In my younger days, I used to enjoy the occasional double date, which usually came about when my girlfriend would sweet-talk me into some type of double-date evening with one of her girlfriends, and her new boyfriend.
One reason I enjoyed going on double dates was the friendly bet, or handicapping, of just how long the new couple would actually last together.
My most accurate guess was that Denise and Bob's fondness for each other would last less than one month, while my worst prediction was that Jeff and Leslie's "fling" would last no longer than six months. With two kids, two cats, and a manageable mortgage, Jeff and Leslie are still going strong some 10-years later. She even converted him from a staunch Republican to a Democrat!
You just never know do you? Some relationships last a very short period of time, and others last much longer than you'd expect.
If you've been on a double date, then you may know the routing. Be nice, be friendly, don't talk politics, or religion, and NEVER, never bring up the topic of the ex (girlfriend /boyfriend)!
Market participants were handicapping some double-date action today, but light volumes at both the big board and the NASDAQ suggest there was more listening than talking going on.
A bullish response to Hewlett/Packard's (NYSE:HPQ) $46.16 +5.65% recently completed quarterly earnings report had the major averages posting modest gains at the open, but those gains faded by the 10:00 AM EDT tick as traders turned their attention to Fay and Freddie and this week's EIA inventory report at 10:35 AM EDT.
Yes, Fay, or "Fickle Fay", the wandering hurricane, now tropical storm, that never really had much sense of direction in her life. She'd always been one of those long-winded girls, usually distraught, and drenched anyone within 39 nautical miles with her tears.
Earlier this morning, Fay looked as if she were going to hit every pub, bar, or jack up rig and refinery along southern Gulf shore, and that gave an early bid to oil.
At last check, Fay was holding her heels in hand and walking the beaches of east central Florida, mumbling "I'll call you from Little Rock."
Tropical Storm Fay - 08/20/08 @ 05:00 PM EDT
Now, I did go on a double date that took place over breakfast once, and while Fay was stumbling out the door (let's say she had too much to drink that night), the poor fellow sitting across from me didn't know what to think. "Freddie" was his name.
Financials (I added the Financial Select SPRDs (XLF) to the above internals) opened flat, but then darted to their lows of the session just before the 10:05 AM tick at $19.61, on reports that the mortgage giant Freddie Mac (NYSE:FRE) $3.25 -22.06% is being forced to offer unusually rich terms to investors in a $3 billion auction of its debt. The reports raised new concerns about its health, as well as the hopes for still low on historical standards mortgage rates, as a rise in the companies' borrowing costs could translate into higher mortgage rates for consumer.
It's probably best that Freddie and Fannie hadn't gotten, as Fannie Mae (NYSE:FNM) $4.40 -26.78% also traded week on similar concerns.
Discounting some chatter that the Treasury (U.S. tax payers) may be set to take over Fannie Mae (FNM), Fannie's Chief Executive Daniel Mudd said the concerns about the company's financial position are overblown.
"They haven't offered anything and we haven't asked for anything," Mudd said, referring to the federal government in a public radio interview Wednesday morning.
Fannie and Freddie account for the bulk of the volume on the NYSE today, with each holding today's #1 and #2 spots among most actively traded stocks.
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Lehman Brothers (NYSE:LEH) $13.73 +5.04% also traded weak at the open after the New York Post reported a deal struck earlier this month to raise $5 billion from South Korean wealth funds and institutions had fallen apart. Several analysts warned the investment bank could report major write-downs in the third quarter.
Buckingham Research Group analyst James Mitchell said it is still a "tough environment" for Lehman, which could result in charges and write-downs totaling about $3 billion during its fiscal third quarter.
Mind you, its not even 10:30 AM yet, the server has yet to bring us our coffee.
Fay has stumbled out the door, headed who knows where, and Freddie is looking at us like he just lost his best friend.
It's that "uncomfortable quiet" when you just don't want to say anything.
"Honey, can you let me see the menu again?"
