Wednesday January 7, 2009
Navivest

Stocks are moving to the downside today, on a profit warning from technology bellwether company Intel (INTC), as well as a report from payroll processing company ADP (ADP) that showed that the private sector lost 693,000 jobs in December.

The stock market of late has had a tendency to ignore bad new news, but this was much too much. Intel’s profit warning, in which the company said that it is projecting Q4 2008 revenues of $8.2 billion, a 23% decline year over year, was the second downward guidance from the company in under two months.

On November 12th, just four weeks after the company released its third quarter results in which forecasted Q4 revenues of between $10.1 billion and $10.9 billion, Intel issued guidance that called for Q4 revenues to come in at $9 billion, plus or minus $300 million.

Being that Intel provides about 80% of the chips that go into personal computers, it is easy to see that the tech sector as a whole is in trouble. The tech laden Nasdaq is down about 2.52%, while the Dow is down 2.02% in early going.

Intel is due to report those Q4 earnings on January 15th.

We do welcome the move to the downside. Yesterday, we recommended that subscribers to our Options Capitalist trading advisory service buy the Wynn Resorts (WYNN) Jan ’09 55 puts, as the stock had run up more than 10 points since December 31st. We got in at $3.30 and were able to exit at $6 within the first hour of trading today – unfortunately – They hit a high of $7 before 11AM.

Tags: Intel  ADP  Wynn Resorts  Stock Market  Earnings Warning

Wednesday January 7, 2009
Navivest

Considering the current economic climate and the forecast calling for an even rougher keel ahead, its amazing that stocks have held their own and have seemingly found a floor, or as the technicians might say, a support level.

On September 30th, 2008, the Dow Jones Industrial Average closed at 10,850.66 to close out the third quarter, after hitting an intra-day low of 10,371.58. That was after hitting an intra-day high of 11,139.62, the day prior.

Since then, we hit a five year low of 7,392.27 on November 21st, but have since rallied back to yesterday’s closing price of 9,015.10.

The bounce back and holding at current levels has had the pundits calling a bottom for the stock market.

That begs the question; if stock market levels are a function of the prices of the underlying stocks that make up an index, and if the prices of the underlying stocks are a function of forward earnings, to the extent that earnings, going forward, are set to decline from current levels, how can anyone predict higher stock prices? Especially since the earnings picture looks bleak.

On 01/05/09 for instance, fertilizer company Mosaic (MOS) released its Q2 2009 earnings in which it said that because of falling demand, it cut phosphate production “by approximately one million tonnes through December 2008” and plans to reduce production by up to an additional one million tonnes through fiscal 2009.

The company also stated that “deteriorating market conditions and rapidly declining raw material costs caused phosphate selling prices to decline sharply toward the end of the quarter and were the primary causes of an inventory valuation write-down totaling $293.5 million.”

With 9.1 million tons of phosphates sold in fiscal 2008, the 1 million ton cut that the company plans to implement in its phosphates production, represents an almost 11% production cut. Factor in the expected reduction in prices, and the problem is further exacerbated.

Note: Mosaic does have other product lines, such as potash.

On October 7th, Dow component, Alcoa (AA) announced that its Q3 2008 profit fell 52%. Yesterday, the company announced that it will be cutting aluminum production by 18% on an annual basis.

These are not isolated cases. The Q4 2008 earnings season starts on January 12. It is a safe assumption that the news coming out of corporate America during this period will be dire. Even the companies that do beat expectation, will probably either guide future earnings lower, or worse, suspend providing guidance altogether.

In such an environment, is it realistic to assume that the worst is behind us?

On January 20th, the Obama administration takes over. To the extent that the new president wants to stimulate the economy by boosting infrastructure spending, we do expect an Obama bounce/rally possibly starting next week as savvy traders start positioning themselves in infrastructure plays, but at some point, reality should set in and we should get some sort of correction.

For whatever reason, the stock market has managed to ignore bad economic news of late, to the extent that we even get rallies on days when such news is released. But that cannot go on indefinitely.

There is only so much pain that individual investors will put up with, before they decide they’re better off putting their money under the mattress, and start pulling money from mutual funds in droves.

