Friday, January 29, 2010

A Troubling Week

If you just look at the DJIA today, you would think that we had just another day of rather mild selling. However, under the surface was some of the worst selling and technical action we have seen in some time.

Big-cap technology names like AAPL, PCLN, GOOG, AMZN and MSFT were the core of the poor action, but the dollar was strong again, and that helped pressure natural resources, gold, oil and other "weak dollar" plays.

The market has "needed" a correction for a while, but what makes this action troubling is that we have had very positive news flow and we were oversold enough to support a decent bounce. It was a real change in market character to stay so weak and to have such poor bounce attempts.

Weak action like this suggests that once we do have a bounce, it is much more likely to fail. Some trapped bulls are going to be looking for better exits, and the long-suffering bears are finally going to gain some confidence.

Another very troubling hypothesis is that there is no upside leadership. We have had some strength in regional banks, and a few of the money-center names had relative strength, but technology stocks with great earnings are acting terribly, and all the small-cap groups that were so hot a few weeks ago are now destroyed.

When we are falling like this, it is very tempting to keep looking for bounces. If you catch one at the right time, they can pay off nicely, but you have to make sure you stay keenly aware of the fact that the overall trend is shifting down. We'll have some countertrend moves, but we have to make sure we always respect the overall trend. We had a great run off the March low, but it now looks like the bears are seizing control of this market......

long AAPL

AAPL's Getting Crushed Today.....

This is what happens to AAPL every time the Naz corrects more than 5%. If you've owned AAPL more than 18 months this shouldn't be a surprise.

All near term stops get taken out; then once the shorts get aggressive or we move way past the bulk of option open interest, we mysteriously stop dropping and the stock will rise even given bad news.

Again, people that still don't think we need an uptick rule or rules against naked shorting don't trade individual stocks........

long AAPL

Why An iPhone Ramp In China Could Be Imminent...

With AAPL stock down yet again today, it seems a little silly to tout AAPL again, but here goes. Morgan Stanley's Katy Huberty — a long-time AAPL bear who seems to have switched her drink to Kool-Aid — issued an optimistic report Friday about the Chinese market for iPhones. It includes scenarios by which she sees Apple's share price hitting $325 to $435 within a year.

Central to Huberty's "Bull Case" is a scenario in which "legitimate" iPhone sales — which got off to a famously disappointing start in China — hit a cruising speed of 4-5 million units per year and then accelerate dramatically when and if Apple introduces a lower-cost phone with a pre-paid plan.

Her findings are not that different from those of other China watchers, but they are probably based on better data — the results of a survey of 1,050 Chinese consumers representing what calls "the core iPhone addressable market in China."

Huberty's key findings:

1. The current installed base of unlocked iPhones in China (2 million) is already similar to the largest European and Asian countries, pointing to strong underlying demand at the high-end of the market.

2. We see an attractive addressable market in China of 50 million consumers, with strong interest in smartphones and the Apple brand.

3. The survey indicates the potential for Apple to sell 4-5 million units annually in China over time.

4. Importantly, we believe there is an opportunity for Apple to increase demand by 100%+ by introducing a lower-cost, pre-paid device and still generate 45-50% gross margins.

The report is supported by focusing on that addressable Chinese market — a population of about 50 million people (4% of the population) with an annual income over $20,000 and an average cellphone bill of $22 per month.

It's a market, she maintains, comparable to the U.K. (76 million) and Spain (53 million) — with a difference:

"Importantly," she writes, "this 50M person addressable market has high smartphone and Apple product penetration rates relative to the market as a whole, according to our survey. We believe the survey responses indicate the interest and affinity for smartphones and the Apple brand among the high-end segment of the population in China."

long AAPL

Thursday, January 28, 2010

QCOM And AAPL.......

I don't own any QCOM, but, simply put, the QCOM guidance was poor. But it reminded me a lot of the last few quarters. Case in point, last quarter QCOM originally guided for 45 or 47 cents and they came in this quarter at 62 cents. Then QCOM raised guidance before this report and it bested that guidance as well.

Bottom line, some sandbagging is likely being done, and I still think the QCOM story gets better later in the year, and for the next 2-3 following. I think anything in the $38's is a gift and I'll try to start a position should it get there.

Stripping out the cash, QCOM has a forward P/E of 13. On this same analysis AAPL's is under 12. That gives QCOM a PEG of .7 or so whilst AAPL's is a shocking .35.....

Not quite sure how cheap stocks like these need to get. Maybe a Bernanke no vote was being priced in over the last two weeks - and he just got reappointed.....

long AAPL

We'll Probably Bounce A Bit Now.....

Ben Bernanke was reappointed as Fed Head on a Senate vote of 70-30 and the only folks who seemed to be surprised were the reporters on CNBC.

On the earnings front, both MSFT and AMZN came in above expectations. Both dipped at first, though Microsoft rallied, while Amazon was still down a little. Microsoft's results were slightly ahead of estimates, while the Amazon number was a decent beat, but expectations were too high. Usually the Amazon shorts end up being squeezed, but after the poor action of the past couple of weeks, the bears may be a little more aggressive.

This market has really changed its character. The bulls struggled for the fourth day in a row to rally, but it was a very poor attempt, and you can't help but wonder: What happened to all those dip-buyers from last year who jumped in as soon as we pulled back a few cents?

The market is still oversold enough to produce a bounce. The deluge of news is over, and we lack an obvious catalyst, but that could be a good thing. We have been too focused on the news lately. It might be better if the market moved on something other an issue the media can pounce on and talk to death.

Keep in mind that the market has suffered some severe technical damage, so even a rebound won't mean the worst is over and we should all rush back in. We were spoiled last year by all those quick and easy recoveries. This year, things are looking a little different.......

A Few More Thoughts On The iPad; AAPL

AAPL's iPad hit all the marks as a reading device, as a gaming device, and even as a touch-screen iWork/media device. We expected Apple would transform the traditional e-reader into a multi-function device and it certainly did that. But it's the elements of the iPad that we didn't expect that have me thinking this product will sell more units than anyone currently anticipates.

Here are four reasons why the iPad may sell more than 7 to 8 million units in 2010.

1. The price points are lower than anybody expected.

Optimistically, we were hoping for $599 to $799. Realistically, we were thinking closer to $899.

We figured that Apple would do what it did with the iPhone and begin with a high price to establish the iPad as an elite product and give developers plenty of time to work out the kinks before lowering the prices for the masses. CEO Steve Jobs isn't getting enough credit for the $499 gift.

As Jobs mentioned in his keynote, there are 85 million owners of Apple mobile products along with 125 million iTunes/App Store credit card accounts. The iPad comes with built-in demand. The real question is how can Apple sell this iPad at $499 without a subsidy? The dirty little secret may be that Apple is subsidizing it itself.

