Market Close

As Lisa stated earlier, it was like bumper cars today. Many intraday swings.

The full market wrapup tonight.

Moody’s working overtime, Credit crunching

Moody’s is on a roll, along with the other rating agencies.  Moody’s has cut XL Capital (XL) ratings to A3 from AAA.  The December Consumer Credit numbers are out:  $4.5B  versus last report of $17B.  That’s not good, and we’ll tell you why tonight.  I’m an eternal optimist, so even though Chuck and I knew we were in a recession, I did not want to believe it.  These numbers have made a believer out of me.

I’m hearing that KB Homes (KBH) is being accused of inflating appraisals to close pending sales.  Some buyers are saying the company hid declining property values.  Geesh.

Bumper cars and Stimulus Package

The action in the market today so far, makes me think of bears and bulls in bumper cars.  They keep smashing into each other yelling “down!”, “up!”  Strange.  The Wall Street Jounal reports that the NY Attorney General is critical of rating agency reform plans.  Hm..wonder WHICH plan he doesn’t like?  And, more Fed heads are out talking about the economy today.  Apparently, they are worried about inflation and think the credit crunch is manageable.  We’re hearing that the Senate may have reached a deal on the stimulus package.  Maybe they will agree on something before the economy tanks.

MBIA and Paulson

MBIA (MBI) says they see more mark-to-market losses on securities for January.  This comes after the announcement yesterday that they are selling more shares into the market, with Warburg Pincus picking up any slack.  Now, someone please tell me why I listened four hours to a pep rally from these guys?  Treasury Sec. Paulson says the US in NOT in a recession.  The markets are swinging around again, charts look like hair-raising rollercoasters.  If you are trading this mess, be extra careful protecting profits.

  A couple of days next week, I’m going to list one Daytrade possibility after the close (for the next day), just to give you an idea of what I’m looking at and why. 

A Special Request

Many people out there are reading our site. Please leave comments and say hello to us. Let us know something about you if you wish. But you would do us a BIG favor if many more of our numerous readers would leave us comments on your thoughts of the markets, your thoughts of our research, our if you just want to tell us the weather in your part of the world

Lisa and I would be most grateful…

Stock Market Report - Pre Opening - February 7th 2008

Weakness in the market continues to be the theme. Last night’s Cisco (CSCO) numbers and weak guidance has the Nasdaq selling down significantly in pre market. Other companies that share the sector, and even some distant cousins of the sector are also being hit with people selling out. Apple extends their losses further this morning before the open and is now trading around $119. Hard to tell at this point if any bounce today in tech stocks will hold or not, but I have to say that trying to guess a bottom is nothing but asking for trouble. I am NOT a buyer of any tech related companies here.

The chart below is a weekly chart of the Nasdaq. Notice that we are very close to a significant trend support area. I expect to see some buyers of the Q’s (QQQQ) if the Nasdaq reaches the trend line. The question is if it will hold or not. If the Nasdaq were to close below the trend line I identified on the chart it will have significant bearish implications for the Nasdaq for it will have fallen out of a trend that was in place for 3 years.

 

 

 

 

 

 

 

 

 

(clicking on the chart will take you to a dynamic chart with 20 minute delayed data)

Retail sales have been pouring in this morning and the overall consensus has been weak sales growth. Wal-Mart (WMT) being the biggest this morning with lower sales (again). Some bright spots in the retail sales but the overall picture is weak. Macy’s (M) is laying off 2,300 employees.

The Bank of England lowered their interest rates by 25 basis points and the European Central Bank left theirs unchanged.

Initial jobless claims came in as well this morning and the continuing claims (the more important number) continues upward which presents us with further evidence of a deteriorating job market.

Stock Market Summary for February 6th 2008

The day was going along fairly quietly until around noon time when it started to weaken and then we sold off right into the close. Ending the day at or very close to the lows of the day is always a bad sign.

The whole market was waiting for Cisco’s (CSCO) earnings after the market close. Cisco has been considered by many on the Street to be one of those ‘barometer’ companies. A company whose earnings are followed closely as a feeler of the economy. They came in with earnings that we ‘in-line" with expectations for the quarter, but during the conference call the CEO had cautious comments about the "foreseeable future". They said that revenue growth would likely be 10% for the next quarter and had a projected year over year growth of 12% to 17% in the long term. But this was lower than Cisco usually does and this sent the stock into a nose dive once those comments were made. The selling after hours on Cisco was fast and furious, sellers tripping over each other to get out. And, something we don’t see everyday, at least not on large cap stocks was what happened with Apple (AAPL) once the Cisco guidance came out. Cisco’s earnings affected all of the tech sector and lots of stocks were selling off after hours. But with Apple the selling was so intense that for a short period of time the ask price was actually lower than the bid price. Not something we see everyday in a large cap stock. What this reveals is a panic selling. Sellers willing to "take what they can get" and this loaded up the ask side lower than the bid. Apple dropped another $2.00 in after hours trading. Expect to see the Nasdaq take a significant hit in the morning trading.