Then the local diner patron walks through the door and everyone in the joint shouts "Goldman!"
Goldman Sachs reiterates its $149 a barrel oil price forecast, saying the black gold's strong fundamentals were a more important factor than a strengthening U.S. Dollar.
US Oil Fund (USO) - Daily Interval
Goldman's reminder of where the firm sees oil heading did have the USO reaching its then to be session high of $94.46 just minutes before the 10:35 AM EIA inventory report. The Nymex September Crude Oil futures (cl08u) terminated today, while the current-month October futures (cl08v) traded its floor-session high of $116.99 at approximately 10:34 AM EDT.
The tankers apparently reached ports here in the U.S. as the EIA said crude oil inventories rose by 9.39 million barrels. Buyers of crude darted from the complex.
But just as the USO slid to important support above the $90.00 level, buyers stood their ground when the reality of a 6.2 million barrel draw in total gasoline stockpiles sunk in.
As refiners have been focusing on distillates the last 4-week's, total gasoline inventories have fallen by 20.46 million barrels.
The EIA said total distillate inventories rose by 481,000 barrels. Patterns here look as if refiners are starting to ease off distillate production, and once again ready to start cranking out some unleaded.
Heating oil stockpiles (>500 PPM Sulfer) rose by 653,000 barrels, up 3.94 million barrels the last 4-weeks, but remain 9.59% below year-ago levels.
On the refining side of the equation, the EIA said gross inputs into refineries fell by 35,000 barrels/day, while crude oil inputs fell by 12,000 barrels/day. Utilzation of operable capacity was down fractionally at 85.70% while the build in crude oil inventories versus crude oil inputs had the number of days of supply for crude oil (excluding the SPR) jumping to 20.5 days from last week's 19.7 days supply.
BJ'S WHOLESALE NET RISES SLIGHTLY; BOOSTS YEAR EPS VIEW
Membership warehouse retailer's 2Q profit rises to $36.5 million, or 61c a share, as sales climb 18%. Excluding items, earnings are 58c a share, topping estimates by a penny. Company raises fiscal year earnings estimate. Shares fall 8%.
GOLDMAN SEES MORE PAIN FOR PEERS, CUTS RIVAL EXPECTATIONS
Goldman Sachs widens its loss estimates or cuts profit views for many of its Wall Street broker rivals because it expects more write-downs and losses on mortgages, and warns that the 'tides are not changing.' It's particularly gloomy on the outlook for Lehman.
US MORTGAGE APPLICATIONS PLUMMET 34% ON YEAR
Application volume falls 1.5% on week for the week ended Aug. 15 and tumbles 34% versus the same week in 2007, as lower mortgage rates fail to inspire more borrowers to apply for a mortgage. The four-week moving average for all mortgages is down 4%.
OIL HIGHER AS US GASOLINE DRAW FORECAST
Oil futures trade higher in anticipation of a draw in gasoline stocks, but market activity is largely muted as traders await U.S. weekly inventory data. Analysts expect the data to show crude stocks rose by 800,000 bbls last week, while gasoline stocks declined 2.4 million bbls and distillates rose 500,000 bbls.
FANNIE, FREDDIE BAILOUT MAY HINGE ON BOND PAYMENTS
Fannie Mae's and Freddie Mac's ability to repay $223 billion of bonds due by the end of the quarter may determine whether they can avoid a federal bailout, Bloomberg reports.
H-P NET CLIMBS 14%, VIEW TOPS STREET
Computer maker reports 3Q net income of $2.03 billion, or 80c a share. Excluding items, earnings are 86c, 3c better than expected. Revenue jumps 10% to $28.03 billion. Firm offers 4Q guidance that tops Wall Street expectations. Shares gain 2% after-hours.
RUSSIA SAYS FORTIFYING GEORGIA 'BUFFER ZONE'
Russian troops are fortifying a 'buffer zone' around the disputed South Ossetia region with eight military posts and a no-fly rule for Georgian aviation, a senior Russian commander says, adding that 64 Russian military personnel were killed in the conflict.
