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Wednesday, November 30, 2011

Market Thought... finally

(Over the next few days, posts are going to be later than usual. I'm taking all day SAS Programming classes.  Since I have the time, I wanted to get knee deep into the mega-trend of Big Data. Over the two years trading IBM, and my constant assessment of data has sucked me in.  A bit of violin before I go into my post.  AT&T data services SUUUUUUCKS in mid-town NYC.)

A line was drawn in the sand today. (About f-n time.) Today's action showed the world, unequivocally, that a credit event will not be allowed. Obviously, the market removed the 'credit freeze' discount.

Crack open the champagne cause we FINALLY got some sense of stability!!!!

The good news, now that the credit freeze is off the table, a market multiple of 12 is no longer valid.  The bad news, the dragging of the feet on the EFSF details and Germany's resistance to the ECB acting as a last resort lender (despite the already established austerity and technocrat leadership), has pushed the global economy to slow down.  (China's official PMI below 50 does not help the situation, but futures are holding up well to the news.)  This should allow the market to trade at a multiple around 13-14.  Usually I am more bullish, but we started to see the weaker global PMI data this quarter, and BRIC central bank easing fairly recently.  The slower growth in EPS should be seen over the next few months.

I do not want to be a complete Debbie Downer. There are still some awesome opportunities taking advantage of extreme value and secular growth.  ie AAPL and FIO.  But what maybe the best, and one that all the hedgies have been waiting on, is the Euro short.

The coordinated action by the central banks doesn't come free.  I guess the subtle relative weakness of the Euro on Monday meant something.  It was the beginning of the end to the SPY-Euro correlation, and today adds to the thesis.


Also, if the SP500 has an eps of 92-95, a PE of 13-14 should lead the market to the high 1200s by year end.  For now, technically, it is in sea of resistance.

Despite my somber tone, I am interested in NUE and SU. We got interesting information today regarding the US being a net exported of Oil againConfirming the thesis I had a few weeks ago about WTI exports. With WTI and Brent well above 75-80, SU should be trading north of 34.

China's public interest about western infrastructure bonds, makes a compelling case for America's political leadership to implement an infrastructure 5yr plan.  If we get something like this, it will benefit NUE.  And considering I have absolutely ZERO faith in our politicians to realize this, NUE has a nice yield while we wait for the right lobbyist to whisper the obvious in the ear of our leadership.


Tuesday, November 29, 2011

risk, reward - AAPL

We get a credit event in Europe, and we are on the path to World War 3. (I say that seriously.) No stock is safe, no high yielder, nothing. Its the low probability scenario.  So I try to position to a large reward with a relatively minimal risk.

Everyone and their mother has an opinion on Apple and why it is good, and why it is bad. Here is a good write up pointing out Apple's growth in relation to stock performance.

At this point, the major question is whether or not AAPL's multiple has stopped contracting. There is a compelling argument to say it has. Especially when comparing AAPL to other large caps with lower revenue growth. (And iTunes, iCloud and Apple's general attention to users are an extremely good form of stickiness that will maintain a huge cash flow.) Also, given the growth in iOS devices, I find it difficult to entertain a person who says "Apple's earnings will collapse".

From the technical perspective, its downside risk is 350 via  a weak market back drop. Upside potential 425 from a stabilized market.

After AAPL reports the holiday quarter, it will have a trailing PE of mid 13, if its stock price is around 425. That is a 50 point run.  Given AAPL's history of rallies, the move is not unrealistic.

Monday, November 28, 2011

Market Thought... relatively speaking

The SP500 acted stronger than its correlated friends, the Euro and 10yr yield.

Although the intra-day look the same, with the same dips at the same times, but the depth of intra-day declines were much different, and points to further subtle strength of the SP500.

Do not know if it means anything yet, but I find the subtlety interesting.

Market Thought... short-term potential

Here is our oversold bounce. Although, fundamentally speaking, we are seeing good chatter that the UK plans on infrastructure build, and China openly stated they are very interested in infrastructure investments from the west.

The SP500 may push toward 1215-1220. (This is where I will look to add SPY put protection.)

I am using the DAX as my guide. It has rallied over 4% on the usual vague chatter.

The SP500 is lagging at the moment. It has some resistance levels near 1200, but if the SP500 sees the extra two percent (mimicking the gains in the DAX), the SP500 should be near 1215.


Sunday, November 27, 2011

Market Thought... market assessment

The fast moving Geo-political issues forces investors to change their market thesis every time a new headline develops. Its craziness.

The scenarios:

1. A slower Global GDP growth.

EU sovereign debt yields rising with weak economic data.  A weak economy, from an area of the world with the largest combined GDP, will subdue Global GDP growth.  I do not expect a Global GDP contraction, unless there is a credit freeze.  America is doing better than the headlines suggests because there is better private sector data, while the public sector is doing poorly. (This is exactly what the Tea Party, conservatives and market players want to see. Public spending go down, while the private sector moves the economy.)  The increasing rise of the middle class in the BRICs, along with their own capacity to improve their economies is generally underestimated as everyone gets caught up with the EU negativity.