And speaking of Apple, during the normal trading hours AAPL lost another 5.7%. What I think a lot of people don’t realize is that in a healthy economy and a bull market people are willing to pay a high multiple for a stock. When a bear market hits and the ensuing recession comes stocks with high P/E’s get taken down the fastest. For in a bull market and a healthy economy certain companies are able to sustain a high growth rate and deserve a higher multiple based on future potential of the company. But when the economy falls apart then companies that were high flyers, like Apple, sell down to levels that are more in line with a realistic growth potential. I hear people say that the stock is being manipulated, or that the shorts are pushing it down, or even blaming the company for not coming out with better products. This is all nonsense. Apple was trading at $200 on hype and high hopes, and that it was a "cult" stock, meaning that the company was viewed as being the best of everything to everybody and Steve Jobs was viewed as some sort of God. The simple truth is that Apple is selling down so much because so many large institutions have been selling it as the economy continues to weaken and the high P/E that Apple has had is no longer sustainable. The average P/E for the markets is around 17% right now. Apple is still trading at a higher multiple and has a P/E right now of  26.7. If Apple did not have Steve Jobs, if it did not have "fancy gadgets" that make their fans sit in front of stores at midnight to buy the first one of something, and they simply made a great revenue with consistent growth then they would be in the range of $40 to $60 a share. The only reason Apple went as high as $200 was all the hype and hope on the iPhone and other products. And the fact that everyone was saying "Apple is the stock to own". Apple has run it course and has now joined the numerous other tech companies that lost huge percentages of their share value during the tech bubble burst in 2000. Many of the dot coms and tech companies that were trading at outrageous P/E’s never made it back to those levels again, and in many cases they simply disappeared. This is what happens, don’t fall in love with a stock, ever! Follow the charts, use discipline, and whenever you are in a stock with a very high P/E then you need to watch even closer as any significant turn in the markets they will go first.

And before I leave this subject, Cisco, the stock that is trading around $21 or $22 now used to be a stock that traded up near $90 before the tech bubble burst… And Cisco, even with their nice earnings never made it back to the original levels. Cisco was considered one of those stocks back then that would "go up forever" but then reality hit.

Cisco chart:

 

 

 

 

 

 

Another tid bit of news after hours was MBIA (MBI), yes, that bond insurer again. Last week they made a big presentation to say how well capitalized they were. Tonight they have announced that they need another $750 Million. So they are going to sell additional shares of the company to raise the capital. I thought they said they were OK last week? What happened, did they miss a decimal point somewhere in last weeks presentation? Good luck MBIA at selling those shares, your company is not exactly the hottest thing on Wall Street right now. Oh, wait a minute, no need to worry. Warburg Pincus said he will step in and buy any shares they can’t sell. You go Warburg, you must have some really big you know whats… On the Reuters article it said:

…But the additional capital may not help with rating agency Fitch. On Tuesday Fitch said MBIA’s main bond insurance unit could lose its triple-A rating even with new capital, because the bond insurer is facing such big potential losses after guaranteeing repackaged subprime debt and other complex assets.

It will not be easy for MBIA to sell the 50.3 million common shares it aims to issue in the public market. But Warburg Pincus, a private equity firm that invested $500 million in MBIA last month, has agreed to make up for any shortfall in MBIA’s target of raising $750 million of capital in public markets.

They say a picture is a thousand words. Take a look at the current S&P futures chart. The big down spike is the reaction to the Cisco earnings and the panic selling afterwards. Currently the futures are down a rather significant -0.71%

 

 

 

 

 

 

 

 

What happens tomorrow will be a toss up. A bounce from extreme lows again? A continued sell off? This continues to be a day traders only market right now. The extreme moves up and down are simply too risky to be holding longer term swing positions. We could if we relaxed our risk management, but we never relax our discipline and risk management. I know of some people who are trying to swing trade very actively in this market and they are fighting an uphill battle, win some and then loose some.. to only keep ending up right where they started again. The only ones making the money is their brokerage on trading fees.

Tomorrow we will find out what the European Central Banks do with their interest rates. Should be another interesting day on Wall Street.