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Sunday, July 29, 2012

Market Thought... internals improving

A lot of market internals have improved last week. Draghi's comments were clearly a catalyst. Merkel and Hollande confirmed the Euro conviction. But, imo, the real hero was the Jobless Claim number.  The number was below 360K, which allowed for the falling jobless claims to re-enter the down trend.

Adding to the goodness was a slightly better than expected GDP. This facilitated in a spike in the 10yr. Since the crappy April jobs report, the months since then have seen number below expectation and the 10yr acted accordingly. However, Friday's spike is indicated its bottoming.

The yield can continue to decline if the Employment Situation continues to preform like shit. The US will find itself in a deflationary situation, and the current negative returns (adjusted for inflation) will be no more.

If the Employment Situation improves, well then, the current situation (of negative inflation adjusted rates) is a clear sell signal for treasuries.  The best indicator we have for the Employment Situation are the Jobless Claims. The past few Jobless Claims have been so-so, when adjusting for seasonality. But last week's number, adjusted or not, were very good.

If we keep getting good Jobless Claim numbers we should start seeing it in the Jobs Report. Over the next two months I am expecting really good reports.  Solid Job numbers will cause the treasury to rise. A rising treasury yield, due to a firming economy, will cause stock market multiples to rise.

Many individual names (GS, IBM, QCOM, GOOG, JPM to name a few) broke their intermediary down trends last week. Hopefully this is a prelude to a bottoming treasury yield.

Now, only our politicians can stop dicking around, and prevent the 'fiscal cliff'.

Friday, July 27, 2012

When to invest in Facebook

When the Facebook iOS/Android app becomes fluid, and a pleasure to use. Until then, it's a no go.

It's that simple.

Why are banks trading so low?

I need a permabear to remind me why banks are trading at such huge discount to book value.

1. The ECB put a floor on contagion.

2. US housing has bottomed.

Future earnings maybe weak for a few months, if not years, but what does the earnings story have to do with a group of stocks trading 20% below book value?

With the above in place, book value is not going lower.

Thursday, July 26, 2012

Jobless claims

Below 360k. Nice.

Even better, unadjusted number:

The advance number of actual initial claims under state programs, unadjusted, totaled 337,059 in the week ending July 21, a decrease of 118,201 from the previous week. There were 369,207 initial claims in the comparable week in 2011.

Wednesday, July 25, 2012

Market Thought... jobs, jobs, jobs

Jobless claims need to come in well below the estimated 386k. They need to continue the down trend, or at the very least chill at the low side.

The lower jobless claims should translate into a pretty good Employment Situation number come next week or next month.

If the jobless claims do not approach 360k or lower, protection would be prudent next week, the Thursday prior to the Employment number on Aug 3rd.

The market is still at a very low multiple, with a lot of key stocks trading at very low multiples, already projecting a bad economic out come.  But with jobs as a leading indicator, if US jobs improve, multiples will expand.

Of course, if jobs improve, the bears will look to Europe or China or the "fiscal cliff". But these issues are policy issues, that can be remedied with political action. The three issues can be squashed if there is EU Fiscal Union (seemingly close), Chinese stimulus (HSBC PMI indicates previous action is working) and US politicians stop acting like douches (that's a tough one).

Tuesday, July 24, 2012

AAPL - potential trading dynamic

Frankly, AAPL is holding up more than I thought. I figured AAPL would produce a 4-5% decline if it simply met analyst expectations. The stock is still pretty cheap, and its total cash balance grew nicely.

The one short-term concern I do have is recalibration of expectations for the fiscal Q4. Apple gave us guidance of $7.65 eps. Apple beats its own guidance by a range of 9% to 38%. Which means it can produce EPS between 8.34 to 10.55.  With the street's estimates near 10.22 for fiscal Q4 (33% above the company's estimates, the street estimates have to come down. Usually AAPL beats by around 20%, but given that the company will still be in a product transition in fiscal Q4, prudent estimates would suggest a 9-20% beat (closer to the 9%, unless component prices for the older models collapse during the quarter).

With Apple's current size, its trailing multiple range has been 12.5 to 16. After the analyst expectation miss, a trailing multiple of 16 is thrown out the window.  Pending market sentiment, AAPL may very well touch a trailing multiple around 12.5-13.  This would equate to stock price between 535-555.

The chart corroborates the levels.

AH indicates tomorrow AAPL will test the 570 support. Market negativity should facilitate a break down from this support. I will begin adding near 550, and pending oversold conditions, go pretty heavy between 530-550.