A slower Global GDP growth will lead to subdued corporate profits, obviously affecting the markets.  Trailing SP 500 eps is around 89.  Placing a trailing PE of 12-14 to the SP500 give a price range of 1068-to-1246.  However, with the constant threat of a EU inspired credit freeze, I do not think we trade with a multiple of 14.  Since the year is almost over, the year end estimates should be observed.  Assuming zero eps growth into the 4rth quarter, which is a bit harsh considering the sales numbers from this weekend. This leads to a year end SP500 eps of around 92. Placing a trailing PE of 12-13 to the SP500 gives a price range of 1107-to-1200.

2. A EU inspired credit event.

If this happens, obviously all bets are off. The markets will see extreme valuations pegging valuations closer to asset prices, similar to 2009.  I still do not expect this contagion to happen.  All the global corporations and banks already know this risk.  And the American banks have close to a trillion in reserves to ease the blow of a large EU bank blow up. The American banks maybe able to take advantage on the corporate lending side if they are willing to step up.  The risk to the American banks is if there are activations in CDS'. (However, the only real threat to this scenario, at the moment, is if Greece takes the extra 25% cut in their bonds.)

Based on what we have already seen within Europe, the troubled banks will get nationalized, to prevent a credit event. But that nationalization will take a toll on the sovereigns with downgrades, pointing to the first scenario, a slower Global GDP growth.

3. Domino effect of negativity.

The negativity will allow for false chatter.  Basically a loop of negativity that will facilitate a low multiple environment.

Seems like there is negativity everywhere anyone looks, but there are some positives that emerged last week.

1. Retail sales were strong.  Hard to argue with raw data.

2. Interesting subtle divergence between the Euro and the SP500 took place on Friday. (I am not putting heavy emphasis on this yet, but I did find it interesting.)

The markets turned around 10:20am, and looking between the two charts (SP500 top, FXE bottom) the turn was obviously Euro related. But as the Euro declined, the market held up for a few hours.

This may suggest a break in the Euro/SP500 correlation. Fundamentally this should be caused by the ECB 'printing' Euros.

3. Headlines of the IMF preparing a 600billion Euro loan for Italy. There is really only one place the IMF can get this kind of money, and that's the ECB. (If true this is also good news for the US banks as those sold CDS' will not get triggered for Italy, at least for 12 months or so.) Hopefully this is true as it will alleviate some EU concerns, but will not prevent the slower global GDP.

The emerging positive data and headlines should give the markets an oversold pop. But the push upward maybe limited due to the above negative scenarios.

Friday, November 25, 2011

Market Thought... they didn't listen

The EU leaders did not 'listen to the thunder'.  European banks were at the precipice in August.  The silent bank run was happening, and the only thing keeping it silent was the heavy reserves.

The EU leaders teased us with an amended EFSF, but have yet to give any details on the plan. No plan, no demand. With no re-capitalization mechanism for the banks, the banks can not, and will not, support the sovereign debt, so rates are rising.  The only play the EU banks have right now is to sell assets to raise capital. But they can not sell quick enough. 

Now, the yields in Germany are rising.  German PMI was also crappy. One of many crappy PMI figures earlier this week. Rising rates with a contracting PMI is not a good thing.  Spreading that scenario across Europe is even worse.  The data is pointing to a harsher slowdown coming for the EU economies.

The only chatter of hope, at this stage of the game, is to have 1. Euro Bonds or 2. the ECB entering as a lender of last resort.  But I fail to see how these are going to alleviate the EU bank runs.

First, a cross-boarder EU bond cannot even be initiated without a cross-boarder tax collecting system.  With out the revenue system the "Euro Bond" will be nothing more than a EFSF bond. The market is already pissing on the EFSF bonds, so why would a Euro Bond without a revenue stream not get pissed on?


Second, the ECB 'prints money' and buys all the sovereign debt until it does not have to anymore.  The market will initially like this, and it should keep rates depressed for a period of time.  But what happens when there is another Dexia? Will the ECB back-stop banks as well? Or will the bank(s) get nationalized and the ECB keeps buying debt?  Is the ECB willing to increase their current balance sheet by 1-2Trillion Euro?


Regardless of what the 'EU hope' would be, the global PMI data is pointing to a slower global GDP growth. The technicals are confirming the slow down, and depending on how Europe handles it, is how harsh the markets will be.

The global GDP will still see growth, but it will be lower. Probably around 1-3%. But the severity of the EU contraction will guide the growth.  The price of oil does not suggest a global GDP recession. (WTI is holding up well, and should not go below 75-80. But Brent looks interesting here. It could see 90, and if it goes below 90, I will view it as a red flag.)

The weekly suggests support around 1135.