Of course, when that happens, there are those that will say that’s a sign of a bottom.

Tags: Alcoa  Mosaic  Bear Market Earnings

Friday January 2, 2009
Navivest

The stock market is starting off the new year with a bang, with a broad-based rally that has the Dow up 2.19%, the Nasdaq up 2.54% and the S&P 500 up 2.31% at 2 PM. While volume is still relatively light, market internals are very bullish. There are more advancing issues than decliners, with four stocks climbing for each one that’s falling on the New York Stock Exchange.

Some of the best percentage movers among the stocks in the S&P 500 index are Massey Energy (MEE), up 14.8%, Sandisk (SNDK), up 14.1%, Consol Energy (CNX), up 11.02% and Starwood Hotels, which is up over 16.09%.

Starwood Hotels is one of the best S&P stocks today because the company in a regulatory filing, disclosed that it had signed a confidentiality agreement with Sam Zell’s Equity Group Investments. Wall Street is taking this as a sign that Sam Zell might be looking to buy a stake in Starwood.

Among the stocks propelling the Dow up, are Boeing (BA), which is the biggest point gainer, up $2.63 to $45.30 and IBM (IBM), which is up $2.22 to $86.38. Twenty-nine of the Dow 30 stocks are up, with JP Morgan (JPM) being the only laggard on the day.

Tags: Stock Market Rally  Massey Energy  Consol Energy  Sandisk  Boeing  IBM  Starwood Hotels

Friday January 2, 2009
Navivest

R.H. Donnelley Corporation, one of the leading Yellow Pages and online local search companies, announced today that The New York Stock Exchange has determined that the trading in the common stock of R.H. Donnelley should be suspended in view of the fact that the Company did not maintain a market capitalization of at least $25 million over a consecutive 30 trading day, one of the requirements for maintaining a big board listing.

The stock starting today is now trading over-the-counter (OTC) on the Pink Sheets under the symbol RHDC. In other words, the company, which had $2.7 billion in 207 sales, is now a penny stock. In afternoon trading, the stock is at $0.24, down $0.13.

A victim of the internet age, investors battered the stock, partly because consumers seeking information now tend to search on the internet, instead of cracking open a yellow page director. Also, the company has taken on a lot of debt for acquisitions and expanding its online business.

Tags: RH Donnelley  NYSE  New York Stock Exchange  Penny Stock  Over The Counter

Tuesday December 23, 2008
Navivest

While it is possible we could see a holiday rally and stock futures are currently indicating a slightly higher open at 6 AM, there is still a very bearish overcast on the markets.

Volume will be light and we will be hearing how much of a poor retail environment this is this holiday, which could put pressure on retail stocks. Walmart is the one bright spot, as consumers look to stretch their spending dollars.

Today, we get more economic news that will show the fragile state of the economy. Among the economic news due out, are GDP and New and Existing Home Sales numbers.

On an annualized basis, forecasters are looking for existing homes sales of 4.93 million and 420,000 for new homes.

Mortgage rates have been trending downward, with the curve steepening in the last month. So there is a chance that that could have drawn buyers into the market. However most gains in home sales of late have come from the foreclosure market so perhaps it might be too much to hope for that we get an upward surprise in the numbers.

Tags: Existing Home Sales  New Home Sales  Stock Market  Trading Day

Saturday December 20, 2008
Navivest

Allstate - (ALL) $31.86 +$1.92

Shares of the insurer were up as were other insurers, which were mostly up in the day, probably on the auto industry bailout that was announced by President Bush.

Apache – (APA) $74.57 +$4.76

Shares of oil and gas producer Apache were up after crude oil managed to eek out very modest gains on Friday.

Baker Hughes - (BHI) $29.99 +$1.74

Baker Hughes is a service provider to the oil and gas exploration industry and the shares were up in tandem with crude oil prices.

Darden Restaurants – (DRI) $28.55 +$4.57

Darden Restaurants, which among its holdings operates Olive Garden and Red Lobster, on Thursday, reported that its second quarter 2009 diluted net earnings per share from continuing operations were $0.42 cents, an increase of 40%, versus 30 cents in the prior year.