Apple wants immediate market penetration and will allow Quattro's mobile advertising to generate a new source of profits. If Apple turns into the GOOG of its ecosystem (which is quite likely), it could give these things away for free. Tight-lipped Apple was surprisingly optimistic about Quattro earlier in the week on the earnings call; this low iPad price point speaks even more loudly.

2. The ability to run the 140,000 App Store applications on the larger iPad screen is a huge surprise.

Many developers didn't think it would be possible. After the iPad event Wednesday, I read of several who had the opportunity to demo the iPad and they were amazed to see there was no compromise when enlarging graphic rich games. Whatever Apple did to make this possible was well worth it because it ensures that it maintains its huge lead on the competition with a loaded App Store. The gold rush continues for app developers.

3. I didn't know how Apple was going to solve the connectivity issue.

Nobody did. Consumers would have refused to enter another two-year data contract with a carrier to pay for their phones as well as the iPad. The solution is something we have never seen here in the U.S. -- a pay-as-you-go data plan that is inexpensive ($14.99) and can be canceled at any time.

Building an unlocked iPad was another brilliant move. This thing will have more potential buyers at its release than the iPhone has ever had. This was sorely needed until the real mode of connectivity (tethering) is ready for prime time.

4. Apple built this thing with just enough differentiating features to separate it into its own category.

Consumers still need an iPhone and they still need a MacBook but they will soon realize that they also need the iPad.

When you hold one for the first time you will realize why you never read books or browse magazines on your laptop or phone. The iPad screen size is ideal. It's perfect for watching television and movies on the go. It's going to catch on like wildfire in the gaming community.

Those who are worried the iPad will cut into sales of the iPod Touch or the MacBook are the same people who worried that McDonald's chicken nuggets would cut into hamburger sales.

Successful expansion into new categories is always a good thing. Apple did it by creating a new category within the mobile Internet tsunami. Do you know what this means for investors? I'll let you decide.

To sum it up, the market has been in an unsure mood over the last few weeks as it tries to form a new identity for stage two of the market recovery. Don't let this short-term weakness fool you. The Apple iPad is for real and not one penny of it is priced into the stock. As analysts add iPad projections to the new accounting methods we are going to see some big upgrades that the stock will follow.

Excluding cash, this stock is trading under a 12 forward price-to-earnings ratio. That disconnect won't last very long. I predict you're going to hear about some very big name investors, who typically shy away from tech, establish large positions in Apple. This valuation has got a lot of people talking......


Wednesday, January 27, 2010

More Thoughts On AAPL

Watched the iPad stuff and it's darn nice; 10 inch display, 10 hours of video viewing on one charge and as I have assumed for some time, the next extension of the iPhone product platform.

I believe this product is simply going to be huge. It's delivered with the look and feel I want and will prove quite hard for others to duplicate. I also think this will be huge for 3/4G and mobile search. Interestingly, I think GOOG and MSFT's Bing can both win here. SNDK looks great too, as we will see a groundswell of flash jogging devices in the coming months/quarters.

I'm projecting AAPL will sell well over 7.5 million iPads in its first year -- based on very generous pricing and data plans.


The Markets Remain On Edge...

There was no shortage of news events today, and that made for some very chaotic action. The Geithner/Paulson hearing didn't have much market impact, but we danced around quite a bit on AAPL's new product announcement and the Fed interest rate decision.

Once the news was out, we were oversold enough to finally see a late-day rally, but there is still is some nervousness about the possibility of an unfriendly State of the Union address tonight. Many stocks, particularly the financials, have already taken a beating on concerns about an unfriendly Washington, so it wasn't too surprising to see them lift late in the day as shorts moved to the sidelines and the optimists established some positions.

The important thing to keep in mind is that this market has been damaged by all the selling lately, and it is not recovering quickly or easily like we saw so often last year. We are always going to see some relief bounces after a period of struggle, but we really have to be much more skeptical about the likelihood of straight-up, V-shaped bounces. It happened a lot last year and surprised a lot of technicians, but this year the action has a different feel to it. The dip-buyers, in particular, are not exhibiting the same resolve.

I suspect that President Obama will be praised once again for his oratory skills. If he downplays his class-warfare theme a bit, that would help the market a bit, but ultimately the financial sector is going to be painted as a villain that must pay a price. The bulls may be able to produce some more upside, but I don't believe the bears are going to let them run very far. The market trend is shifting, and we need to respect that possible fact.......

long AAPL

Obviously, Mr. President, Punishing Banks Is NOT The Way To Improve Lending Activity....

Nor will making bank reform (like health care reform) the center piece of the President's agenda remedy the employment situation.

Tonight's State of the Union address will be important to the U.S. stock market, and it will define whether the President will become more centrist in policy and more focused on the issue of jobs.

If Obama's message is that he is committed to a renewed focus on the under/unemployment issue, a spirited rally in equities should follow. However, if the President, having learned little from the Scott Brown win in Massachusetts, proves to be out of touch by continuing the tirade against the banking industry, we can retire our Graham and Dodd's Security Analysis in favor of Machiavelli's The Prince. In the later case, inept, stupid populism will have triumphed over and trumped the macro, and stocks will continue to be pressured.....

I'm Afraid The President's Speech Tonight Will Only Make Things Worse.....

Our president is a shameless class warrior, pandering to a select few. I am coming to understand this president. I think he, in actuality, believes that if the stock market isn't coming down, then he isn't doing his job of helping the downtrodden, the sick, the huddled masses yearning to breathe free. It's a barometer of failure for him if he inspires higher stock prices, because those accrue to the rich, not the poor.

I wonder whether he has a trader tax up his sleeve, or a radical raising of capital gains taxes....

Maybe he means well; maybe he doesn't. Maybe he's just as stupid as Jimmy Carter was. Maybe he believes that the average person does not have much on the line with the stock market. I believe he doesn't understand -- as no one in the public sector all of his life should understand -- that the average working person uses stocks to save for retirement and to put kids through school.

A win for "Wall Street" is a loss for this president. And a loss for millions of us as well.

Tuesday, January 26, 2010

The Bears Are Winning Right Now.....

With the failed bounces lately, this market is undergoing a change in character. Over the last six months, nearly every time we pulled back and started to bounce, we just went stronger. The bears were squeezed and under-invested bulls were forced to chase entries higher in order to add some long exposure.

The action today was much different to what we saw in the big rally last year. We did rally off the morning lows, but we never saw any really vigorous action, and other than AAPL, PCLN and a few oils, there wasn't much leadership.

Then, instead of gaining strength at the end of the day, like we did so often last year, things fizzled and the selling pressure intensified. Even AAPL and GOOG gave back big chunks of their gains.

It was the banks that led the big reversal. There was talk circulating that the Treasury Department is already drafting up some of Volcker's bank restrictions, as discussed by President Obama last week. Both GS and MS sold off hard on speculation that they would have to give up their bank charters and could go private.