 The daily is in a tail-spin.

The one short-term catalyst is that a lot of stocks that I see are oversold, a lot.  The markets will be due for an oversold pop shortly.  But that assumes the EU is quiet enough for such a move to take place.

Tuesday, November 22, 2011

IMF numbers too low?

The IMF issues a vague liquidity program, and the market reacts. (Hence the difficulty of this market.) Seems like the program will basically take over the sovereign debt buying program from the ECB.

Some info began to trickle in with the IMF supporting about 500-1000% of member quotas. Italy's quota is 7,882 million SDRs. (SDR are worth a little more than the Euro)

Basically, if I am calculating this correctly, the IMF is asking to provide around 80 million euros to support Italy's sovereign debt market for the next 1-2yrs at a maximum. (Similar calculation can be made for the Spain, Greece and Ireland.)

I do not know if I am using the correct numbers or there is something missing from the info that is tricking in, but the IMF effort seems way too low if the above is correct.

The IMF has around $540 billion to help with the EU crisis. Seems like their plan should allow for 80 BILLION Euro purchases, not 80 Million.

Regardless, even if my calculations are wrong, the EU still needs a real stabilization mechanism.  In order to recapitalize the EU banks or continue to support sovereign debt when bank nationalizations take place.

Monday, November 21, 2011

Market Thought... Super Bums

Our political leadership sucks. They are Super Bums. Tasked to watch over America, they are failing us.  We have been watching for months, and their sense of nobility is no where to be found.  A compromise was not reached, and soon we will be hearing the yelling about why one party was to blame over the other. They are all pathetic.

Despite the pathetic behavior, the equity markets did not decline because of them. Today the decline was all Europe.  This morning we go word that a Spanish lender was nationalized. The Spanish government back stopped a bank it can not afford to back stop.  And so the nationalizations begin.

Tomorrow we will get the GDP number, and it should be a relatively good number. That should give US markets a slight boost, but after that I would look for SP500 puts again.

Given the lack of positive catalysts, I do not see how the market pushes above 1220 without a EU stability fund.

With the pathetic showing of the Super joke Committee, Standard and Poor's (SP) will downgrade the US debt again. This should force selling amongst money market funds, and push the market lower.  (If the market does not go down on the SP downgrade, that will be surprising and telling of a bullish reversal for equities. But I am not holding my breath on that low probability scenario.)

update: Minutes after I posted this, the SP says the ratings is not affected. I guess the SP learned not to bite the hand that feeds it or sees America's relative strength compared to the rest of the world.  This takes away a potential negative catalyst, but our political leadership are still BUMS.

Market Thought... catalysts

There are catalysts to the upside and down side. Below is an examination of the potential near term catalysts.

Upside:

1. The amended EFSF is given a detailed plan.

2. The (pathetically named) Super Committee gives their bosses (the American public) thoughtful and worth while spending cuts, while boosting revenue on the top 1-2%.

Downside:

1. Continued lack of a stability mechanism in the EU.

2. The super committee gives us nothing.

3. Bulk of earnings are completed. With out the micro to focus on, the imagination of the macro economists run wild. Case in point, this weekend was an orgi of 'what ifs'. The extremely colorful scenarios acts as an indication to the massive amounts of uncertainty the EU is allowing for.

4. Related to #1, no stability mechanism leads EU bank runs, which leads to nationalizations, which leads to sovereign debt downgrades.

5. Related to #2, Standards and Poor's was quite clear this go around that they will downgrade US debt again if a better deal is not reached. Although a disagree with their downgrade, an investor can not ignore the risk.

6. The technicals are not in the markets favor right now. The twiddling of thumbs in Europe and US are letting these markers come down, and keep going down due to the negative set-ups.

The Cons out weigh the Pros, and the futures reflect it, obviously.

Unfortunately for investors, we are held hostages to completely inept leadership. Completely inept. As the leadership controls the positive market catalysts.

Thursday, November 17, 2011

stability - no stability, GOOG, IBM, MA, QCOM, DD, ETN, SU, FIO

Since August, the EU had time to provide stability (ignoring the two years prior to that). They got close with the amended EFSF, but fucked it up.  Will the EU be able to pull stability out of their ass?  If they do, we should see continued rallies. 

The stocks that should continue their push higher, as they have the strongest technicals, from a 'stability' rally are GOOG, IBM and MA.

GOOG should push toward the mid/high 620s.

 IBM should push toward 195.


 MA should keep pushing higher.

Obviously with credit event threat, the above does not apply.  If the markets see a shock, the following stocks will become very appealing: QCOM, DD, ETN, SU, FIO.

DD is benefiting from global growth in the BRICs, and its dividend is really appealing here. Depending on the severity of negativity, 42-44 looks super interesting.

ETN is another dividend story that is benefiting from global growth. Depending on the severity of negativity, 38-40 looks super interesting.