With analysts looking for just $0.31 per share, Wall Street must have been impressed that the company’s earnings beat estimates so handily, in an economic environment where the consumer is hurting.

Fuel Systems Solutions – (FSYS) $34.52 +$3.28

FSYS shares were up after the company announced on Friday, that it’s Italian division, will be buying Distribuidora Shopping SA of Argentina for $22 million after which coverage of its stock was initiated with a buy rating, by Janney Montgomery Scott. Fuel Systems is a manufacturer of alternative fuel systems for vehicles and the company is looking to expand its product line and market, with the purchase of Distribuidora Shopping, which makes components and systems for the Compressed Natural Gas (CNG) vehicles market.

Oracle – (ORCL) $17.78 +$1.17

Shares of Oracle posted their biggest one day gain in over three months, by rallying 7.04% today, after the company reported that Q2 2009 earnings per share came in at $0.25, which was in line with what analysts were looking for.

Revenues for the period was up 6% to $5.6 billion, while quarterly GAAP net income saw a 1% decline to $1.3 billion.

Broken down, software revenues were up 8% to $4.5 billion with new software license revenues down 3% to $1.6 billion. Software license updates and product support revenues were up 14% to $2.9 billion and services revenues were down 2% to $1.1 billion.

Operating income was up 11% to $2.0 billion and operating margin on a GAAP basis, was up 1.66%, to 35%. Cash flow for the period was $8.1 billion.

In the second quarter, there was a $0.04 per share negative impact on the bottom line, as the dollar rallied against other major currencies. As such, without the foreign currency effect, EPS would have come in at $0.29.

Provident Bankshares Corporation- $9.33 +$3.53

Shares of Baltimore, Maryland’s largest independent bank rallied 60.86% after M&T Bank agreed to buy Provident for $401 million in an all-stock deal. Provident Bankshares Corporation shareholders will receive $10.50 for each share they own when the deal closes in the second quarter of 2009. The

Research In Motion – (RIMM) $42.83 +$4.39

Shares of the Research In Motion, the mobile communications device company, which makes the Blackberry, were on a tear on Friday, after the company on Thursday December 18, reported third quarter 2009 earnings that came in in-line with analysts forecasts.

Q3 revenue came in at $2.78 billion, which was up 7.9% consequentially from the $2.58 billion that the company realized in the previous quarter and up 66.3% from the $1.67 billion in the same period a year ago. Breakdown for the company’s revenue in the quarter, was roughly 81% for devices, 13% for service, 2% for software and 4% for other revenue. The company shipped approximately 6.7 million devices during the quarter and added 2.6 million new subscribers, bringing the subscriber account base to about 21 million, a sequential 14% increase from the second quarter.
Earnings per share came in at $0.83, after special items are ex-ed out. For the Q4 2009 period, the company is providing EPS guidance in the range of $0.83-$0.91. Wall Street analysts are looking for a EPS to come in at $0.83.

Tags: Allstate  Apache  Baker Hughes  Darden Restaurant  Oracle  Provident Bankshares  Research In Motion Fuel Systems

Friday December 19, 2008
Navivest

There are murmurings that we may get news today that the Whitehouse is providing temporary aid to General Motors (GM) and Chrysler to help the companies stay out of what the president termed “disorderly bankruptcy.”

Should we get such news today and assuming it comes early in the trading day, that could possibly help put a floor under stocks, which broke down in late trading yesterday after being just barely negative for most of the early going.

On the other hand, there is a downside risk. The Whitehouse is now referring to what it terms “managed bankruptcy”, meaning that the government will basically be partners in running the company so to speak.

Obviously, the automakers have gotten themselves into this mess, the economy aside and if they are asking for taxpayer money, then there should be strict accountability. But how would Wall Street view this? The idea of government playing CEO may not sit too well with investors and that could help negate the news if it comes and send stocks lower.

Tags: Stock Market  Quadruple Witching  Auto Bailout  Managed Bankruptcy  Disorderly Bankruptcy

Friday December 12, 2008
Navivest

Unless the stock market chooses to ignore calamitous economic news as it did last week, we are looking for stocks to continue yesterday’s slide and trend lower today.