The overall action is quite different to what we have enjoyed for a long time and not in a good way. We are suffering some significant technical damage, the news flow is negative, even though earnings are quite good, and the dip buyers have suddenly lost their verve.

Tomorrow, we have the much anticipated announcement of the Apple iTablet, the Fed interest-rate decision and President Obama's first State of the Union address. We also have plenty of earnings reports to move things around. Yahoo! is coming up tonight, but that is more nostalgia than significant.

A lot of the pundits on CNBC are trying to explain why the market has weakened. You don't need an explanation. All you need to understand is that the market was technically ready to correct and, therefore, the news will be viewed with a negative bias.

We are undergoing a correction. We will likely see some bounces, but this time it is different and the bears are gaining the upper hand (for now).......


Monday, January 25, 2010

More Down Days To Come?

The action today was a classic low-volume bounce. We recouped just a bit of the losses from last week, and there wasn't much energy behind the action. Oil, commodities and weak dollar plays led, but those have been the groups that have suffered the most lately. Technology, chips and homebuilders also bounced a little, but it was nothing very impressive.

The technical pattern of the major indices suggests more downside is coming, and that is confirmed by the lack of any notable leadership. We have had some strength in regional banks, but other than that, there is no group or sector enticing buyers at this point. Some of the hot-money sectors from a few weeks ago, such as China and solar energy, have completely collapsed. Until we have some new leadership for the bulls to be excited about, it is going to be impossible for this market to do much to the upside.

The Apple report tonight is certain to be upbeat and positive, but so far this earnings season the best reports have been sold. AAPL, of course, is in a unique situation, but this is a market with people looking for exits. Even if Apple does well, I don't think it's going to be able to lift the broader market.....

long AAPL

Is AAPL At About $200 The Last Chance To Get In?

What is AAPL trading on? Is it earnings? Is it the Tablet? Is it the future? Reading the unbelievably good GOOG piece by Morgan Stanley this weekend, I was struck by the amazing Mary Meeker analysis about how Apple is not making phones, it is making home entertainment gadgets that the next generation loves, and the key to it is iTunes. (Amazing that this was in a Google piece.)

I have no idea what the quarter will be. It should be very strong, given that its whole lineup seemed to be selling like hotcakes around the world.

But what was so incredible about the Meeker view is that this new device seems to be so in synch with those who watch TV on their iPod but feel the quality just doesn't get there.

iTunes is going to take over the intellectual property of video the way it took over the intellectual property of music. Some of it is on the iPhone and some of it is on the iPod, but the remainder very well could be on the iTablet or whatever they care going to call it. Apple has figured out that the two things the people hate are 1. Being told when to watch, and 2., having to watch commercials, which they hate. Commercials are just hated.

This device could answer that.

In jeopardy, of course, are the cable companies. Other than sports, why would anyone buy cable -- the thinking goes -- when they can pay $20 a month for the shows that they really like? Most people don't sit there and watch TV every minute.

Those who do watch TV will also play video games, and who knows what Apple has in store for them? Perhaps the easiest way to download them.

So, let's put the quarter in the context. Maybe this is the last iTablet-less quarter, and the selloff this market keeps giving you is the opportunity to buy thus one sans what Steve Jobs is calling a remarkable device.

Just keep it in mind if you are "trading" Apple. May make no sense if you read Meeker's Google report.....


Volcker Has "Lost" It......

Nobody had more to do with breaking the back of inflation in this country than former Fed Chairman Paul Volcker. Thirty years ago, he stopped it in its tracks with higher interest rates. He was on top of his game in a way that many argue ultimately produced the great bull market that ended in 2000.

However, just as there are instances where other finance seers (as opposed to financiers) subsequently lost their way, especially Bob Rubin, a once revered Treasury Secretary, now known as presiding over a bank one-third owned by the federal government because of actions he approved, the question to ask is whether Volcker, an icon 30 years ago, still has a keen understanding of what went wrong in this banking crisis.

To wit, I cannot recall a single instance where proprietary trading, internal hedge funds, or private equity played a role in creating the banking mess that President Obama has decided to focus on with his much-ballyhooed "Volcker Rule."

Almost 100% of the problems that caused TARP and the U.S. guarantees are directly related to poor lending decisions and a lax regulatory environment directly traceable to the state and federal governments. A Volcker Rule wouldn't have stopped any of it......

Friday, January 22, 2010


I think the likelihood of Big Ben not getting reappointed is zero to nil. The press is making major hay with this. This has caused a mini crash in the market today. These news events are the absolutely toughest things to trade without a doubt. So while I think it's highly unlikely Big Ben loses his seat and this cascade lower in many leading stocks is a huge buying opportunity -- if Big Ben goes down I don't even know what kind of selloff we would face. My best guess right now is at least 7-8% (more) and possibly as high as 20-25% total. We have baked in 3-4% already.

The reality is that any other Fed Governor taking Big Ben's place will likely act in a very similar manner but the market is a confidence game and if you lose that calling bottoms can prove quite elusive. The regulatory banking news was enough to take in one week. Couple that with these Bernanke stories and we have the nastiest week since at least July if memory serves.

Bottom line, if Big Ben goes down all my prior predictions on the year, on stocks, on targets etc... go out the window, and it will be a game of intraday trading and shorting for a good while I suspect. Let's all hope and pray that cooler heads come to a proper consensus over the weekend. For if we lose the market here to a major correction (15% or greater), I also believe we will likely (65-70% odds) lose the economy to a double dip recession.....

Quite A Correction....

After the action last year, many market players have probably forgotten what a market correction looks like. They were rudely reminded this week.

We had our first warning a week or so ago when we had poor reactions to good earnings reports from INTC and IBM. The market came back strongly on Tuesday as it anticipated a Republican victory in Massachusetts. Market players were excited about the possibility of some political gridlock in Washington but failed to anticipate that the Obama administration would now shift its focus toward going after banks and Wall Street.

The market woke up to the danger of this new political focus on Thursday when new bank regulations were proposed and GS sold off hard after its earnings report. A very good report from GOOG that was sold hard kept the downtrend going and the dip-buyers showed only minor interest early and disappeared late as we rolled over and made a new low for the year.

So many times last year, we quickly recovered from these selling squalls, but this time the selling has already been more intense than what we have seen previously, and the bounce attempts have been extremely weak.

At this point the technical picture and the negative news flow support the idea that this time it is going to be different and we aren't going to quickly bounce right back up. We have a good setup for an oversold bounce with AAPL earnings on Monday night; we'll see.

The good news is that this market has needed a correction for a while. We need to shake out the excesses and eliminate complacency. This will ultimately lead to better trading opportunities, but the key is to protect your capital while they set up.

I suspect that next week is going to be a roller coaster ride.


Thoughts on GOOG (At Least What I Can Share In A Family Blog.....)