QCOM can see 49 to 52 if the 'credit' threat resurfaces.  I do not think it will break 49-50 given the secular growth mobile is seeing, despite an actual credit event.

SU is just cheap right now, especially with oil above 80. The 28 level is possible.

FIO did not care about the EU mess today, but with a EU induced credit event threat nothing will be safe. The fear hopefully will provides a good entry.  Ideally below 30.


Market Thought... year end rally?

A year end rally is all depended on the EU.  Either,  a REAL mechanism of stability is introduced or a cluster fuck of bank runs will take place (and my concerns of the 'coming nationalizations' post will be real).

Over the last two days I was short the SPY. I covered today because we are testing the 320SMA support, and chatter that the ECB may lend to the IMF to provide stability.



I really like the idea of the ECB funding the IMF because the IMF is the austerity enforcer. The countries are getting their houses in order, they just need time for these changes to take place. Hence the importance of the stability mechanism. (IMO, this action may decouple the Euro with the markets and allow for the Euro to decline and the markets to rise.)

If we get a stability mechanism, Fed President Bullard opinion that the EU situation will not affect America as much as people think becomes very valid.

So, we get stability from Europe, we get a year end rally. No stability, no rally.

As for me, I covered my SPY short, and a want for stability.

Update 11/17/12:

With the breach of the 360SMA, I added SPY put protection (Jan 125 strike).

Wednesday, November 16, 2011

Market Thought... coming nationalizations

Man-oh-man has the chatter shifted from the EU leaders. (Although Merkel keeps showing her solidarity, and offers a greater sacrifice from Germany.)  The demand for the EFSF bonds are weak, and the spreads (against Germany) are rising. Europe acted too slow after amending the EFSF, and now the market sees it as a farce.  So the fund that was suppose to re-capitalize banks or facilitate sovereign bond purchases, a key instrument to provide stability, has failed before it stated.

Now what?


I think a few scenarios can play out:

1. The ECB gets amended, and acts as last resort lender. (They are already doing this for the sovereigns, but once they pull from the markets, rates just spike back up. There purchases are turning out to not be sustainable.)

2. Joint ECB/Feb Reserve response. (This would be tricky, politically.  But for the sake of stabilization it may happen. If this does happen, I am sure the US will demand some sort of pain on the equity side from EU banks, as they did when facilitating US banks.)

The problem with 1 and 2 is that there is no mechanism to stabilize the EU banks. (Remember, Lehman had access to short-term funding, but still had a run.)  In August/Sept, EU banks saw a very real run on their banks. With out the EFSF, it is only a matter of time before that run takes place again.

Bank runs will either force

1. a credit event

2. force merges and capitalization (but with out cash for the capitalization the next option is...)

3. the banks will get nationalized.

If the banks get nationalized, a wave of sovereign debt downgrades are coming.

All options will lead to a shock to the market. #1 causing the most severe damage, obviously.

A stability fund is desperately needed, now.  Without it, the only play is pain.

If nationalization does not appeal to the EU countries and decide to allow countries to exit the EU (if only temporarily), some of the American banks maybe really fucked.  US banks sold $5T (yes, trillion) in EU sovereign CDS protection. (WTF are they thinking?!?)  So if Europe does blow up, or allows for exits, sovereign countries will default and the US banks are on the hook. Which means US banks blow up, and the Fed will have to intervene.

Even though the EU countries are now getting their houses in order, without a stability mechanism, things are not looking good.  Europe needs a stability mechanism.

Tuesday, November 15, 2011

interesting Oil set-up

How does anyone piece together the Crude market right now, especially with the following info.

1. US gasoline demand continues to fall for over 10 weeks, and this week at its steepest pace.

2. Joe T, on fast money, makes a pretty bullish case, siting international demand.




3. Interesting divergence took place a few weeks back. Brent and WTIC have risen while US gasoline prices have been flat to down.

I do not know what to make of this.  Since crude accounts for 66% of gasoline costs, I would suspect either Gasoline prices will go up or Crude has to come down.  Unless America has found an easy way to start transporting WTIC internationally to satisfy BRIC demand, and allowing for the Brent/WTIC spread to start to close. Below is a Brent/WTI overlay. Early October saw the break from the expanding spread.

I know Libya oil is coming online quicker than anticipated, helping to close the gap, but the Gasoline/WTI differential leaves questions. The only way this makes sense to me, with the limited information I have on the industry, is that WTI is being exported.

If not, this spread should be closing. And with US gasoline demand low, if WTI is not being taken off line by other means, the price should decline.  (I will try to dig up some more info on the 'export' thesis.)

AAPL vs the SP500

Does this chart look like a broke chart in relation to market action? (It is an AAPL chart with an SP500 overlay since the market craziness started in late July. The SP500 is in red.)

There are three stages to AAPL. 

1. It followed the market until the week of Sept 12th.

2. It out performed until they reported earnings, not beating analysts expectation.

3. Thereby allowing the market to catch up to its performance. (The under performance continued with its decline 3days ago.)