We have a somewhat active economic calendar and on the slate today, are Producer Price Index numbers from the Department of Labor, which measures the price of manufactured goods at the producer level, Retail Sales numbers from The Department of Commerce’s Census Bureau, which will give us further insight into the deteriorating state of the U.S. consumer’s finances and Business Inventories from The Department of Commerce’s Census Bureau.

These should all serve to send stocks lower today. Unfortunately, we will be getting most of the news before the stock market opens, so if you are not already short the market, you might be missing out on some of the gains.

To the extent that we are looking for the stock market as a whole to move to the downside, traders should consider betting against the market by going short Diamond Trust Series (DIA) which is a bet on the Dow Jones Industrials, and the Ultra S&P 500 Proshares (SSO, which needless to say, is a bet on the S&P 500 index.

We also like (as a stock to short) Vulcan Materials Company (VMC). On November 21st, the stock closed at $40.56. Yesterday, it closed at $64.42. The company produces construction materials such as asphalt and aggregates, so it has been rising on President-elect Obama’s plan to boost the economy and create 2.5 million jobs in two years, by spending big money on the nation’s infrastructure.

On that basis, assuming Obama is able to get the plan through congress, the stock could be a buy, but for now, we are looking for a pullback in the shares.

If the Dow is down a hundred points or less in early trading, we recommend entering into the above trades.

Navivest is offering a free two week trial to its Options Capitalist trading advisory services for options traders as well as its Navivest Equity Trader for stock traders and investors. To take advantage of this offer, click here

Tags: Trading Idea  Stock Market  Vulcan Materials  Dow Jones

Thursday December 11, 2008
Navivest

Considering the dire initial jobless claims employment number that we got today, which showed that unemployment was at a 26 year high, stocks were impressively resilient for most of the day, with either a very modest loss or brief forays into positive territory.

However, at around 3PM, we saw the declines start to accelerate. At 3:06, the Dow is down almost 200 points, for over 2% and the Nasdaq is down over 3%.

With the unemployment numbers that was due out today as well as the recent run up in a lot of stocks, we were looking for some pull-back today and we are finally getting it. Of course there is still almost an hour to go in the trading day and anything can still happen.

This morning, in our Trade Of The Day column, we recommended traders short Amazon (AMZN) shares. Those shares like the rest of the market are now accelerating their declines.

Other trades that we liked, were put options on FedEx (FDX), which we recommended to subscribers of our Options Capitalist trading advisory service yesterday. Shares of FDX are off $2.54 currently.

We also recommended that subscribers to our Navivest Equity Trader go short Rio Tinto (RTP) after the stock was up 22% in early trading yesterday. The good news is that the stock is off over $5 today.

The bad news is that we got in early during the day when the stock was just under $90. The stock continued pulling an amazing hat trick during the rest of the trading day and closed at $94.50, from the $73.09 closing price on Monday. This however is one trade we are very excited about.

We are looking for further declines over the next couple trading days. The stock market has had in our opinion, an unwarranted run up and needs to give back some of those gains.

Tags: Rio Tinto  FedEx  Stock Market  Amazon  Options  Equity Trader

Thursday December 11, 2008
Navivest

Amazon (AMZN) has had a very nice run up in the last five trading days. Last Friday, the stock traded as low as $43.30, today it is at $49.06.

The stock is right up against its 50 day moving average and in the last three months that has proven to be both an area of support and resistance.

We are looking for the stock to give back some of its gains. Take a short position here, enter down to $48.75 and put in a limit price to sell at $46 once the trade is in. If the stock is down more than a point, but not quite hitting our target by today or tomorrow, exit.

Stocks are down today on the dismal unemployment numbers, but as happened last week, with this topsy turvy trading environment that we are in, we could actually see a rebound, so that creates a risk of AMZN moving to the upside today.

However, the market is due for a pull back in the very near term, so we are comfortable with the risk.

Tags: Amazon  Trading Idea  Stock Market  AMZN