I think the lows are in for GOOG, and this selloff will prove an excellent entry as GOOG will soon be back into the $600's in relatively short order. In fact, I'm raising my low-mid $700's "target" to the low $800's as I feel GOOG may be the cheapest large/mega-cap growth stock on the planet....

The numbers were just great and in fact one could look at ISRG as it posted similar numbers to GOOG and the stock is up $30 plus. These numbers were nearly as good, if not better, given that GOOG is dealing in the global end market of advertising spend - which is down huge in total from the peak.

Bottom line, I've followed every one of GOOG's quarters and I've seen quarters this good from GOOG propel the stock $25-40 higher. And yeah, I bought some more today...

long GOOG

Obama's A One-Man Bear Market

Enough already. We know that he's anti-business. We know that he doesn't seem to understand the private sector. We know that he gets huge support from unions, particularly from state and local government unions. We know this. We know that he may not even use this moment of incredible jeopardy for Ben Bernanke's Fed re-up as a chance to "tack right," precisely because that would be pandering to the Massachusetts' Republicans, whom he obviously hates.

So let's talk about what you do. First, you put your bear hat on, because while Obama may not like having hedge funds within banks, in many ways he is a hedge fund's dream come true, because hedge funds can short, and this man creates short opportunities by the hour. Just think about what he can intervene on and short the worst in the group.

Of course, if you can't short, then go through your portfolio to trim what he can legitimately get involved in. Remember to include Justice Department investigations, price-rigging and taxing anything that gets any "handouts" from the government. Be thinking "obscene" profits, too.

You know what that will leave you with? A pool of companies that will not have their multiples compressed as badly as the others, because, believe me, this is what everyone is thinking about.

Then you want to up your percentage of exposure to foreign markets, probably 30% is the correct figure. Our business climate and our growth are horrid, our president is much less pro-business than just about every other major leader on earth, save the obvious, Castro and maybe Chavez, so why not put more away from here?

And just accept the fact that he's decidedly anti some industries more than others and radically underweight them. He is against concentrated industries with pricing power that have very few rich people running them that need government help, and he is against companies that have gotten deals from the Republicans that seem sweetheart to him.

Obviously you can think about what he likes, but for the most part the industries he favors are unrealistic without government help -- wind, solar -- so that doesn't really get you anywhere.

Finally, he is extraordinarily pro union. We can't buy shares in AFSCME, which would be this administration's ultimate blue chip. But we can sell companies that have dominant unions. Just one more thing to do.

Not pretty. But it's the reality we find ourselves in.....

Oil Is The Next Easy Target For Our Shameless President

Obviously oil is the next target. A president who cannot get things done, who faces the rejection of the people, must attack entities that are perceived to be hated. He has to. It is right out of the Rahm Emanuel playbook.

You can see it happening. Natural gas should be king now; it is the natural bridge fuel. It'll never happen - you can just feel it.

I now think that Obama could turn on natural gas drilling with a vengeance even if it creates jobs, makes us more energy-independent and is cleaner than coal. Why not? I am sure that he can join those who are saying that it pollutes drinking water; or he might just tax them to the point where it isn't worth drilling.

Or how about big oil? How much do we hate XOM and CVX because they charge so much for oil? Why not tax them several dollars a barrel that they get from leases? That's a winner.

You can just see it coming. He can attack drilling on the same day SLB reports, just like he attacked hedge funds on the same day that GS reports. He can say that he's been talking about it for months. And he can spring it on us.

I wouldn't put it past him. Just makes too much sense politically....

Thursday, January 21, 2010

Selling In Stocks Accelerated After The Details Of Our Dimwitted President's "Plan" Became Clear....

But who knows, maybe it's just rhetoric.......We'll see.....The markets' technical condition has looked increasingly dire of late, so it's no surprise when negative news offers any excuse for more aggressive selling. We can argue over how much of a negative increased bank regulation might be, but the technical pattern in place helped investors see it as a big negative. If we weren't already on the verge of a breakdown, I suspect the news may not have had such an impact.

To add to our problems, GOOG is getting hit pretty hard on pretty good results. Its earnings came in ahead of expectations, which isn't good enough for a stock that always carries high expectations.

The major indices have now given back all of their gains this year, and we are showing signs of gaining some momentum to the downside. We have had consistently negative reactions to news, both good and bad, and the dip-buyers haven't shown the sort of interest that has saved us so many times last year.

I don't know how many times this market pulled back from the brink of disaster last year. Every time we were close to a breakdown, we came roaring back, which made anyone who took some defensive actions feel a little dumb. However, if you want to survive and prosper in this game, it is extremely important that you take steps to protect your capital when the market starts to act poorly. You might find yourself selling at exactly the wrong time, but it is a form of insurance.

We have GE reporting tomorrow morning, but the next big report is AAPL on Monday. That's the one the bulls will be most optimistic about, so it has the potential to generate big moves....

long GOOG and AAPL

More On Why Our President's A National Nightmare (If You Care About Making A Living, Saving For The Future, Etc.)

Nothing like a government-mandated sell-off to wreck a good market. The Massachusetts mandate has turned into a punitive populist assault. We have elected William Jennings Bryan. This president will not let this economy be crucified on a cross of gold.

Except one thing: we have 10% unemployment, perhaps as much as 18% if you include all of the people who have given up looking for work, and we need a solvent banking system that can help us create credit and create jobs.

But the focus is on who got us into this mess, not who paid us back on time and who can be harnessed to help the cause and the focus is on deflection. So, we have -- at exactly the wrong time for the system, just when bad loans seem to be peaking -- a totally artificial decline caused by a supposedly-intelligent President who should know better. In reality? He's a spineless follower of fashion; a gutless idiot.

I have to ask, how long can Tim Geithner, a not-perfect but fairly rational Treasury Secretary, stay when he knows that the system is still fragile? How long will he stay when Paul Volcker and the Too-Big-To-Fail mob, also championed by Bank of England Governor Mervyn King, are in charge? How long can he stay silent instead of advocating a transparency that would make it so that those who are way out of bounds get no capital from the capital markets?

So, we have today's lash-out nightmare, where, once again, the President reverts to "now is not the time for profits". We have what's on your screen - big losses on everything in the markets.

I don't know when it will end. In 1896, it ended with the rational candidate, not the agrarian populist candidate, winning. That isn't how it ended in 2008. Hope against hope that the stock market's message isn't lost on this White House as it was back in March of 2009 - but also remember that Obama and his scheming, idiot henchmen don't give a damn about the stock market - remember, it's only for "rich" people - and thus they don't give a damn about millions of middle-class people struggling to earn a little extra and save for the future....

Our President, With His Gutless And Inept Populism, Is A Moronic Wealth-Destroyer

Against all of the good earnings news - STX, INTC, GS, CREE, EBAY, PNRA, SBUX, FCX, etc. - is the inept, gutless populism of the president, who seems determined to obscure the health care defeats by turning on the banks and the overall wealth of millions of people. What a tone he is setting; even though Goldman Sachs is not a depository bank, the rhetoric wrecks the hue. So depressing and so punitive. It can color anything. Oil is barely up, and that matters. Gold is down, and that matters. The dollar has been strong, and that matters.