BODMAN IN HOSPITAL WITH ELEVATED HEART RATE
Dept. of Energy says U.S. Energy Secretary Samuel Bodman entered the hospital last night with an elevated heart rate. Bodman checked himself into the hospital where he expects to remain for a few days to undergo routine tests.
EATON VANCE NET FALLS 11% AMID WEAK MARKETS
Investment manager's fiscal 3Q earnings drop to $49.6 million, or 40c a share, while revenue slips 1% as net inflow gains are more than offset by market value declines. Analysts were looking for 46c a share. Assets under management as of July 31 fall 2%. Shares down 3%.
US ELECTION IN DEAD HEAT AS MCCAIN HITS BACK
Biting attacks by Republican Sen. John McCain on Sen. Barack Obama have narrowed the White House race to a near statistical tie, as the foes gird for the decisive stage of their battle, new polls show.
FAY TO STRENGTHEN AFTER REACHING ATLANTIC
Tropical Storm Fay reaches the east coast of central Florida and is expected to gradually turn north toward the Atlantic Ocean, the National Hurricane Center says.
FDIC TO OUTLINE PLAN TO REWORK INDYMAC LOANS
The FDIC will unveil a new plan Wednesday to modify mortgage loans for thousands of cash-strapped borrowers of failed California bank IndyMac, which was taken over by federal regulators last month.
THREE YEARS AFTER KATRINA, BUSH SEES PROGRESS
President Bush says the Gulf Coast's comeback remains a work in progress, but with a number of positive signs. Bush says the region is on track to reach '100-year flood protection' by 2011.
EBAY REDUCES FEE FOR FIXED-PRICE LISTINGS
Online auctioneer says it will lower the fees it charges for products listed for sale at a fixed price, in a bid to become more competitive with rival Web sites such as Amazon.com.
SAN FRANCISCO BACKPEDALS ON CYCLING PLAN
At a time when most other cities are encouraging biking as green transport, Rob Anderson has stymied cycling-support efforts in San Francisco by arguing urban bicycle boosting could actually be bad for the environment. That's put the brakes on everything from new bike lanes to bike racks while the city works on an environmental-impact report.
WIND ENERGY FACES DELAY OF KEY US SUPPORT
Global demand for wind energy will continue to soar despite short-term issues such as delays renewing a financial support mechanism in the U.S., and economic slowdowns in Europe and the U.S., the chief executive of the world's largest wind-turbine maker says.
U.S. Market Watch - 08/20/08 Close
While September unleaded (rb08u) and September heating oil (ho08v) terminate on 08/29/08, I'm "rolling" all energy futures contracts in the above Market Watch to the October expiration.
September natural gas futures (ng08u) terminate next Wednesday (08/27/08)
I want to quickly update some internals from YESTERDAY (Tuesday) as I did not a "build" in new 52-week lows at the NYSE, where the number of new lows rose to 176 (includes every security listed on the NYSE).
I quickly ran through some of Dorsey/Wright & Associates data and there were a notable number of closed-end funds and "banks" among the number of new lows.
I looked at all company profiles of the various symbols and what stood out at both the closed-end funds and banks was a "foreign" theme. Several of the "banks" also depicted that of regional weakness in the industrial belt as well as the weakest regional housing areas of Nevada and Florida.
TELEcom-like shares also littered the list of new lows. Here too, a "foreign" theme.
Here's a screen captures of notes I made today.
The above also reminds me that we got the weekly Mortgage Banker's Application Survey. Nothing that stood out again this week, other than a 1-year ARM fell to 7.07%, its lowest rate since the week ended 6.87%. I'm using the MBA's ARM observation ONLY as a weekly observation of where we might see "older" ARMs being reset if they haven't been refinanced.
The MBA said the average contract interest rate for a 30-year fixed fell to 6.47% from the prior week's 6.57%.
