Sunday, September 26, 2010

26 September 2010 Will You Still Love Me This week


26 September 2010 Will You Still Love Me This Week

Friday was great. Between e-mails and phone calls we had about 5 people get in touch with me to tell me the market was going crazy. Crazy is a relative term. That is I have many relatives who are crazy. Well that is not exactly what I meant, but I could not resist. The market (S & P 500) was up over 500% on Friday. Well that is if you annualize the rate by taking the 2.12% and figuring out there are 253 working days this year. But I digress. (I was informed that my significant other does not really dislike that reference she just thinks it would make a bad title of a book I am writing.)

Saturday saw the arrival of yet another great edition of Barron’s. I can not encourage you enough to pick up one of these if you are serious about your portfolios. This publication really helps with the “Linkage” we often talk about here. Besides the usual great banter about what it means if the republicans take the house and or the senate, and the questionable sustainable growth that China has to offer, and how we might interpret the Feds fuzzy logic put forth last week, they bring some practical analysis to Best Buy recent reporting and why can’t Adobe, Photoshop itself into a better value stock.

The overall market is up 9% over the last few weeks. That makes the portfolios we work with look pretty(`sw`25`264 sorry about that I just had an ant crawl across the top line of my keyboard) nice but it has me concerned. I spent quite a while Friday setting sell placed stops in many of our key holdings. Remember a stop is an order that gets executed as a market order when the price of the stock falls below that stop price. You can also place stop limit order which is basically the same but you can set a minimum price at which the stock would sell at. This is the preferential way to set a stock whose volume is a bit goosey. (A financial term for sporadic). If you are setting a stop on a well traded stock like IBM, XOM, CVX, a stop will usually get executed in a couple of cents of your stop price.

Setting these stop will protect our gains. If you are wondering if I am concerned about the market, I am concerned that we have come so far so fast, that there should be an adjustment. I am excited that despite our little pull back on Thursday we finished the week above the special level of 1130 on the S & P 500. (Actually closing at 1148) As you read Barron’s this week, you will see a relatively positive tone, tempered with some of the factual data points that suggest we have run up quite fast. For example a few weeks ago less than 50% of the S & P 500 we at or near their 52 week high. Now more than 75% are. The fact that housing starts still suck, (My words not theirs) while this none voluminous rally continues is a concern. (Abelson calls it a BLT sandwich without the bacon.) Wall Street analysts have adjusted downwards the earnings expectations for more than 1/3 of the S & P 500. In the second quarter the S & P components bought back almost 80 Billion in shares helping (admittedly only a little) to edge prices up.

Anyway I do not know who has the time to gather every piece of information out there and build a blog with it, but I may have found him. His name is Barry Ritholtz. I got his name and blog address Fusion IQ from an article in Barron’s. They had an interesting post from Barry entitled "10 things that make me nervous" and they appear to be a good guideline for things that go bump in the market. In summary, lack of volume (We have talked about that a lot here), consensus about the up and coming grid lock as a result of republican victories (he is suggesting it has already been priced into the market), VIX the volatility index keep slipping which could imply apathy or complacency, the headwind of a pukey (my word not his) real estate market, if you are a contrarian as most good trader investors have to be, might see recent investor sentiment surveys (he sites AAII) as really scary because they are all shifting bullish, the constant gut reaction to every single negative data point, from a technical stand point he points out some strong market resistance points (I have to quote here there is no other way to do it-1152 for the S & P 500 and 10,800 for the DOW), job creation or lack there of (we have spoke about that here a lot as well), no clear sector leadership in the market, and the assumption that all of the market pin action has come from moves by the FED (not sure I understand or agree with his point ten). Anyhow, you might want to check out his blog if your eyes are not bloody from reading mine.