I think Doug Kass on RealMoney is right that the populism that the president is tapping into and fomenting makes anyone who is trying to make money in finance a target. The fear he is inspiring in business and the anger remind me of what he did last March that caused us to give up thousands of Dow points.

I don't know if he can do that this time; the earnings are very strong. But he sure can blunt the positives, creating a moment that is definitely negative enough to undo everything I have outlined above.

Macro plus the president; toxic combo for stocks. Just ugly.

long INTC, GS

Wednesday, January 20, 2010

Now I'm Confused....

As has so often been the case with this market for many months, we managed a strong end-of-the-day bounce that made a poor day look much better. Early in the day, we were in free fall, but we found some support late in the morning and inched up slowly the rest of the day.

There was some strength in the odd couple of regional banks and restaurants, but overall breadth was poor and the volume heavy. The dollar hit a multimonth high, which really put some pressure on oil, gold and commodity stocks. Also, China stocks struggled on tightening by the China central bank.

We now have had a pattern of down big, up big and back down big again, which is a sign that market players are feeling confused and uncertain. The fact that it has occurred on good earnings news and positive political news makes it even more worrisome.

Tomorrow morning, we have earnings from GS, which is going to be a very good test of this market. Goldman has beaten by an average of $1.35 or so over the past three quarters, so expectations are probably still fairly high. On the other hand, since Goldman is such a juicy political target now, it may be in the firm's interest if it doesn't shoot out the lights with a great report. The market reaction to that report should be quite interesting.....

We have EBAY coming up this evening, but GOOG tomorrow night will be the main attraction. Google has been acting poorly for a while, so maybe some bad news has already been priced in there. It is the other end of the spectrum from INTC and IBM, both of which ran up strongly into good reports and then sold off.

Technically, the big picture is looking more dangerous. We took out last Friday's lows this morning and then bounced back, but the sellers are becoming more vigorous and we still have a setup that is very vulnerable to a sell-the-news reaction to earnings reports......

long GOOG, GS

Tuesday, January 19, 2010

Why Didn't I Buy Puts On BIDU Friday?

I am suffering massive self loathing for not shorting this on Friday. I'd be making far more on the short than the GOOG long. As stated, if GOOG stays in China BIDU will get crushed. Further, given GOOG staying, we may have just seen historic highs and I don't think BIDU holds $300.....

I think BAC shows a far better quarter than C. C is curiously higher. My gut is telling me I should own it for a trade. My brain is saying you have enough in the group with better names. I listen to both my brain and gut....

CIEN's a cheap stock; with far too many increasingly constrained networks around the globe....

Shouldn't NDAQ and NYX be moving higher off the position limits coming at the CME?


Politics Front And Center....

After a poor day on Friday, it looked like we were ripe for some downside follow-through, especially after a mediocre report from C. However, excitement over a possible victory by Republicans in Massachusetts, which would damage the health care bill and weaken Democrats, brought in the buyers, and we tended steadily upward all day. Much better action by AAPL and GOOG also helped the cause, but it was a very broad rally, albeit on lighter volume.

The market action today certainly anticipated a pretty solid victory by Brown in Massachusetts, so it is going to be interesting to see how accurate the prediction will be. There is no exit polling being done, because the media organizations never anticipated that Brown would even have a chance, so the results may not be out until late tonight.

The other big news event is earnings. IBM just reported and was slightly ahead, but the stock is seeing some mild selling on the news. As with INTC, the news looks solid, but the stock traded up strongly in front of the report, and that tends to cause some profit-taking.

We have a number of large banks reporting earnings in the morning, and that should help set the tone for the market but politics will likely be the focus of attention. If the Republican does end up losing, we'll probably see a gap down, but the more pertinent question is whether this market can build on today's strength should expectations prove correct and Brown pulls off the upset.

This market is primarily driven by news right now. We have good potential for some drama in the next couple days, and I'm just going to stick with my core longs for now and will try to react very quickly as things develop....

A Health Care Bill At ANY Cost?

As far as I can tell (so far), the MA election is still up in the air...What is most amazing about the dynamics of this election in Massachusetts tonight is that the Democrats still seem intensely focused on trying to force through a health care bill when the voters obviously are saying that they don't want it. House Majority Leader Hoyer is quoted by Reuters as saying that the Senate Healthcare bill is 'better than nothing' in case they have to try to try pass something quickly in case Brown wins. Ironically the mayor of San Francisco, Gavin Newsome, seems to understand what Pelosi, Reid and Obama are missing. He is quoted as saying "regardless of the outcome ... this should be a gigantic wake-up call to the Democratic Party - that we're not connecting with the needs, the aspirations and the desires of real people right now."

Could this turn out to be Obama's 'weapons of mass destruction?"

Friday, January 15, 2010

Taxation With Representation....

Some have considered eliminating the self-employment tax. Methinks the law of unintended consequences would jump up and bite us if we eliminated the self-employment tax, not that all that many are enamored with those 1040-ES quarterly payments sent off with a perfumed check.....Elimination would provide a very large incentive for employers to turn their employees into independent contractors. Then who funds the Social Security and Medicare programs?

Many do not grasp the role of FICA and Medicare taxes play in employment costs. They insist the employer pays 7.65% on FICA and that money does not affect real earnings. No - the employee pays that tax via lower compensation.....

We are either going to pay for what we have spent with higher taxes or via inflation. And if we are going to pay with higher taxes, let's cut the games and put it in the rate and flatten the structure. A little honesty would go a long way, especially in a profession where honesty and getting elected often conflict....

The Selling In GOOG...

The selling of GOOG and the buying of BIDU has, in my opinion, reached stupifying levels. I believe GOOG is doing all of $250 million in revenues in China, and losing $$ on those revenues to boot. And I still don't see GOOG exiting China either....Time to add more?

long GOOG

Will Things Get Tougher For The Bulls?

The action today was a textbook illustration of a sell-the-good-news reaction. After the close last night, a number of folks were breathless with excitement over how great the INTC earnings report was. By any measure, the numbers were quite strong, but the problem was that they really didn't come as a big surprise. The stock was up strongly in front of the news, and many of the folks who were anticipating the positive report were happy to lock in gains as soon as possible.

JPM this morning also experienced a sell-the-news reaction to its report, which was also quite good, but the market simply was ripe for some profit-taking and that is what we got.

Last quarter, Intel also experienced a sell-the-news reaction, but the big difference was that it didn't spill over and affect the broad market. We shrugged it off and kept on rallying as Intel was pounded lower for weeks.

Another thing that occurred last year that is keeping the bulls optimistic is that we almost always immediately recovered from bouts of selling like we saw today. The bears were simply incapable of building any downside momentum. Those who made some sales into weakness almost always felt like fools a short time later as the market quickly went straight back up.

