Stock Market Summary - May 6th 2008

In an article appearing on Bloomberg’s web site, the writers discuss how many view this market rally as a "Sucker’s Rally".  Of particular importance is the following quote:

Investors are currently paying the highest prices relative to earnings since March 2004 and 15 percent more than when the S&P 500 reached its all-time high in October.

Read that quote again… at this time the market is trading on valuations that are higher than those when the market was reaching it’s highs last year. This is a fundamental disaster is the making, not only because it is too extended, but because earnings are much lower than before this mess started. Forward looking expectations? While the market is a discounting mechanism, it can also over discount on too much ‘hope’. Hope for what? Oil will drop to $50 p/barrel? 30 year mortgage rates will drop to 2%? The housing market will turn around and prices go back to where they were and continue upwards even further? Banks and other lenders will start handing out money to anyone with a heartbeat again? What if these hopes begin to fade away? The market goes right back down, and goes on to surpass the recent lows to continue downward much further.

And on the technical analysis front we have reached another line in the sand. Does it cross or does it turn back?

 

 

 

 

 

 

 

(S&P 500 - SPY - Weekly Chart)

 

 

 

 

 

 

 

 

(NYSE Composite - Weekly Chart)

 

 

 

 

 

 

 

 

(QQQQ [Nasdaq] - Weekly Chart)

 

 

 

 

 

 

 

 

(Wilshire 5000 - Weekly Chart)

 

If you believe that the economy is going to worsen, and you believe that the stock market is still in a bear market, and you believe that corporate earnings are going to continue suffering going forward, if you believe that the housing market implosion is going to continue to worsen for at least another year, and if you believe that the average American consumer is going to continue scaling back on buying ’stuff’ in order to make ends meet as inflation continues to rise… Then the market has handed you a gift, a time to ‘get out’.

This is a decision that is each individual person needs to make for themselves. If you have been holding onto long positions all through this financial mess and the building recession, then you might be facing the most ideal opportunity to take your money while you can. But, that is your own decision and one we can’t make for you. Lisa and I have worked tirelessly for many months throughout this crisis to present you the best and most objective observations of the market and economy as possible. We have no agenda, we are free to think how we want and say what we want, we are completely independent analysts and will always remain that way.

Well known and respected economists (i.e. Nouriel Roubini) say the worst is yet to come in the economy. Government officials and financial institution analysts are saying everything is getting better. Independent analysts are anywhere from the economy is going to get much worse to that of sounding like the Government and saying that all is improving.  Warren Buffet says this will be a longer and deeper recession than many are expecting. Treasury Paulson says there will be no recession.

You have to weigh what you have learned, your own beliefs and observations, and your own judgement based on data from the best computer available… the one inside your head. The media and the Government have been trying to paint a very rosy picture of the economy and the markets. Larry Kudlow of CNBC says the Dow will reach 16,000 this year. Secretary Paulson says ‘the worst is behind us’, and President Bush still says the fundamentals of the economy are strong. Take what you think and make the decision you judge appropriate for your own situation. 

And one last thing is how many more "stick saves" can the Government do in order to keep the markets propped up? And the Presidential election, will the incumbent party do everything to make Mom and Pop feel good about their money going into the election at all cost? Sure they can, but will it work and what will it do to the US economy once the election is over and the ‘goal keeper’ is gone and no longer doing ’stick saves’ .

On the charts above, you can see that there are significant resistance levels all coming together at the same time. This is a potential major turning point. Guard your money at all costs. This is not a time for placing risky trades.

For the many Apple fans out there. Here is the latest chart for Apple, and we still view this as a good risk to reward short position trade. The trend line is your stop.

 

 

 

 

 

 

 

(AAPL - Weekly Chart)

 

And finally… Where do we stand? We are still bearish long term on the market and on the economy.

Stock Market Close

Another low volume advance in the afternoon trading.  Distribution taking place everywhere, even after hours.  Here are some earnings reports and an interesting news item about Beazer Homes, although they think this will be cleared up in no time.

HAR (Harman Int’l.) REPORTS Q3 $0.31 V $0.76E, R $1.03B V $979ME, NAMES NEW CEO, CFO
- CEO "Although our Q3 rev increased  17% over the same period last year, our earnings progress was interrupted in the third quarter by unprecedented charges for warranty issues, one of which materially impacted our bottom line, "Due to a supplier discontinuation about two years ago, Harman deployed a new memory chip with existing software during the life cycle of an existing product. Although extensive testing was performed to validate this change, the software/memory chip combination developed an incompatibility over time."