And with today's performance, surprisingly enough, the negative chatter is dissipating. (surprise, surprise)  Of course that can all change tomorrow if the market is up and Apple is flat to down.

Two days ago there was action that merited a hold, as the risk to see the low 370s became lower.  At the high 380 level, there are short-term hurdles for the stock.

Barring market shocks, down side risk seems limited here.  IMO, at retest of 377-378 maybe the downside. (Of course, this is barring a blow up in Europe.)

Monday, November 14, 2011

IBM and Buffett

I have been trading IBM for almost 2years now.  I was expecting a multiple expansion in the name, but during this market turmoil, it showed a much different more resilient characteristic. I figured it was multiple money managers buying up shares due to the 2009 company performance, and how well earnings held up during a full blown credit event.

Well, we now know it was massive purchases from Berkshire Hathaway.

Multiple expansion takes place when a float gets reduced. This only adds to the thesis.

With this news, IBM will test its all-time-high while becoming overbought.  Tough to enter at current levels.


Sunday, November 13, 2011

some thoughts... FIO

I was going to post this over the weekend, but hesitated because it was such a speculative name. Since Steve Woz was coincidentally on CNBC, I figure I just send it out.

FIO - Fusion-IO is an interesting company, but it is a momentum stock with a small number of common stock.  With a stable market, and a strong earnings report, FIO was able show a break out. But that break out got halted with a secondary offering, that will pretty much double the amount of common stock available.  

This is a momentum stock, so a traditional fundamental assessment simply will not hold up, and it runs the down side risk it has seen from August to Oct.  Where the action was technically driven downward, and with the turning of the market, FIO's action was technically driven upward.

Fusion-IO is a bit more complicated to understand because it focuses on the back end technology application that most of us do not see or care about.  Its applications can be applied across the board within data centers and wind is at its back. FIO is a play to a sector sift toward to solid state devices, and is a back-end play on Big Data (Web 3.0).

The trick, given its small momentum status, is to find out what the appropriate market capitalization is for this company.  This process becomes more difficult because a lot of the data center names got bought out by HP, Dell, VZ and other big companies over the years.  The only relative plays I could find as public companies are NTAP and EMC.  NTAP has a $15B market cap and EMC has $50B.

(below is info added today)
From the macro fundamental perspective, FIO can definitely be a double from here.  But before it doubles, its trading will be subject to heavy technical analysis and sentiment driven trading.

In the attached video, Woz discusses the potential, but because it is on the back-end, the normal person would not see it.




Here is an updated chart:

 The trend is holding up, and despite its run, FIO is consolidated.  However, if market sentiment is still 'iffy', FIO may chill around here.  Although, as market sentiment shifts, or positive data emerges from its business, it will continue to run. (But I would love to pick some up near its 50SMA.)

Friday, November 11, 2011

AAPL capitulation?

Capitulation maybe taking place today. I say maybe because, the action was completely corrupted. 

1. the negative thrust downward was inspired by Cramer and Melissa Lee in the AM

2. the bullish action it is currently seeing is inspired by Tony S. (top rated analyst in the name)

This is enough to merit holding on to a position, and reduces the probability to see the low 370s. 

Market Thought... technocrats

I am calling, what I think is the start of the year end rally, the "technocrat rally". The most damaging uncertainty was Italy.  Like a parent disciplining his child, the markets slapped the Greek and Italian politicians into shape. As mentioned two days ago, "Italy doesn't need a bail out, it needs to pass it's reforms. Then the ECB can facilitate a reduction in short-term borrowing. And this month's crisis is averted."

Now that Italy acted, the ECB came in and took down rates, calming the markets.  (Because of the austerity

The 1220-1226 level held up, and we should be testing the 1275 level soon enough. (I say 'should' because I have never seen so many consistent cutting-of-the-knees comments and actions from the EU, that inspired so much uncertainty where by markets fall 3-4%.)

Barring a comment or action that causes massive uncertainty (aka Papanderou 'referendum' bs talk and the like), the markets should push higher, under lower volatility, toward the 1330 by year end.

The stability is obviously for the vast majority of stocks, across the board, as today showcases. The news, should benefit the financials. Now that Italian debt will not be written down, GS or MS should benefit.

Goldman looks interesting here. It looks to want to re-test the 110-115 by year end.


Thursday, November 10, 2011

AAPL technicals

The benefit of CNBC is that it can project the mood of the big boys pretty well.  Since Apple missed analyst estimates, the stock has obviously not acted well. (Which is typical for a stock that misses analyst expectation.)

 What a difference a day makes. Seriously.  Here is a chart:



Two days ago, Apple was on the verge to charge higher. Look how nicely the price action was sitting just above the 5 and 10 SMAs. It was beautiful. But the next day, we got some intervention.  We got a bullshit report from DigiTime about the supply chain. (Extremely timely considering the technical set up. The motive is very suspect and obvious.) But separately, the rise in Italian debt margins hit the market.