So the million-dollar question is whether or not it's different this time. Is this technically extended market, which hasn't had a severe pullback in quite some time, finally ready to succumb to more severe profit-taking as earnings begin to roll out? Is this the time when the bulls will finally fail to immediately turn us back up after we stumble for a day or two?

If I knew the answer to those questions, I'd be writing this from my 200-foot yacht in the Caribbean. What I do know is that is that the action today was poor and that we should increase our vigilance to make sure we don't find ourselves trapped with too much long exposure should the market fail to act as positively as it has in the past.

Overall we still haven't suffered any really significant technical damage, but a move below 1125 on the S&P 500 would be quite worrisome. This may indeed just be another one-day hiccup, but the fact that it came on very strong earnings news isn't something we should dismiss too quickly.

We have lots of big earnings reports next week, starting with C on Tuesday morning, so rest up and be ready for some action......

Thursday, January 14, 2010

Tech, And Some Random Stuff

Finally, I see some economists with some GDP growth numbers that are nearing my figure....However, when the majority of them (economists) get to similar numbers it will be time to pull back the horns considerably. From my perch, the negativity bubble still persists (en masse) as does the gold bubble and these are the last two bubbles yet to pop.....

With oil back at $80, it's curious that solar isn't getting more press....

I'm looking for AAPL to start seeing much better sales out of CHU in the coming months. I expect we might start seeing a million phones sold every 3-4 months with acceleration pretty soon....

Further, GS is out already with new iPhone talk. I still think the Tablet may end being AAPL's best product ever produced and I was very early in saying the iPhone was AAPL's most important product to date....

JPM is out with a pretty bearish piece in the semi's. Interesting, while I'm still quite bullish on tech I agree with most of JPM's chip predictions as written. My bull theme in the semi's still (and only) resides in the high-end communication segments for routing, wifi/wired/wireless bandwidth, and smartphones. As is JPM's piece, I'm not high on the traditional semi-cap's, or TXN -- however, I'm not sure I agree that the SOX will produce a negative 2010 but it will be much more muted vs. 2009. Lastly, because differentiation is slowly occurring, we could see massive years out of BRCM and QCOM while the SOX stays muted.

I can't wait to short BIDU, but currently I am biding time....

long AAPL; GS

The Market's Reaction To Intel's Earnings Will Be Very Important....

The market spent most of the day churning as we await the first significant earnings reports of the quarter. Intel is reporting now, and it looks very good, and JPM will be out in the morning.

The most significant thing about the action today was that the weak retail sales number had so little impact. It was similar to the response to the weak jobs numbers last Friday. The market just didn't care. The buyers kept buying, and the bears continue to be shut out.

The big question for the next two weeks is going to be whether or not fourth-quarter earnings reports change the character of this market. Expectations are high, and we have a lot of complacency, which make for some dangerous conditions if there are some disappointments. Even if there aren't any big disappointments, it is possible that we might see some selling if folks start to worry that all the good news is already priced in.

The INTC report appears to be quite strong, and the stock is up on the news and running higher so far. Last quarter, INTC did well also, but it hit its high at the open the next morning and traded down steadily form there. If the stock starts to trade down on such a good report, then we'll have to start thinking more defensively as other reports start to hit.

We have JPM in the morning, and that will set the tone for the financials....

Why Apple's P/E Is About To Get Smaller....

Investors dream about finding obvious disconnects. Widespread misunderstanding leads to huge opportunity. We have such a scenario developing with Apple. Although Apple is the most widely followed stock on Wall Street, it is clearly one of the most misunderstood.

The current perception among traders is that Apple is expensive because of its 150% rally off the March 2009 lows and its 33 p/e; roughly. However, the 33 P/E is about to drop significantly and will set up the opportunity of 2010....

Most of us have heard that Apple is about to implement a new accounting method that will allow them to account for iPhone sales immediately rather than spread the effect over a 24-month subscription period. A few analysts here and there have made an attempt to explain the implications of this change but most simply ignore it. Why?

Because they don't understand the depth of its impact. The P/E ratio may be the single most important number in the world. This number can make investors very rich if interpreted correctly.

Steve Jobs took over the company in 1997, and Apple has generated a profit each fiscal year since 2003. Since 2003, Apple has consistently traded at an average P/E ratio of 32.17, which is consistent with today's current P/E of 33. You can tell that traders have done their homework and are strict followers of the P/E valuation.

If you're like me, you don't care too much about current P/E ratios because they are calculated from past results. The number that really matters is the forward P/E ratio because it is calculated from future estimated earnings. Well, the average forward P/E ratio for Apple since 2003 is 22.48. Any guesses what it is now?

Based on the new accounting rules soon to be put in place, and the 37 billion in cash that Apple has on its books, Apple's forward P/E is below 13. This stock has not been priced this cheaply since Steve Jobs came back to Apple in 1997.

What should Apple stock be priced at according to its historical P/E norms? Based on expected earnings per share of only $11.70 in fiscal 2010 (many think earnings per share according to the new accounting standard will end up closer to $13) the stock should be priced at $263 today and should reach $376 by Sept. 30, 2010. These prices do not reflect great years for Apple, they simply reflect the averages.

You want to know what a great year would look like on Sept. 30, 2010? Let's use the P/E ratio from just before the recession began in 2007. With the iPhone added to the Mac and iPod lines, Apple stock was soaring. Its forward P/E was 28.63 and its current P/E on Sept. 30, 2007 was 39.05. If we used those ratios in 2010, it would put Apple stock at $456 by the close of its fiscal year on Sept. 30.

Making a comparison between 2007 and 2010 is noteworthy because both are years of new product releases. On Jan. 9, 2007, Steve Jobs unveiled the first iPhone and it went on sale June 29. On Jan. 27, 2010, Jobs will unveil the Tablet, and it should be available sometime in the second quarter.

Both products are revolutionary, but the Tablet arguably is more so because it will single-handedly change the newspaper/magazine/book print industry as well as the mobile Internet and gaming sectors. The iPhone was not nearly as big of a game- changer in 2007.

Are the future prospects for Apple better or worse than they were back in 2007? Today Apple has approximately $40 billion in cash on its balance sheet, it has 3 billion apps downloaded through the App Store, the iPhone's international expansion is just taking off, and of course the Tablet is on its way. All of a sudden, seeing Apple stock at $210 doesn't seem very expensive at all....

long AAPL

Wednesday, January 13, 2010

My Take On All This Google Stuff Going On.....

I recently added exposure of GOOG back under $590 and I likely won't let this China issue knock me out of it. However, the breach of the 50 day may hold me back from purchasing shares right away so I can gauge the reaction and see how much cheaper I can acquire shares. Don't get me wrong, I'm an aggressive buyer on weakness but sometimes you have to sit back and see what the market gives you.

