost of goods sold, thus negatively impacting the gross margin.
the iphone will cannibalize the ipod family - the iphone has successfully integrated the functionality of an ipod into a sleek smartphone and has effectively rendered a significant portion of the ipod product family obsolete. ever since the 6/07 introduction of the iphone, there has been a marked deceleration of unit sales of ipods on a year over year basis. this presents a serious problem, as ipods generated 28% of Apple’s total revenue in fy 08.
the stratospheric carrier subsidies are unsustainable - it is estimated that aapl receives approximately $450 from at and t wireless on the activation of an iphone 3GS as part of a carrier subsidy program. it is also estimated that aapl receives an average subsidy of ~$300 from its international carrier partners as well. these subsidies are well above average of what other vendors (even rimm) collect. after the introduction buzz of the iphone 3gs has worn off and the subsidy agreements expire, the wholesale asp of the iphone will likely take a significant step down.
here's what the bulls are saying:
the iphone ramp is in the early innings - with the iphone now available in 80+ countries (in-line with 81 in 3/09, 70 in 12/08, 51 in 9/08 and 6 in 6/08, the global ramp has just begun (recall rimm has over 400 carriers now). cumulative shipments of the iphone since its 6/07 inception now total 26.4 million units. (note: jobs on wednesday put iphone sales at 30 million).
they are the best positioned company in the technology sector - aapl continues to gain share across its major product lines (macbook notebooks, mac desktops, ipod digital music players, iphone smartphone and the itunes application). its business model is becoming stronger over time as well with continued penetration of international markets (the opposite of most of its competitors).
the bank of aapl - aapl generated $2.3bil in cash flow from operations in the 6/09 quarter and its cash hoard now stands at $31.1bil (or $34 per share) – the single largest in the technology industry. Only csco has a comparable cash balance to aapl when analyzing the leading technology companies' balance sheets. with aapl shares currently trading at ~$171, the cash balance represents ~20% of the market capitalization.
i've made no secret of where i come down in this debate. i think aapl is the undisputed growth name in tech, and i expect it to trade to about $200 by the end of 2009.
Wednesday, September 9, 2009
Bulls Still Active; However My Stuff Got Killed Today As AAPL Options Sold Off = (The Stock Was Barely Down Though!)
We had some momentary weakness on news that AAPL's product conference wasn't all that exciting, but that only lasted for an hour or so before the buyers jumped in again during the final hour. It was another feast for the bulls who run roughshod over any bear who dares to challenge this uptrend. Breadth was very good at better than 2 to 1 even with metals and oil rolling over intraday.
What is particularly notable about the market action is how we have gone up in a straight line for four days in a row to challenge the highs after some pretty poor technical action. Such renewed vigor is not what the charts would tend to predict, but the zeal to be in this market is unabated.
Other than Jim Cramer, I don't see anyone who seems to like this market very much, which is part of the reason it keeps going. A lot of folks have taken the view that we are riding a flood of liquidity and since interest rates are practically zero the money is just going to keep flowing and drive this market.
It can be a real struggle to reconcile bearish fundamental opinions with this market that barely rests and the folks who are doing best are those who just don't over-think. The market is acting well and that is all that matters at the moment. If you can't embrace that fact, you are going to struggle.
We are back at some technical resistance at the highs for the year and that may mean we see some consolidation, but the bulls are still not showing any signs that they are ready to do any substantial selling....
What is particularly notable about the market action is how we have gone up in a straight line for four days in a row to challenge the highs after some pretty poor technical action. Such renewed vigor is not what the charts would tend to predict, but the zeal to be in this market is unabated.
Other than Jim Cramer, I don't see anyone who seems to like this market very much, which is part of the reason it keeps going. A lot of folks have taken the view that we are riding a flood of liquidity and since interest rates are practically zero the money is just going to keep flowing and drive this market.
It can be a real struggle to reconcile bearish fundamental opinions with this market that barely rests and the folks who are doing best are those who just don't over-think. The market is acting well and that is all that matters at the moment. If you can't embrace that fact, you are going to struggle.
We are back at some technical resistance at the highs for the year and that may mean we see some consolidation, but the bulls are still not showing any signs that they are ready to do any substantial selling....
Tuesday, September 8, 2009
The Market Holds Firm....
Once again, the market shows why the folks who are battling against it are so frustrated. After two days of light-volume gains last week, we gapped up this morning. That would technically create a good spot for some profit-taking, but the bulls barely budged. We had a brief dip after the open but held steady the rest of the day and ended up closing near the highs of the day.