Then, whoever issued the DigiTime report got lucky because the street started to openly chatter negatively via CNBC.  Further hitting the stock.  So whoever wanted to break the stock, won, today.

But now, AAPL is in a very curious position.  Its testing its daily support while trading with a trailing multiple below 14.

Given the chatter did not give a rats ass about valuation, at the moment, where can Apple be pushed to?

Within the above chart, I highlighted a box. The area in the chart represents Apple's capitulation from the last aura of negativity Apple faced. The key aspects of this area:

1. AAPL capitulated when it was approx. 9% off the 90SMA

2. 9% from current 90SMA level represents a stock price of near 350.

3. The 350 level is huge support. It is obvious support from the daily chart, but is also a trend support (50SMA) via the weekly chart that held up via the June 20th capitulation.

4. A price near 350 will give AAPL a trailing PE of around 9 (backing out cash), and near 12 with out backing out the cash.

A few things could play out:

1. Apple will approach the 355-360 area. The chatter will drastically shift, we will see a capitulation, and the stock will rally from there.

2. Apple will see the 370 level, which is the first area of support via the weekly.  The 370 level also represents similar fundamental characteristics when AAPL was trading in June 20th. (I am sure at 370 chatter will begin to shift.)

3. It jumps from the 90SMA on the daily. (Considering the chatter and price action, the probability is smaller than the above two scenarios.)

Barring a blow up in Europe, all the big boys that want to out perform this market will suddenly realize how inexpensive AAPL is going into the holiday season. The question is, will they realize this now, at 370 or 355ish?

Regardless of this bullshit attempts to break the stock via rumors, it will be a 420 by the end of the year.

What is different about AAPL?

Here is Cramer on Oct 6th, laying out Apple's fundamental thesis. Here is Cramer today.

What exactly changed, within a month time, to spark a shift?

On Oct 6th there was a thoughtful assessment on ecosystem, deep bench and the legacy Jobs left at Apple merited the stock to be a buy. Today, his thesis is that since Steve Jobs past away, its not the same company.  Cramer never addressed why its a different company to merit a shift.

Its kinda douche. (If only for the current superficial and lazy assessment, and of course the covering-of-his-behind by saying "its not even close to a sell".)

Facts are:

1. Analyst estimates for the pervious quarter were 32% above company estimates. (Apple beat their estimates by 28%.)

2. iPhone demand is strong. (And that is across the board, from sellouts on the 3GS to 4S.)

3. Rumors have always existed with AAPL, and the company performance always squashed them (not a defense from Steve).

4. AAPL is trading with a trailing multiple of 11.2, when backing out the cash. (In 3yrs it will have enough cash on hand equivalent to market cap. A very strong reason to start a dividend or buyback.)

5. Their deep bench are still in play.

So, can anyone tell me what has fundamentally changed with the company since Oct 6th?

Wednesday, November 9, 2011

The EU and their Games

It's like watching a game between 6th graders. The EU leaders push to the last minute, test the market, then do what they have to do.

No one does anything until the market forces action. But this go around the ECB is telling Italy, to go fuck itself and will not help until reforms are passed.

So we will have to see a few more big moving down days before Italy's short-term surplus is gone, and needs the ECB.

Italy doesn't need a bail out, it needs to pass it's reforms. Then the ECB can facilitate a reduction in short-term borrowing. (And this month's crisis is averted.)

Since attention is taken away from Greece, they just stuck their thumbs up their asses and are holding off on an interim PM.

I hope the market slaps them hard enough they actually do something by the end of the week!

Market Thought... Rome fiddles

Margins were raised on Italy's debt.  End game? The market reaction is telling the EU officials to get their shit together.

Greece, establish your new PM, NOW.

Italy, Berlusconi, get out NOW. Implement your reforms, NOW. Establish a new PM, NOW.

Instead, the Southern EU states are fiddling while Rome is burning around them. I think the German and French are awfully close to whipping out Plan B. (If France's balance budget attempt is real, they should be able to keep their Triple A rating.)

If anyone is paying attention to the CDS levels of Ireland, Portugal and Spain are not as bad as one would think in relation to Italy. (Albeit, still pretty elevated, but Ireland shows very clear progress.)

Italy needs to do something now.  I mean, today or tomorrow. If not, bank nationalizations galore.  So long as there is no credit event, the markets should hold up, all considering.

We are littered with support via the daily, but the weekly suggests a greater support near 1227 via the 320sma (at least to me). 



Looking at SU, POT and SLB.

Monday, November 7, 2011

GOOG vs AAPL

"Apple is another stock now that Steve Jobs has past, it is no Google." -Jim Cramer

LOL.  That is a sentiment change for Cramer. (When Apple was at 420 he was loving it. I guess we have to wait for it to be at 420 again for him to get pumped about it again.)  Not that I really care for an opinion made within a few seconds of time, but why compare it to Google?  Why say "its no Google"?