Side note: QCOM looks to be taking a hit from this Apple's report. This is misguided. There is a lot of pent up demand for the New iPhone, and manufacturing will begin sometime this quarter. Benefiting QCOM.

Sunday, July 22, 2012

trades... GS, IBM, JPM and QCOM

GS - Looks interesting here. Sitting on support, and deeply discounting negativity (of just about every kitchen sink argument a bear can throw at a financial.)

I would rather not see it break down to 90, as I already own it here. But looking to add between 90 - 93.

IBM - Looking to add around 190. It may push to 187ish but its already approaching its low end trailing multiple range.

JPM - Similar to GS, except with the London Whale hoopla. Although, JPM is yielding at 3.5-3.6%, and on Friday reports surfaced Dimon swapped out of the preferred and bought $17M worth of common. That says something about the common. Looking to add between 33-34.

QCOM - I wanted to simplify the SMA lay-out for QCOM, but all are relevant one way or another.

IMO, the hard-core support is around low/mid 56 via the 32 SMA as it has acted as support and resistance multiple times. This is where I will add to my current position. (Although an argument can be made that QCOM can consolidate at current levels or bounce off of the 50SMA. And pending the level of consolidation I may enter near the 50SMA.)

Thursday, July 19, 2012

thoughts... GOOG and AAPL

GOOG - Solid quarter, and the combined numbers between MMI and GOOG proved the company was ready. (As highlighted numerous times.) I liked that CPC was flat. I liked Patrick Pichette's attempt to contain himself when asked about Motorola. (I wish they gave a detail plan, but we know the culture of this company. And if anyone thinks Google is just going to dick around with a such an opportunity, as they have already developed their own 'Nexus' brand, pass me what your smoking.)  I really like Google's transition into the post-PC world.

Most importantly, today wall street received confirmation that Google does not deserve to trade with a recessionary-low multiple.  From a technical perspective, there are a few resistance areas Google has to get through.

When the stock opens tomorrow, it will test the 610 resistance. Prudence dictates to capture profits, then re-enter on a push back from the resistance.

But fundamentally, I really do not want to.  Google should be making new highs by the end of the year. (And that is on a consolidated multiple, of 19, assumption.)

AAPL - I do not know what to think about Apple this quarter. The dilemma is that everyone already knows AAPL will kick ass. The stock did not react as harshly as QCOM or GOOG or other big tech names.  The market has already told investors, for a company as large as Apple, a multiple of around 16 is the new high end. AAPL is currently trading with a multiple of 15. Action maybe muted.

Blogger estimates are north of 11. Analyst estimates are near 10.40.  If the market allows AAPL to have a trailing multiple of 14.5, both estimates will allow AAPL to trade between 630-640. But if AAPL does not do the whisper numbers (which are the blogger/amateur analysts), the stock will probably take a hit.

Regardless of what happens after earnings, AAPL will be a $700 by the end of the year. The iPhone 5 will be announced come August, and iPad sales are still kicking ass.

After earnings, I will be looking to play AAPL (in addition to a core position) when its trailing multiple is near 13-13.5. Regardless of how that happens (ie The stock falls or earnings fills into the stock and the street is late to react to the low valuation.)

Google CPC up 1%

Google stopped the negative acceleration of CPC, and it's now up 1% from the pervious quarter.

Need to dig in and figure out the Click-Through-Rate. (But it was accelerating last quarter.) A flat, to increasing CPC, and increasing CTR is obviously a very good thing.

With Android 4.0 and above, the browsing experience is much improved. The better experience will facilitate a higher CPC and CTR. Then we will really see the worth of Android. I think this quarter gave us a tiny taste of what to expect going forward.

thoughts... GS, IBM, QCOM

Generally speaking, earnings are holding up pretty well. More specifically:

GS - Since its a bank, or Goldman, whatever it does is wrong or not good enough. Despite crushing, simply crushing, the report.  Obviously the street can care less about earnings power, as the stock has done nothing in two days. But as housing continues to firm up, the more book value of these banks is justified.  Banks continue to trade 20-30% below book.

I was long GS going into earnings, and remain long. I was hoping to unload some near 102 before a pull back, then unload the rest around 105-106. (And actively trade it as it marches toward book value.)

With the pull back, I will now wait for GS to hit its 98 sma.  Could it break down here? Sure, anything can happen. But for banks to remain broken, a systemic risk needs to be present in order to justify valuation far below book. (I understand the the bearish argument of a higher-cost-of-capital, but that merits a lower multiple, not a severe discount to book value.)