DIS (Walt Disney Co) REPORTS Q2 $0.58 V $0.51E, R $8.71B V $8.47BE

SNCR (Synchronoss Technologies) REPORTS Q1 $0.16 V $0.16E, R $29.1M V $31.2ME; TO BUY BACK UP TO $25M OF STOCK (3.3% OF MARKET CAP)
- CEO: Our update for the first quarter and full year 2008 is mixed. We have materially lowered our growth expectations for 2008 due in large part to reduced revenues associated with the iPhone, which masks the underlying growth and momentum of the rest of our business. Note:  SNCR ecommerce software is used to activate the iPhone in the customers home after purchase.
- approved a share repurchase program for up to $25M.<AAPL>

CSCO (Cisco) REPORTS Q3 $0.38 V $0.36E, R $9.80B V $9.75BE
- Q1 GM’s 65.4% v 65.0% y/y

BZH (Beazer Homes) RECEIVES DEFAULT NOTICE FROM BANK OF NEW YORK TRUST  ON APRIL 30TH - FILING DATED 4/30
- On April 30, 2008, Beazer Homes USA, Inc. received a default notice from The Bank of New York Trust Company National Association, the trustee under the indenture governing the Company’s outstanding $103.1M unsecured junior subordinated notes due July 2036.  The notice alleges that the Company is in default under the indenture because the Company has not yet furnished certain required information, including our annual audited and quarterly unaudited financial statements. The notice further alleges that this default will become an event of default under the indenture if not remedied within 30 days. 
- The Company expects to be able to cure this default on or before May 15, 2008.

Update

US HOUSE SPEAKER PELOSI: THERE IS A "CLEAR NEED" FOR A SECOND STIMULUS PACKAGE, WOULD LIKE TO MOVE TO SECOND STIMULUS BILL "SOON"
- Says that can not wait for additional evidence of economic weakness

Ok, that’s like performing surgery before there’s evidence of disease, right? 

Citi (C):  WSJ REPORTS INVESTMENT BANK GROUP TO CREATE ALTERNATIVE-ASSET GROUP

They plan to call it the "We Say It’s Triple-A" Waste Dump.

Update-10:33am ET

S&P reports US credit card trusts charge-offs rose in March. Volume is low on the NYSE, about par (six month avg.) on the Nasdaq.  Decliners outpace advancers.   

TAFfie Results

FED ACCEPTS $75B IN TERM AUCTION FACILITY (TAF): STOP-OUT RATE AT 2.22%; BID-TO-COVER AT 1.29 V 1.77X PRIOR
- Total bids submitted $96.62B

Fannie Mae Earnings-Oops!

Fannie Mae’s earnings report (FNM):

REPORTS Q1 -$2.57 V -$0.81E; R $3.77B V $2.62BE; SEES ‘09 CREDIT LOSSES "LARGER THAN 2008"
-States needs to raise $6B in new capital
-Puts Q1 credit loss expenses at $3.2B
-Sees 50% dividend cut to $0.25/share in Q3
-Sees home prices declining 7-9% nationally this year.

OFHEO DROPS CONSENT ORDER WITH FNM, INTENDS TO CUT CAPITAL SURPLUS REQUIREMENT TO 15% IN SEPTEMBER FROM 20% CURRENTLY

That doesn’t stop Moody’s from letting them keep their AAA rating, but downgrades financial strength rating to B from B+, outlook negative.  Whatever.

Crude Hits $121 per Barrel

Sorry about no Pre-Market, had a computer glitch.  Futures are down and Wachovia (WB) guided lower:

WACHOVIA HAS CONCLUDED THAT THE COMPANY WILL RECORD VALUATION LOSSES OF $315M ON THE RELATED BOLI ASSETS IN ITS FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2008, WHICH WILL INCREASE THE NET LOSS AVAILABLE TO COMMON STOCKHOLDERS FOR SUCH QUARTER TO $708M, OR -$0.36 PER SHARE
- Although no assurances can be given, Wachovia believes it is possible that certain circumstances may arise that would allow it to realize benefits from these SVAs which would be recognized as gains in future periods.  The valuation losses will be reflected in Wachovia’s financial statements which will be included in its 2008 First Quarter Report on Form 10-Q.

FED SETS TWO-DAY REPOS, ACCEPTS $5.25B

FED SETS 28-DAY REPOS, ACCEPTS $20B