Make no mistake, I am a fan of Google, and its current momentum, but the market is currently ignoring very real threats to Google's prospects.  And I do not blame the market. Right now, the real threat is still in Beta and only in one segment of consumer electronics (iPhones).  Google has only $2.5B in mobile ad revenue. It can make up any slowdown there by placing more ads on its search result.

Google has a few prospects it is looking to reduce reliance on its core search:

1. mobile via Android

2. social via Google+

3. Billboard ads (including YouTube)

(All other projects are nice, like the Google docs, and I use them extensively, but they do not dent the top/bottom line.)

The obvious concerns with Google are:

1. The affect of Android with the increase iPhone exposure to carriers. (Judging by the demand, a real dent can be made here.)

2. Google+ is interesting, but still at the 'interesting' phase. Case in point, next time you visit a popular tech blog, see how many "+1", facebook "likes", linkin "share" or "tweet" there are.  Twitter usually wins as a sharing mechanism, followed by LinkedIn share, then Facebook.  Google barely gets +1s.  I was a big fan of it in the beginning, but now it has to prove itself.

(I do not see obvious concerns for YouTube, other then massive competition.  But intense competition has always existed, and YouTube has done very well.)

The most destructive threat will be Siri.  Siri will be incorporated into all of Apple's future mobile devices, especially Apple's TV.  Envisioning Apple's TV does not take a genius.  Its a play off of the iPad.  Its an HD quality, very large iPad, with a special designation for TV related Apps. (The bloggers already see it, and its only a matter of time before the money managers actually apply their thinking to it.)  Anyone with an iPad can tell you, a set-top box is no longer needed to watch TV via your cable company. Cable's aggregation of channels is an App.  Each individual TV channels, if desired, can even bypass cable and be an App (like Netflix). Cable companies will simply provide the internet, and an aggregation of channels via an App. (Its already happening if you have an iPad!)

Now imaging your watching your Giant iPad, to watch the Giants beat the Patriots, and your wife asks you if you made dinner reservations for your anniversary next weekend.  I'll tell my TV to make dinner reservations, during a commercial break. (It is only a matter of time before Siri's API is open to all of Apple's Apps have the potential to be used via voice command.)

Your TV will become your main computing hub, along with your entertainment hub. It will obey your command, and give you answers to your questions. If it can't give you an answer, then it will give you search results.

Again, it does not take a genius to figure out how Google's core search business is affected by this.

So, yeah Cramer, current stock momentum favor's Google to see the 630 level. The technicals also favor Apple going to 423. However, product progression sure looks to be in Apple's favor.

I will be adding to my AAPL position once the CCI touches below -100.   The technical and product trends are still very much intact.


Sunday, November 6, 2011

some trades... AAPL, DIS, SU, SPY

Baring a complete European melt down, which I am not expecting, the below are pretty solid trades.

AAPL is going to 446 by the end of the year. (IMO, that is an easy thing to say because AAPL should be at 446 right now as per my valuation thesis.) But the even easier play is AAPL to 423, the upper trend line resistance. In the very short-term, there appears to be an interesting tug of war within the technicals. I can see AAPL pop from here or see between 385-390. (I am selfishly hoping it does see 390 before 423 because I want to add to the position, but am waiting for clarity via the technicals. At 390ish AAPL will be oversold enough to justify a heavier position.)

DIS wants to push to 37-38.  DIS reports on Thursday, and I do not know if their report will be a catalyst.  If you can handle the risk, an initial entry prior to earnings, with an expectation to double down after they report, would be the prudent play. (The 38SMA will probably not be breached.)

SU very much wants to see 34, and will most likely test 36 by year end. If it pushes down to mid 31 I will be entering Jan 2012 32 calls.


The market will push to 1330 by the end of the year. If an individual stock doesn't tickle your fancy, use the SPY or Jan 2012 call options with 122 as the strike.

I can see the market test 1226-1230 before pushing higher.

Thursday, November 3, 2011

Market Thought... March 2009

The strength seen after the ubber uncertainty Papandreou created is very real. The March 2009 rally is still on.

The SP500 bounced nicely off the 360SMA. More importantly, it bounced off the SMA before the headlines stated the referendum was off-the-table.  There was an upward bias reflecting the desire to enter this market.  Today, there was follow through after the the referendum stated to be dead.


Even with a bomb-shell of uncertainty, the market held.  The market now realizes a credit event is off the table, whether that means the current EU plan or a Plan B or a complete nationalization of the EU banks, the market is started to ignore the macro and focus on the micro.  Any weakness via Italy, another US debt downgrade or some other headline, is an opportunity. (I do not know if we will be seeing spikes downward anymore. The VIX looks like it wants to collapse, and the market should see much more stability.)