IBM - Investors in IBM appear to care about profits. That's a nice surprise in this market. Their report continues to show their consistency, and correct strategy. IBM should be at new highs by year end. In the mean time, I will most likely unload some in the morning pop. (Ideally would like to see it push toward 195.) I plan on holding a core position until the negative trend line is tested.

QCOM - Demand is still present, and they are ramping up 28nm production. For the type of demand the mobile space will see in the second half of the year, QCOM should NOT be trading with a trailing multiple of 17. At the very least it should be 19-20 (its low end multiple range). Below 19, near 16, is recessionary.

From a technical perspective near 59 is a level of resistance, via the daily chart and the weekly chart.

Ideally, I would like to sell half of the position near 61, and let the other half ride. But knowing my habits, I will most likely sell half near 59, allow for a consolidation, then re-enter the position.

(I will keep myself exposed to the name, and look to sell the remaining position when the trailing multiple is at or above 19. Which would suggest a stock price of 65 this quarter.  As the 4rth quarter approaches, I do expect to see some level of multiple expansion due to increased demand.)

Tuesday, July 17, 2012

Market Thought... a bullish recession?

ECRI has been projecting a recession since September 2011.  Today I read an article that references them, and states the US is already in a recession.

Of course, ECRI's premise is predicated on the accuracy of their leading indicators. Frankly, since Sept 2011, their public calls have been far from accurate.  IMO, the reason for this is that the market is ignoring many indicators. (Or so I have noticed over the past few months. Hence my own crappy trading.)

Over the past few months, the equities and treasury market have only cared about one number, US employment. Since April, the employment number has been crap, and we have seen some very significant multiple contraction across a wide range of equities. The treasury yield is also retesting its lows.

The markets have endured a research shop that is widely respected on the street, severe multiple contractions across multiple sectors, along with enduring the rise in popularity of the end-of-the-world-folks. Yet through all this, the SP500 has maintained its trend.

The equity market is still chewing on a +10year multiple compression. Yes, +10 years.

Over the next few weeks, we will get our answer.  First, we have earnings. Companies will give us the data points we need to confirm whether or not these multiple compressions were merited. Second, I will look to jobs.

My thesis is that the hiccup in jobs brought the economy, hence market, to this hiccup. If the jobless claims continue to perform the way they did last week, re-establishing the downward trend, the number will be reflected within the employment situation.  Once the positive numbers are reported, the markets will rally.  Over the past few months, the market has been lagging the employment situation. (The behavior of the market w/respect to the number only proves the number is now the most important leading indicator.)

If the market acts negatively, or flat, but the above trend continues to go lower, I will to trade for a bullish Employment situation number.

Friday, July 13, 2012

Market Thought... waiting for godot

The action of apparent market leaders are giving me the sentiment that the negative end-of-the-world people have won.  (Don't really know what they will win. Their premiss is a lose-lose for everyone.)  Kinda sucks. I hate defeatist negativity. I simply do not know, nor do I care to understand, how to be a defeatist. I hate it with an absolute passion.

I look at QCOM, and I just don't know what to think. The stock is off over 22% from its high because of Snapdragon production issues and a hiccup in US smartphone sales in March and April. (Although May picked up from April.) I understand the need for a level of negativity, and the market to contract the multiple well below 26. From the 1st quarter, QCOM has seen its trailing multiple contract some 38%. A stock who's biggest problem was high demand.  Now the stock continues to trade at historically low trailing multiples.  

If the market is truly expecting such horrible things coming from mobile, why is Apple holding up relatively well? Based off of AAPL trading history, if the mobile landscape is truly as horrid as the QCOM chart suggests, then why isn't AAPL trading near its low end multiple range of 12.5-13?

Then I look at GOOG, and wonder why this stock is trading at recession level multiples. Has everyone simply forgotten about the Google I/O conference. Anyone who claims Google is the next Microsoft, after the I/O conference, doesn't know what they are fucking talking about or these people are having a momentary lapse of sane judgement. (One company releases a kick-ass tablet that is overwhelmingly viewed as the iPad's nearest competitor. The other company produces a kick ass video of a product that will be ready in a few months, which no one can play with and the device crashes during the demo.)