What has been so tricky about this market since March is that these low-volume recoveries after a breakdown have had a habit of continuing. Typically, the higher-percentage bet is that the market will roll over again after a low-volume bounce rather than continue to uptrend. This market has consistently broken that rule, and that has accentuated the upside persistence, because shorts end up being squeezed, and underinvested longs get frustrated and chase things higher.
The bottom line is that we have a market that just doesn't roll over easily even though there are plenty of reasons, both fundamental and technical, why it should. There is no shortage of folks who are rooting for some weakness in this market, and that is probably one of the reasons we don't pull back. The main thing to keep in mind is that until the price action shows some weakness, we better be careful about betting against the bulls....
What has been so tricky about this market since March is that these low-volume recoveries after a breakdown have had a habit of continuing. Typically, the higher-percentage bet is that the market will roll over again after a low-volume bounce rather than continue to uptrend. This market has consistently broken that rule, and that has accentuated the upside persistence, because shorts end up being squeezed, and underinvested longs get frustrated and chase things higher.
The bottom line is that we have a market that just doesn't roll over easily even though there are plenty of reasons, both fundamental and technical, why it should. There is no shortage of folks who are rooting for some weakness in this market, and that is probably one of the reasons we don't pull back. The main thing to keep in mind is that until the price action shows some weakness, we better be careful about betting against the bulls....
Friday, September 4, 2009
Good Day Today, But What Does Next Week Hold In Store For Us?
While the price action today was very good, the trading is thin, and I'm not finding much I want to do. Many in fact are inclined to sell into this strength.
What I found most interesting today was how, even with this upbeat action, there seems to be an extremely high level of skepticism. Certainly, some market participants are playing along, but I hear from so many that just can't reconcile this positive-acting market with their personal feelings about the economy. The majority seem to think that we have overshot to the upside and that it is just a matter of time before we have a severe correction. Even the bulls, many of whom are anxious to add long exposure, seem to have very modest views about how the economy is going to perform in the months ahead.
This disconnection between Main Street and Wall Street has existed for quite a while, but it strikes me that the tension between the two viewpoints is becoming more pronounced. At some point, the gap between the views is going to close. Most people seem to think that the only logical way for that to happen is via a market correction rather than increased optimism on Main Street.
I tend not to agree with that thinking; what I've found over the years is that one can't argue too much with Wall Street. Wall Street just doesn't care about logic. All those problems out there - if there are any or if they're as severe as feared - aren't going to matter until they do, and the more certain we are that the market is going to fall apart, the longer it is likely to do the opposite....
What I found most interesting today was how, even with this upbeat action, there seems to be an extremely high level of skepticism. Certainly, some market participants are playing along, but I hear from so many that just can't reconcile this positive-acting market with their personal feelings about the economy. The majority seem to think that we have overshot to the upside and that it is just a matter of time before we have a severe correction. Even the bulls, many of whom are anxious to add long exposure, seem to have very modest views about how the economy is going to perform in the months ahead.
This disconnection between Main Street and Wall Street has existed for quite a while, but it strikes me that the tension between the two viewpoints is becoming more pronounced. At some point, the gap between the views is going to close. Most people seem to think that the only logical way for that to happen is via a market correction rather than increased optimism on Main Street.
I tend not to agree with that thinking; what I've found over the years is that one can't argue too much with Wall Street. Wall Street just doesn't care about logic. All those problems out there - if there are any or if they're as severe as feared - aren't going to matter until they do, and the more certain we are that the market is going to fall apart, the longer it is likely to do the opposite....
Thursday, September 3, 2009
Perked Up A Bit Late In The Day
The bulls woke up a bit this afternoon and finally got a few things moving. We even had one of those last-hour spikes that we saw so often when the market was hot. Volume was a bit light, and it wasn't one of those really crazy last-hour spikes, but nonetheless, it was a decent little move and was a good illustration of the "don't short a dull market" action that many have talked about...
I probably don't have to tell you that the stars of the day again were gold-mining stocks. We have a huge two-day move in gold on very heavy volume. The move appears to be mostly technically driven, with hot-money momentum players chasing things up. There is no clear fundamental reason to explain the strength, which may actually be working in favor of the bulls.
Retailers did very well also, and by the end of the day breadth had moved to a very solid 4,150 gainers to 1,550 decliners. It is starting to look like typical holiday trading, but all eyes will be on the jobs report tomorrow morning. We have had a sell-the-news reaction to our last couple good economic reports, and I think the bears will try it again if we have a gap-up move on good numbers. More about that tomorrow, but I suspect we will see some whipsaws on the news....
I probably don't have to tell you that the stars of the day again were gold-mining stocks. We have a huge two-day move in gold on very heavy volume. The move appears to be mostly technically driven, with hot-money momentum players chasing things up. There is no clear fundamental reason to explain the strength, which may actually be working in favor of the bulls.