The MBA said that its purchases index slipped 0.4% to 314.00. I tabulated both a 4-week SMA (fell to 313.5 from prior week's 318.9) and a 12-week SMA (fell to 335.1 from prior week's 335.1).
The Dow Jones U.S. Home Construction Index (DJUSHB) finished the day up 4.99 point, or +1.82% at 278.47.
I think traders and investors may want to monitor the MBA's weekly application survey data rather close in coming weeks.
On Monday evening I ran across an Associated Press article titled "SoCal home sales climb in July, prices fall." The basics of the article was that home sales "surged" to a 16-month high in July as prices of single family and condos/town homes kept falling. According to MDA DataQuick, a total of 20,329 homes and condos (including new and existing models) were sold during July in the six county region surrounding San Diego, which was up 13.8% from July 2007 and up 16.7% from June. MDA's analysts thought it too early to call a bottom, but thought that buyers were starting to see "value" at lower borrowing costs.
MDA DataQuick said sales were helped as the median price in the region dropped to $348,000 last month, down 31.1% from the market peak of $505,000 in July 2007 and down 2.2% from $355,000 in June.
Foreclosures accounted for 43.6% of all resold properties in Southern California last month, up from 7.9% in July 2007 and a revised 41.8% in June.
Hey, if you're a parent and your 27-year old child moved back home with you about two years ago, having sold their home and made a killing, or simply won't leave the nest, you might want to start stacking some moving boxes by his/her bedroom door.
According to the article, Laura Flores, 27, became a first-time homeowner last month after paying $300,000 for a four-bedroom, foreclosed home in Ontario, east of Los Angeles. Mrs. Flores AND her husband had been living with her husband's parents.
The article didn't say just how long Laura and her husband had been "double dating" with the in-laws.
In Friday's Market Monitor at OptionInvestor.com, I noted that the iShares Russell 2000 (IWM) $73.00 +0.13% had traded their 12/31/07 close of $75.90. A "notable" feat for the second time this year.
On June 5th of this year, the IWM did the same, then the small caps went south to almost re-test their March lows.
I set up a TEST for divergence to the past (bullish), or similarity to the past (bearish) and so far, market participants have been bearish, pushing the small caps back lower.
The "next strongest" index that many will trade/invest in would be the QQQQ $47.09 +0.17%.
IWM and QQQQ Montage - Daily Intervals
The "technical similarities" I find between the IWM and the QQQQ come from the conventional retracement brackets we put in place dating back to late January.
What the two (2) charts above hint about MARKET PARTICIPANTS view of the GLOBAL economy, is that the U.S. may be the "safer" place to be, as other "foreign" markets/economies slow further.
I would think some of the QQQQ components have a LARGER footprint in foreign/overseas markets than most of the small caps.
Yesterday's and today's (Wednesday's) lows find support at their conventional 38.2%, but recent HISTORY (part of the test) would suggest a CLOSE below those respective levels $72.09 and $46.76 (maybe give them $0.10 room or so), are some technical PRICE signals that the STRONGER indices are weakening, and sellers (supply) is once again starting to overtake buyers (demand).
Major Global Indexes, Currencies, Oil, Gold, HUI, OIX and XLF
Remember! Oil as depicted by the USO is still up 24.05% YTD, yet the small caps have challenged their 12/31/07 close twice.
That's tough to get my mind around. I'd sure have to think that a rise in that input (oil) would have small caps feeling more of a hurt than two tests of their 12/31/07 close.
A "double date" of disastrous breakup hasn't come to fruition at this point.
I don't think "dollar strength" of late anything that U.S. equities would be concerned about. They sure didn't like the dollar weakness in Q1 and Q2.
Now the S&P 500, with most heavily weighted sectors being "energy" as partially reflected with CBOE Oil Index (OIX.X) and "financials" the XLF.
Now this has been one of those "double dates" that just hasn't been working out in anyone's favor of late.