Android 4.1 truly elevates the OS to compete with iOS.  The fragmentation issue can be viewed as a negative due to the potential to lose developers, but that has not happened. (And consumers do not give a rats ass about fragmentation.) In fact, a very real argument can be made that fragmentation will start to disappear over the next few months. The two year life cycle of Android 2.3 phones is coming to an end over the next few months. These consumers will either go to the iPhone or the newest Androids.  I think the proliferation of the higher quality OS will facilitate higher ad metrics for Android. I am a believer that the ad metrics for Apple is higher because of the facilitation the better OS (iOS) has for mobile browsing. With Android 4.0-4.1, Android users will have the same level of interaction with their devices as iPhone users. CPC will rise, removing the stigma Wall Street has from the lower CPC for mobile.

Recent reports have already suggested CPC rates have flattened. If this is true, or the rate of decline has significantly slowed, I think the street will view Google's report positively. (Barring a Rev/EPS estimate miss.) But the CPC has become a show-me story.

As for the uncertainty of the MMI merger, I have already shown Google has prepared for it.  Over the past few quarters Google has prepared for the hit to margins MMI will cause.  IMO, the merger is no longer a concern. In fact, I view it as a positive as there is a ton of easy cost cutting to expand the combined company margins.

With Google's firm leadership toward innovation, I am puzzled as to why the stock is allowed to trade at recession level multiples.

IBM is the other leader that has me a bit puzzled over the past few days. The current action could be sympathy from INTC (and other big name tech stock) declines. Or maybe sympathy to Infosys.  But you do not need to be a chartist to understand the trend.

IBM's strategy still seems intact, and they report next tues. Usually it rallies into earnings, and I was hoping to capture a run up into earnings. I expect them to keep performing, but I can see a currency risk. If they are not properly hedged against the Euro, their revenue maybe affected.  I have always held the belief that IBM will start seeing pre-crisis multiples, near 16-17. Negative sentiment took over, but I still think it deserves a multiple near 15.

I keep waiting for the moment the market will start appreciating valuations, instead I feel like Vladimir and Estragon.

Today I was a bit surprised the big boys did not appreciate the Jobless number as much as I did.  The downward trend was re-established. That is a really good thing.

Yet the 10 year treasury could have cared less about the re-established trend. The yield is so low I can understand why market multiples are so low.

Maybe the market is prepping for the "fiscal cliff". Or maybe the market is just being inefficient. But if the US employment data was enough to take the 10yr down, and the overall market down, then a shift in US employment sentiment will facilitate a rising market.

Today the markets got a really good sign. The markets chose to ignore it. But the trigger to the current market sentiment was the Monthly Employment Situation. Maybe next month, if we keep getting these type of Jobless Claims, the monthly figure will be enough to drive some money into the equity markets.

Fun Fact: I actively read a very good data intense blog focusing on mobile and PC trends, Today at 7:48am, while in a passenger in a car, I check the blog on my iPhone, and see a post titled "Waiting for Godot." I thought it to be fascinating that for two very different subjects the same book was used to set up a blog post theme within hrs of each other.

Thursday, July 5, 2012

some thoughts... market, banks, QCOM

market - The technicals look good again. The SP500 is gaining steam.

The push is corroborated by the semis.

The technically concerning aspect is the 10yr yield. It is still stuck in a rut.

banks - The Whitney down grade makes sense with the 10 yield so low, valuing banks with normalized earnings is tough. But with banks already trading over 25% below book value, the play on the banks is not about normalized earnings. Its about a reversion to book value. Especially now that the EU banks can be re-capitalized very quickly and US housing continues to improve.

GS looks like it finally wants to test around 102.5-104.

JPM still seems like it needs time. I'm looking to add around 34.

QCOM - The chart is not pretty, but QCOM is trading at a historically low multiple.

Part of the multiple contraction is justified due to the manufacturing issues. Another part was likely due to the lower US smart phone growth over the past few months. But the numbers in May stated to shift to a more positive out look.

Demand still looks intact, and the multiple contraction is already projecting a double digit earnings discount. Everyone knows the obvious negatives, and many analysts already took down their numbers. So will the numbers keep coming down or will the market begin to factor in the improved manufacturing capabilities forecasted for the 28nm toward the end of the year?

IMO, the bigger risk is longer-term with INTC processors below 20nm. But for now, the threat is a company road map. Intel currently sucks at mobile, and any discussion with them is a "could be" scenario. (They are making progress, but QCOM and others are obviously not standing still.) Also, intuitively, the smaller the processor the better, but from an engineering perspective, their maybe a limit to the benefit.