Back to GOOG and my take on the financial ramifications:

* My estimate is that GOOG is only getting $240-350mm (per annum) in revenues from China. And I may even be high with that on the midpoint.

* I don't know what GOOG is making in EPS from China but I suspect it's not much.

* I did a lot of work on this years ago (2-3 years) and if this is still the case -- much of the GOOG searches are essentially taken from them and/or routed to BIDU. This was one of the reasons for owning BIDU early back in the day.

* Holistically I like the hard line stance from GOOG.

* I think this will hurt the share price short term, far more than any real damage to business -- both short and long term.

* Long term the implications are potentially powerful as this engenders a lot of powerful positive emotions to potential Chinese users....

* Does this tell us anything about how its quarter is shaping up, or how it feels about internal business growth?

* Does this also curry some favor with the US government in that GOOG may find info to help with trade negotiations? Jury is out on this one....

* Before BIDU totally uncorks the champagne -- GOOG isn't out of China yet and had been slowly grabbing some share.

* Lastly, I do see BIDU as a potential short should it ramp parabolic... say a $65-80 move higher.

Bottom line, I don't think this changes the story with GOOG at all. It certainly doesn't hinder nearer term revenues and eps generation and any damage to the stock is likely short term but also unknown.

However, as stated, it's hard to know how much they'll take out of GOOG due to this story. So I'm on sidelines until either; 1) the technical's clear up, 2) we get a few days closer to earnings (which will be huge), or 3) the stock falls below $575......

long GOOG

Back From The Edge During The First Hour....

In the first hour of trading, the market looked like it was on the brink of a meltdown. A lot of stops were triggered as big-cap technology and some of the recent momentum favorites struggled for the second day in a row. Then we found some support, and it was all positive after that. There were a tremendous number of reversals today. I heard many complaints from traders who watched their positions skid pass stops, then flip around and go straight back up.

What has been so amazing about this market is how quickly the mood turns positive after a brief bout of selling. It's easy to feel foolish in this environment when you are disciplined and adhere to stops to protect gains.

Things will get even more interesting after the close Thursday when INTC reports earnings, followed by JPM on Friday morning. With sentiment so positive, expectations are likely to be very high. There is a greater danger of disappointment now. Still, this market has been consistently optimistic for many months.

One of these days, the market is going change character, and the bears will finally have the top they have been waiting to see for so long. Today was not the day. When we have run up as high as this market has, it's hard not to think about when we might see the top, but that sort of thinking has been the most costly thing you can do......

Thursday, January 7, 2010

More Selling To Come?

I was looking for some fairly quiet action today, before Friday's morning jobs news, and although the indices didn't do very much, there were some very surprising moves below the surface.

The strength in financials and homebuilders stunned many market players, especially since it occurred as last year's leaders, mostly big-cap technology names, saw pressure for the second day in a row.

Retailers also performed well overall, but we had some real extremes with big moves in both directions. There were losers, such as GPS and ANF, but some big winners, such as BBBY, SHLD and ROST, as well.

Profit-taking hit some of the small caps that have been hot in the first few days of the new year, along with big-cap technology names, but obviously what happened today was a sudden rotation into some new sectors. It was very abrupt, and there weren't any obvious catalyst, so many market players were caught flat-footed.

The question now is whether this rotation is a theme that continues, or just an aberration that is going to catch folks by surprise when it fizzles. If there was some obvious reason for the shift, I'd be more inclined to think it has legs, but I'm going to be a bit skeptical for now.

To complicate things a bit more, we have the jobs report in the morning. Expectations appear to be quite high, and with the market fairly strong in front of the report, there is increased danger of a "sell the news" reaction.

My game plan is to make another short-term bet on GOOG, which I believe is hideously cheap right here....

long GOOG

Wednesday, January 6, 2010

The Averages Didn't Move Much, But Big-Cap Tech Got Hammered.....

For the second day in a row, the indices did little, but there was some strong action under the surface. Today was even more deceptive because we had some very weak action in key big technology names that were leaders last year. There are some big gains in AAPL, GOOG, AMZN and PCLN and today it looked like those who delayed selling for tax reasons decided to lock in some gains.

Under the surface, we continue to have some very strong action. Weakness in the dollar helped oil, gold and other commodities to lead the action today, and there still are some very big moves taking place in select small caps. I have plenty of big percentage movers showing up on my screens.

Technically, the indices continue to do little wrong. We are trending up steadily, and there still are some dip-buyers jumping in pretty quickly on shallow pullbacks. However, the big picture isn't without some issues. We have been wedging higher on low volume for a while, and that leaves very weak underlying support. When the market goes up on light volume there is a greater risk of a rush for the exits once we start to pullback.

The strong, positive seasonality is starting to come to an end. You also have to wonder if the profit-taking in the big-cap technology names might broaden as well. While the market is still acting well, the danger of more aggressive profit-taking is increasing......


Tuesday, January 5, 2010

The Market's Strong

The action today wasn't as euphoric as yesterday's, but there were still plenty of big moves, particularly in financials, oil, coal and China names. Breadth was positive, but the action was much stronger under the surface than was indicated by the indices. Even though the indices didn't reflect it, there was still plenty of positive seasonality to be found.

We looked a bit skittish at mid-afternoon, but we held the lows, and the dip-buyers got to push us up in the final hour of trading before a little end-of-day profit-taking. Seasonal strength begins to wane quickly now, but we have had some very strong momentum, and we'll have to see if that persists. Once it cools and profit-taking accelerates a bit, we should have some short-side trades, but I'm still waiting to see some poorer action before I'd press some bearish bets.

The biggest negative I see is the lack of any real bearishness, but the bulls have been complacent for quite a while now, and it hasn't mattered much. At some point they will get caught leaning the wrong way, but trying to anticipate it has been an impossible task so far. As the new-year excitement gradually cools off, the bears will have a much better chance of finally putting a few points on the board....

Monday, January 4, 2010

Stuff To Watch For In 2010....

Broadly, I think this year will be dictated by the transition from a world where stocks only rise as the US dollar falls to a market where dollar strength becomes supportive of US stock prices (as well as China, Australia, and select emerging markets).

Much of the media and negative pundits will continue to say that various financial government stimulus packages are the main reason that stocks and certain economic indicators/measures are rising, and until this prevailing sentiment shifts, the stock market bulls will likely be rewarded.

I see GDP growth and jobs improvement well above consensus.

Interestingly, many government work programs will be put into existence and more real stimulus money will be infused into the economy than in 2009. Certain sectors are poised to benefit even more compared to the prior year and finding spillover-effect stock plays will provide notable alpha.

Finally, web-based video (3-D TV?), bandwidth, and touch-screen technologies will come to the fore again as the promise of 2000 will become realized in 2010....