But before you all sue me for asthenopia irritans (severe eyestrain). (One reader just called her husband to say Brian is taunting his reader to sue him. He is a good friend and an attorney we employ. She is a good friend as well but I just wish she would quit tattling on me everytime I say something about my wife.) Let’s take a look at the week ahead. (Only 10 more days till Alcoa AA kicks off the earnings season. Here is a challenge to all readers. Give me your guess as to AA earnings per share as reporting on September 7th. The first person with the closet answer can have a copy of either Mad Money or Getting Back to Even by Jim Cramer.)

This should be a lackluster week for economic news out of the US because won’t be held in suspense by employment figures. There is a lot of economic and central bank issues out of Asia and Europe coming out this week so be very flexible in your ability to react to international news.

Monday only has some treasure notes going up for sale as they do every week.

Tuesday we have 3 retail reports, the usual culprist and I am thinking we should see some small movements upwards. Only drastic moves up or down should move the market. Tuesday will also see consumer confidence. The consensus indicates a slight drop from 53.5 to 52. I am saying flat at 53.5. We will also see the State Street Investor Confidence report which should move to the upside as investors are slowly coming out of bonds and cash and getting into equities.

Wednesday is zzzzzzzzzz.

Thursday is the Gross Domestic Product report. The brain trust is expecting a flat line of Real GDP and the Quarter to Quarter GDP Price Index. Personally after looking back a durable goods and the last Beige Book published by the Fed, look for a little bump in Real GDP to 1.7 and I agree with the Price Index staying at 1.9. Neither number will do much for the market. It is a true double edge sword. If GDP goes up too much, then the market will retrench because that would give the Fed motivation to tap the breaks. If GDP goes down, then everyone will be talking about the double dip, which has somehow purged its self from our vernacular over the last couple of weeks. This number is a loose loose. Let’s hope it stays flat, but I see a slight bump.

Friday will tell us what consumers are doing with their cash. Personal outlays and incomes report. The people in the know are expecting personal income to go up one bps (basis point or in this case .1%) to .3%. They expect consumer spending and the core price index to remained unchanged. I am thinking spending will go up .1% to .5% and the price index to remain the same. And on Friday we get this months Industrial Supply Manufacturing (ISM) index. We had a good durable goods order number last week so at first I was thinking that this should go up from last months number of 56.3 which was a nice jump from the month before. However the new order section of the durable goods report was weak once you took out aircraft. The consensus is down to 54.5, but I see a little more hope there. Let’s look for 55.

As far as earning next week it is fairly quiet as we get to the end of the season.

Paychex report on Monday and it is a smaller version of ADP, the giant payroll company. Its key metric is hired people. We all know how that has been going. After reading some of the data, I think they will be challenged to hit the 34 cent a share estimate. Look for a slight miss at 32 cents.

Walgreens will have a good report on Tuesday. I am guessing the WAG took some market share from Rite Aid which had an icky (Financial term for disappointing) report last week. Look for a beat of the 44 cent a share to 46. I am putting this on my watch closely list as this 30 dollar stock has the makings of a 36 dollar stock. Its debt is manageable but the ROE looks a little weak at 14%.

Wednesday will see Family Dollars reporting and with people still holding on to their purse strings, look for a beat of the 51 cents a share estimate.

BBQ and French Wine

My wife did something Saturday morning that was a bit unusual. She made a dinner meal request at 9:30 am. Now usually that is my line, but Saturday she asked for BBQ Chicken. When dinner did approach and I realized she would not be joining me in a glass of wine due to her Vicodin Cocktails throught out the day, so I chose a 2005 Vieux Clos St. Émilion Bordeaux Blend. If you know anything about Bordeaux and the Graves district, it is hard to find a bad wine especially from the 05 picking. I was surprised to find out this was 60% Merlot, but it has a nice nose and taste. Very spicy and dark. It matched the chicken well enough for me to have 3 glasses. If you shop around, you can still find this for about 20-24 a bottle. It is a nice pour.

From the White House First Gallery

President Truman about to let the First Turkey into the White House
The Electoral College will do it for many years after.

Salve Lucrum


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