Just when everybody thought the highway was clear and there were no problems ahead, an unforeseen pothole appeared directly in our path. Sure the Fed is on hold until October or November, or is it? All of a sudden economic conditions turned full circle in just one report or so it seemed. Not only was the +14.7% jump in new home sales way over estimates but the jump went against seasonal trends and rising mortgage rates. Consumer confidence remains at near historic levels. Is the Fed really dead?
The Dow took today's economic news personally and traders took profits from the brief run over 11300 on Monday. The financials dropped at the open on the negative economic news but low and behold before the day was out a new picture appeared. The analyst spin doctors decided that the soaring home sales and high consumer confidence was actually evidence of a successful soft landing. Talk about selective hearing, wow! If you don't like the information then spin it to fit your investing model. We are not complaining. After the initial gap down at the open the Dow traded in a very narrow 50 point range again with a definite bottom at 11200. (A prime example of my selective chart reading. Heck, if they can spin so can I.) The Dow held its ground and after the recovery by the financials it looks pretty healthy. Part of the financial recovery was due to the DLJ rumors not market health but I will cover that later.
The Nasdaq barely moved on the news and reacted more to the Rambus/Micron suit than the economic news. The Nasdaq traded in only a 37 point range and had it not been for the suit we could have seen a 25 point range. The vote is in and it appears techs are the place to put your money for the next couple weeks. (was there ever any doubt?) While the Nasdaq did finish positive by +11 points, it has stopped dead on decent volume, 1.45 bil, at just under 4100. The brief stall has some bears coming out of hibernation to claim things like triple top, failed rally, over bought and several other adjectives. Another prime example of selective vision and proves there are as many ways to look at charts as there are investors.
The suit I mentioned above between Rambus and Micron is going to be a company killer for one of them. Micron (MU) is suing Rambus (RMBS) over patents RMBS is claiming on SDRAM memory. RMBS claims a significant amount of their value in royalties from memory makers for this type of memory which is the industry standard today. RMBS had fought in the past with Toshiba and Hitachi over this same issue and those firms ended up agreeing to pay these royalties. Micron claims the SDRAM interface was developed jointly by the semiconductor industry and Rambus patent claims are not enforceable. Now, I am not a patent attorney and I am just reporting the news so I can't speak to the technical facts. Micron claims the high speed interface in question was around and in use before Rambus even existed. I heard one analyst say that "Rambus claims to have invented the SDRAM interface were similar to Gore claiming to have invented the Internet." The bottom line is there are billions of dollars at stake and the very life blood of Rambus. Should Micron lose they will have to pay huge royalties on all future memory products as well as past deliveries. A major disaster. Should Rambus lose then others would not agree to pay the royalties and a multi- billion dollar income stream for Rambus would disappear. Since the possibility of this being settled anytime soon is extremely remote this could play out in the price of both stocks for years to come. Rambus has the most to lose and would be the most likely candidate to suffer.
The other major market moving news today was the news that DLJ was in talks to be acquired by Credit Suisse First Boston. The news drove DLJ shares up +16.44 and powered many of the other financial and brokerage stocks to positive gains. The jump by DLJ gave them a market cap of around $11 billion. The move points out the direction many companies are moving. The need to offer customers 24 hour access to markets around the world is seen as a must have in the next 3-5 years. I can see it now. You set your price alerts on the DAX, CAC, Nikkei and put your PC speakers next to your pillow. 3:34 AM BONG! Your STOP HAS BEEN HIT, YOUR STOP HAS BEEN HIT! Thud! The thud was your wife hitting you in the head with the alarm clock for being awakened for the fifth time that night with a trading alert.
So what was it? A pothole in the rally highway that knocked our front end out of alignment and will cause us to pull off for corrective measures or evidence of a soft landing? Does it matter? I don't think it matters. The vote has been cast. Huge amounts of cash have been flowing into stock funds in the last few weeks and traders are lining up for the starters pistol. The intraday bottoms we have been seeing are the under market limit orders as funds nibble at the market before Labor Day. They are not quite ready to commit 100% but they are picking up the leaders on intraday dips. Of course this can change on a moments notice and after the New Home number today we could see a little more fear and trepidation before the Employment Report on Friday. Wednesday and Thursday are neutral days on the economic report calendar but Friday is the big one. Recently we have been seeing buying going into Thursday afternoon before the report in anticipation of a rally on good news. This week could be a toss up. The main traders will not be on the floor and the second string will be at bat in most firms. There could be some excessive caution OR if they are seeing the same impending rally I am expecting there could be more aggressive buying. The spoils sometimes go to the aggressive and guessing right could move some of these second stringers up on the office totem pole. The profit taking today put the OEX right back down on support at 827 and held. The Dow held 11200 and the Nasdaq is still looking good. My suggestion would be to buy any dips aggressively. I do not expect a negative reaction to the Employment Report. Even if the number is negative, unless it is a blowout, the Fed is still on hold until November because of the election. The caution flag is out but once that pace car we have been following clears the track, the race is on!
Many have asked if we are going to have a field trip to the CBOE during our Chicago seminar Sept 14-16th. We are working on it. We can't promise anything today but hopefully by this weekend we can let you know the details. We still have a few seats left but the one day Chicago seminar is this Thursday and there are no guarantees after that.
Did I mention the VIX hit 18.06 on Monday?
Good luck and sell too soon.
Chicago is our next stop. September 14/16th. Here is your chance to learn from the pros. The three day Technical Analysis Stock and Option Fall Seminar Series. Three days of indepth education. Don't miss it!
Some comments from recent attenders:
Chris & Steve, I would like to thank both of you for a great experience at the Atlanta Workshop. I learned more in the three days of the workshop about investing and trading than all of my undergraduate and graduate courses combined. It was a lot of information in a short time and I hope to put it to use very soon. Mike
I attended the Atlanta seminar and wanted to forward my positive comments. The seminar "really lit my fire". I have been a trader for 20 years and often go to seminars and this was the first one that really taught me the most. Dr Lloyd
Jim, I had the good fortune of attending the meeting in Orlando. Like your newsletter, it was a CLASS ACT. Chris and the others did a great job. Chris was by far the best performer but the gentlemen beside me was an option trader with several seminars under his belt and almost freaked out when Chris finished his Index Presentation. JC
I am writing this note to compliment you and your staff on the great job they did in Atlanta. But more importantly I would like to single out Steve Rhoades as one of the finest speaker/teacher on technical analysis that I have ever had the pleasure of hearing. I am doing my best to persuade other members of the two investment clubs that I belong to, to attend the Detroit seminar. Sincerely, ML
We guarantee you will not be disappointed. The class size is small so you will get plenty of individual attention from Chris Verhaegh, Steve Rhoads and staff.
At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now.
Sep 14-16 Chicago
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