1. Starting the themes with a master of the obvious call. I see extremely low rates through 2011 -- with my range being 0 bps to 75 bps of tightening and my gut feel that we see the Federal Reserve remove its 0 bps to 25 bps funds rate and replace it with either a 25 bps or 50 bps (or a 25 bps to 50bps floating) funds rate.

This should continue to spur stronger-than-expected economic activity, so I’m sticking with my highly variant view (through 2009) of a stronger recovery and GDP growth than commonly expected while inflation remains benign.

2. Even though we’ve seen strong stock performance out of the networking and data storage, I'm essentially repeating myself:

We already have approved a $45 billion to $50 billion government broadband and security infrastructure package that's ready to roll over the next few years. Networking, security, and strong ERP and data storage firms will benefit most.

The only changes I'll make are emphasizing networking and data storage firms and deemphasizing security and ERP firms as they materially outperformed during 2009.

I think Cisco (CSCO), Broadcom (BRCM), EZchip Semiconductor (EZCH), and VMware (VMW) are names to note and reasonably priced, but there are a host of others that will benefit greatly.

3. Dogs of the Dow. I think this strategy will make a comeback and start beating the Dow again. I also like stocks that resume solid dividend payouts and/or exhibit strong dividend growth rates. This should be one of the factors helping banks produce sizable upside in 2010.

4. Alternative Energy: Solar has been an interest of mine for some time, and I'm expanding it this year to include battery technology, grid technology, and more efficient lighting/energy technology. It has strengthening investment flows as I believe this is a secular theme that actually started in 2008 and should continue to gain ground. I continue to favor A123 Systems (AONE), best of breed solar plays, and selected semiconductors.

5. The IPO market isn't dead, and in 2010 the pace picks up meaningfully. Facebook should be the deal of the year -- I think it will use its massive infusion of capital to buy parts, if not all, of AOL (AOL).

Moreover, technology mergers and acquisitions continue to exhibit strong activity with further consolidation across the sub-sectors. Underperforming stocks with superb balance sheets like Electronic Arts (ERTS), Dell (DELL), MKS Instruments (MKSI), and ADTRAN (ADTN) will garner increased attention.

6. Contrary to consensus opinion, I see the labor and housing markets improving markedly. As I said last year, we’ll start seeing job gains versus losses earlier than expected, and I’d be surprised if we don’t print jobs gains in the first quarter (possibly even December’s final numbers).

Additionally, I think shrewd buyers will be rewarded in the formerly distressed real estate markets.

7. Banks, banks, and more banks. I think banks simply have a huge upside year and this may be my favorite sector.....

EPS will continue to be strong, primarily led by continued record net interest margins. Helping the case will be continued strong trading, surging merger-and-acquisition growth, and improving asset management books coupled with shrinking writedowns.

In fact, for some banks, writedowns may become writeups late in the year (but probably 2011) due to improved real estate activity, less stringent rules related to mark to market (FAS 157 amended last March), and the reluctance for banks to dump inventory given they now have the earnings power, thus giving them more time to hold non-performing assets.

Note: The caveat to this call is if Financial Accounting Standards Board retracts and proceeds to make another huge mistake related to mark-to-market accounting. And I believe they are due to review this subject again sometime during the middle of the year.

8. The Apple (AAPL) Tablet will be another game-changing product and the next great extension of the iPhone platform. This product will be the first fully functional touch-screen computer and will usher in a new era of innovation (for Apple and certain chip companies). Apple will follow suit in the coming months/quarters with Macbooks using their proprietary touch-screen interface, which allows the company to further accelerate computing market share gains. I see Apple surpassing my low- to mid-$300s target and I have moved my target to the low $400s.....

9. As I alluded to in my intro, I think dollar bears will be disappointed and the dollar will be a strong currency, possibly one of the best performing around the globe for the bulk of the year.

10. Given the dollar strength and better-than-expected GDP growth, Gold will also prove to be an underperforming asset class as Gold prices I think fall below $785 at some point during the year.

11. I’m not making a prediction about Yahoo (YHOO) this year. Therefore, how ironic would it be if… I’m just not saying another word.

12. I think the combo technology/defense stocks -- such as L-3 Communications Holdings (LLL) and Comtech Telecommunications (CMTL) -- will be talked about with increasing fervor because geopolitical tensions haven’t materially eased, intelligence gathering is coming to the fore again, and the fact that many of these stocks were, at best, market performers during 2009.

13. Regression to the mean. This may be the most profound theme, and if it comes to fruition to any degree, 2009-2010 should produce materially higher returns than expected. We're currently at record levels for the worst rolling 10-year period in the stock market and worst calendar year by a long shot. To put it plainly, we need earth-shattering returns to completely close the gap and get back to the S&P's 9% plus long-term average.

To compound on this a bit further -- while we put in one good year, we’re still pacing near record decade-long returns. These sorts of anomalies don’t rectify with one good year. I suspect 2010’s returns -- as well as in the next decade -- will be higher than normal, though contain above-average volatility.

14. Growth stocks outperform value stocks. I think this cycle just started last year and should last four to six years in total.

My view is that we’re still in the early days of a growth cycle in EPS. I forecast 23% to 25% 2010 EPS (broad market) growth and I’m hoping that includes some UPOD. So while the S&P 500 seems to be fairly valued by many accounts, from my perch those views are still using EPS results that are far closer to trough levels than normalized levels.

In short, during periods of renewed EPS growth and after a trough low in the Federal funds cycle, growth stocks tend to outperform.

15. The US stock market rises by 16% or more as measured by the S&P 500. Like last year, I forecast the NASDAQ to do better but with less outperformance versus 2009. As stated earlier, I see the financials being the markets best performing sector in 2010 -- particularly the top bank and brokerage names like JPM and GS, etc. My bullishness on the financials aside, I still see tech doing very well; in fact, it’s in my top three leadership categories along with health care.....

long GS; AAPL

Enjoy It While It Lasts!

The good news is that unless you were short, you probably started the year with some gains today. The bad news is that you probably underperformed the indices unless you started the day very heavily long. If you were holding lots of cash, it was very tough to catch up just by playing intraday.

The main driving forces today were optimism about the new year, beginning-of-the-year cash inflows and a desire to start the year with some gains. As soon as we gapped up this morning, the hunt was on for long exposure. Traders were particularly aggressive with some of the higher-beta small-caps, particularly the China-related names, but we had strength across the board and superb breadth. I'm a bit surprised we didn't have better volume, but it was higher than last week, and that is all that is needed for a technical accumulation day....

The second trading day of the year has a particularly good track record, and with many market players already lagging the indices, they will likely be scrambling for long exposure once again. This is not unusual seasonality, but it is driven by many things, most which have little to do with fundamentals. We might as well just play the game and enjoy it while we can.

Just remember that we started off last year even stronger than today with the Nasdaq up 55 points on the first day of the year, but we topped out two days later and then fell apart completely. We didn't exceed the early January highs again until April....