The Dow Industrials (INDU) with CVX $86.46 +2.06% the #2 weighted component and XOM $78.81 +1.10% #3, have been clashing with AXP $37.43, JPM $37.00 +3.99%, BAC $29.29 +4.30%, AIG $20.80 +2.36% and C $17.49 (#15, #16, #22, #26 and #29) of late.
That's not to say that some of the weakness in overseas equity markets, which should be a reflection of those economies, isn't weighing on the INDU and SPX components, which provide a lot of products and services to overseas consumers.
SPY and DIA Montage - Daily Intervals
The "beating" that XOM and CVX have taken in recent weeks is perhaps easier to comprehend than what is going on in the broader S&P 500, and its something you really have to follow on a daily basis as even the HEAVY WEIGHTS of the SPX get shuffled each day and gains/losses in market cap weights between "oil" and "financial" stocks has been an eye opener.
The "bottom" line as I see it, based on several observations, including the SPY's "Max Pain" theory tabulation of $126.00 at Monday's open (it can change, or may have changed), is that a CLOSE below $126.00 is going to likely be a PIVOTAL level for traders, and there may be a long of fingers on "sell buttons" if the SPY closes below that level.
Stocks made a late session rally into today's close, so there's obviously some type of buying at, or just above the $126.00 level.
S&P 500 Index (SPX) - 10-point box
It was a difficult choice for this week's "Chart of the Week" but with "financials" and "energy" still in focus, and likely will be for quite some time, then the S&P 500 (SPX), or the SPY, is as good a chart as any.
If you simply don't like the heat, or the pressure that's building here, but do like movies that have a story line of double dating, then go watch the moving "When Harry Met Sally" as it has about as many twists and ups/and downs in its plot as the storyline that continue to play out here in the U.S. and global markets.
It's 09:00 PM EDT, and October Crude Oil (cl08v) ticks $116.03.
New Long Plays
Alon USA Energy - ALJ - cls: 10.39 chg: +0.50 stop: see play
Why We Like It:
Picked on August xx at $xx.xx <-- see TRIGGER
Carpenter Tech. - CRS - cls: 39.76 chg: +1.39 stop: 37.95
Why We Like It:
Picked on August xx at $xx.xx <-- see TRIGGER
CNX Gas - CXG - cls: 30.56 chg: +1.28 stop: 29.35
Why We Like It:
Picked on August xx at $xx.xx <-- see TRIGGER
New Short Plays
Long Play Updates
AMR Corp. - AMR - close: 9.95 change: -0.13 stop: *see details*
Oil looks like it's setting up for a rebound and that will put pressure on the airlines. We don't see any changes from our previous comments on AMR. Right now we're waiting for a dip into the $8.60-8.40 zone. If we are triggered to buy AMR at $8.60 we're starting the play with a wide, and aggressive stop loss at $7.60. More conservative traders may want to use a tighter stop closer to $8.00. We're setting several targets. Our first target will be $9.90. Our second target will be $11.90. Our third target will be $14.90. Over the weekend we suggested that risk-averse traders consider a collar on this play. If you buy 100 shares of AMR then sell an out of the money call and then use the money from the call to pay for most of your purchase of a put contract to protect you.
Picked on August xx at $xx.xx <-- see TRIGGER
Esterline Tech. - ESL - close: 51.01 chg: +0.28 stop: 49.90
After a painful two-day sell-off shares of ESL bounced at $50.23 near its 20-dma. Volume remains very low so it's hard to put much emphasis behind these moves. We are tempted to buy this bounce but readers may want to wait for a new move over $51.50 before initiating new bullish plays. We have a very aggressive target at $57.00 and we plan to exit ahead of the August 28th earnings report. FYI: The latest data put short interest at more than 9% of the small 29 million-share float. The stock could see a short squeeze ahead of earnings.