Retailers did very well also, and by the end of the day breadth had moved to a very solid 4,150 gainers to 1,550 decliners. It is starting to look like typical holiday trading, but all eyes will be on the jobs report tomorrow morning. We have had a sell-the-news reaction to our last couple good economic reports, and I think the bears will try it again if we have a gap-up move on good numbers. More about that tomorrow, but I suspect we will see some whipsaws on the news....
Wednesday, September 2, 2009
The Dip Buyers Must Be In A Coma This Week....
Although the indices hardly moved today, it was a troubling day for the bulls. After the intense selling on Tuesday, we should have seen more aggressive dip-buying and/or a bigger reflexive bounce. What we had instead was a most meager dead-cat bounce. All the buyers were able to do was hold us steady. After months of squeezing the shorts just as they started to gain an edge, the dip-buyers had no juice today.
In addition to the lack of bounce, we had a sudden rampage of buying in gold stocks. You have to ponder whether a sudden rush for a tradition safe harbor is something more than just momentum traders lighting up the sector for a day or two. It is quite easy to read something dire into that action.
The good news is that volume was light and there seems to be a high level of disinterest rather than outright aversion. Things still look rather precarious but as I've been writing we have yet to do any really serious technical damage. That doesn't mean we shouldn't be cautious but I am still looking for the bulls to get a little upside move here soon, especially with important jobs numbers coming up on Friday.
In addition to the lack of bounce, we had a sudden rampage of buying in gold stocks. You have to ponder whether a sudden rush for a tradition safe harbor is something more than just momentum traders lighting up the sector for a day or two. It is quite easy to read something dire into that action.
The good news is that volume was light and there seems to be a high level of disinterest rather than outright aversion. Things still look rather precarious but as I've been writing we have yet to do any really serious technical damage. That doesn't mean we shouldn't be cautious but I am still looking for the bulls to get a little upside move here soon, especially with important jobs numbers coming up on Friday.
Tuesday, September 1, 2009
Bad Sell-Off Today; Terrible Day For The Bulls
It was a clear-cut victory for the bears today. After some mediocre action on Monday, the dip-buyers were quick to jump in this morning but found themselves trapped when good housing and ISM numbers were aggressively sold.
The dip-buyers have not found themselves trapped in a quick reversal very often in recent weeks, so it had a rather profound effect today when we reversed so quickly and with such vigor.
Not only was the reversal quite vicious but volume was heavy and breadth quite poor. There was no late-day bounce and many leaders were hit hard, particularly in the financial sector.
It was one of the most bearish days we have had in a while, but in the bigger scheme of things we have yet to do very much technical damage. The S&P 500 is still above its August lows and is just barely trading down to the highs we had in July. We broke the 1000 level and there isn't much support down to 975, but this is still just a pullback within a trend rather than a reversal of the uptrend that started in March.
Nonetheless increased caution is certainly warranted and you should make sure you stay particularly nimble. This action is a change in character and that means dip-buying is likely to become much more difficult as market players focus more on selling strength.
I still believe that there are some tenacious bulls out there who are hungry to buy pullbacks. The dip-buyers were frightened away today and the dip-buyers are the key to this market. If they lose confidence it is going to be a nasty ride, but one good smack like we had today is probably not enough to completely demoralize them.
It is a start, but conditions for bounces remain quite good. The way they play out in the next few days will tell us much about the health of this market...
The dip-buyers have not found themselves trapped in a quick reversal very often in recent weeks, so it had a rather profound effect today when we reversed so quickly and with such vigor.
Not only was the reversal quite vicious but volume was heavy and breadth quite poor. There was no late-day bounce and many leaders were hit hard, particularly in the financial sector.
It was one of the most bearish days we have had in a while, but in the bigger scheme of things we have yet to do very much technical damage. The S&P 500 is still above its August lows and is just barely trading down to the highs we had in July. We broke the 1000 level and there isn't much support down to 975, but this is still just a pullback within a trend rather than a reversal of the uptrend that started in March.
Nonetheless increased caution is certainly warranted and you should make sure you stay particularly nimble. This action is a change in character and that means dip-buying is likely to become much more difficult as market players focus more on selling strength.
I still believe that there are some tenacious bulls out there who are hungry to buy pullbacks. The dip-buyers were frightened away today and the dip-buyers are the key to this market. If they lose confidence it is going to be a nasty ride, but one good smack like we had today is probably not enough to completely demoralize them.
It is a start, but conditions for bounces remain quite good. The way they play out in the next few days will tell us much about the health of this market...
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