Now, at the risk of being a Pollyanna, here are some numbers.  With q3 earnings pretty much behind us, trailing eps should be around 88-90. A trailing multiple of 14 produces a market range of 1232-1260.  The market is just about where it should be for a compressed multiple with decent economic data (and the data has been decent).  Looking forward, the SP500 eps will be around 95.  A target market price with a trailing multiple of 14 is 1330.

The market should be chilling around current levels, maybe even trend slightly upward, then rally toward 1330 the closer we get to Q4 ending. (Albeit, better economic data gets us to 1330 or higher sooner.)

Market Thought... Dec 4th

The referendum vote will take place at this date.

While there is value in this market, I just do not see the need to pile in here, after today's move. The markers are still over bought, and the level of uncertainty until Dec 4th, IMO, is enough to cause a consolidation here. (The markets will discount a 'no' vote.)

Regardless of how the vote plays out, there is a Plan B, and no credit freeze will take place. (Although it will be costly)

I found that the SP500 holding the 360SMA support very interesting, and supports my thesis that the market will reestablish it's uptrend.

Wednesday, November 2, 2011

Market Thought... plan B

Leonitas, I mean, Papandreou, found his "THIS IS SPARTA" moment.


I wish it didn't take him 2 years to find it. But it is what it is, and here we are. Papandreou ready to battle Sarkozy and Merkel tomorrow.

The uncertainty regarding this referendum is obvious, and oozing from the seams. He is doing what his father never did, and give the Greeks a choice: go at it alone or be in the Euro. But when emotions run high, the most likely outcome is that they (the mob) makes the wrong choice.

Anyway you slice it, the picture is not going to be pretty for Greece. IMO, if the people vote 'no', the country is truly fucked. But I do not want to get into the geopolitical nature of them being fucked. For the purpose of this blog, I just care about the market implications.

If the Greeks vote 'no', we will see:

1. 100% of the Greek debt will be worthless.

2. Will other countries follow Greece's lead? (Before this morning, I would say no, but after Papandreou's stunt, I would not be surprised to see Portugal and Spain leave.) If so, all EU banks are fucked.

Honestly, all I really care about is for a credit event to be prevented. And for this, the EU will be working on a Plan B.

Given the uncertainty, I would not be surprised to see EU banks start to see a interbank lending cease again, and a runs start taking place.  The good thing is that the EFSF and IMF have about $1Trillion dollars (with out leverage) they can use tomorrow.

The next few weeks will definitely be interesting, and busy for those charged with merging and nationalizing EU banks. (Not to mention soveirgn debt downgrades of EU countries across the board.)

Tuesday, November 1, 2011

Market Thought... there is some strength

Although the market does not seem like there is strength today, there is relative strength.  The most obvious tell, the 10yr yield.  With the snap-of-the-finger uncertainty Greece caused today, the 10yr has collapsed.

In relation to the yield, the SP500 looks to what to trade at a higher trading range.

The SP500 is currently maintaining the 360 SMA support.

I find this to be interesting. This is most likely due to q3 earnings being absorbed into the market, and the decent (not great, but decent) economic data.

The one thing I do want to point out, the markets are not, NOT, projecting a credit freeze event. There are moves happening within the VIX and Dollar that would suggest market players are starting to position for the uncertainty, but not at extremes to suggest the market has priced it in yet. (No other currency, nor Gold, is being substituted for the dollar this go around.)

I still do not think we get a credit freeze, regardless of what Greece did.  But if the referendum vote is allowed to go through, no good will come of it. The level of uncertainty toward the EU and Euro front increases exponentially.

I am taking a serious look at names like POT, SU, DD, ATI and others. (If I can post charts on them later, I will.)

Market Thought... Greece fishiness

Something just doesn't smell right. The Greek referendum has a real fishiness smell to it.  After two years of the Greek drama unfolding, and the EU sovereign debt collapsing, all of a sudden the Greek political elite see fit to put the austerity to a popular vote.  What makes this more ridiculous is that 20 or so years ago, Greece did not put the entrance to the Euro to a popular vote.

Basically, we have a situation where a people will be allowed to reject the heavy austerity, extreme unemployment and a system they never agreed to in the first place. (It does not take a genius to figure out the most likely out come here.)

The above is some serious uncertainty.  But now add in the fact that money was not allocated for the EFSF leverage, and spreads visibly blowing out from the EFSF bonds for all the market players to see, puts the bank run back on the table.

The fall out from a popular vote is obvious. So why leak this now?

When I try to think of this logically, it looks like Greece will be taken out of the Euro.  They will stay in the European Commission, but not in the Euro. Just like England.  But this adds such an uncertainty that a domino effect can happen to other countries.

This is truly fascinating.

Outside the 'market shock' news, and on the economic front, we seem to be okay.  Goldman's retail numbers came in much better than expected at +0.7 vs -0.8, and +3%yr-yr, and China's PMI continues to point to a soft landing.