Picked on August 12 at $52.30
Petrohawk Energy - HK - close: 32.01 chg: +2.49 stop: 28.45*new*
Many of the natural gas stocks exploded higher today. HK was one of them with an 8.4% gain and a breakout over round-number resistance at $30.00 and technical resistance at the 100-dma. Volume was above average on today's rally, which is a good sign for the bulls. If you missed the initial breakout this morning HK dipped back to the $30.40 zone providing another entry point before rushing higher again. We are adjusting our stop loss to $28.45. More conservative traders might want to use a tighter stop. We have two targets. Our first target is $34.85. Our second target is $38.50. We strongly suggest readers take some money off the table at our first target.
Picked on August 20 at $30.55 *triggered
Monster Worldwide - MNST - cls: 19.11 chg: -0.12 stop: 17.99*new*
We have been waiting for MNST to dip into the $18.60-18.25 zone. Shares traded lower today and move into the $18.70-18.65 region several times but never actually hit our trigger point. We're going to adjust our entry point and suggest readers buy today's dip and the close at $19.11. You might want to wait for a stronger bounce and look for a move over $19.50 or $20.00 before initiating positions. If you do wait you'll want to use a tighter stop. Due to our new and higher than planned entry point we're moving the stop loss up just a bit to $17.99. Our short-term target is the $21.75 mark.
Picked on August 20 at $19.11
Short Play Updates
Bank of America - BAC - cls: 29.29 change: +1.21 stop: 31.55
The banking sector made an impressive recovery today in spite of ongoing worries for FNM and FRE. Both stocks plunged more than 20% each and yet the BKX banking index rallied 2.2%. Shares of BAC performed even better with a 4.3% gain, which erased yesterday's losses. Wait and watch for a failed rally near $30.00 or BAC's 10-dma before considering new bearish positions. Our target is $25.25. We're going to set a secondary target of $22.50 but strongly suggest readers take some money off the table at our first target.
Picked on August 18 at $29.30
Capital Trust - CT - close: 13.25 change: +0.01 stop: 15.01 *new*
Target achieved! We hope readers rang the cash register today and took some profits. CT dipped to $12.32 intraday. Our first target was $12.55. The big intraday bounce back is reminiscent of the early August reversal candlestick. That should but the bears on a cautious stance and expect a bounce probably back to the 10-dma and potentially to the $15 level and beyond. We are not suggesting new bearish positions at this time. We are inching our stop loss down to $15.01. This remains an aggressive play because the stock is so volatile. The most recent data listed short interest at almost 28% of the small 19 million-share float. That definitely raises our risk for a short squeeze. Our second target is $10.25.
Picked on August 04 at $14.38 /1st target hit $12.55
Merrill Lynch - MER - close: 24.41 change: +0.59 stop: 27.25 *new*
Traders bought the dip twice near $23.25 in MER today. That could be a caution sign that shares are due for another oversold bounce. The overall trend remains very bearish but the bounces can be super sharp. We're adjusting the stop loss to $27.25. More conservative traders may want to use a tighter stop. Our first target is $22.50. Our second target is $20.25. The Point & Figure chart is bearish with a $7.00 target.
Picked on August 07 at $26.10
SunTrust Banks - STI - close: 40.48 chg: +1.24 stop: 41.55
Warning! We are now in danger of a sharp snapback rally in the banks. STI dipped early this morning under support at its 50-dma and hit an intraday low of $38.17. Our suggested trigger for shorts was $38.45. Our play is now open. Unfortunately, STI may rally past our stop loss at $41.55 before rolling over again. We are not suggesting new bearish positions until STI trades under $39.00 again. Our target is $32.50. FYI: The Point & Figure chart is bearish with a $30 target.
Picked on August 20 at $38.45 *triggered
Closed Long Plays
Harley-Davidson - HOG - close: 39.31 chg: -0.86 stop: 39.75
HOG under performed the market on Wednesday. Shares spiked lower on no specific news and the stock traded near $38.00 and its 50-dma before a late day bounce back. Our stop loss was hit at $39.75 ending this play. The recent weakness has pushed the daily MACD indicator into a new sell signal.
Picked on August 11 at $42.55 */stopped out 39.75
Closed Short Plays
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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