Market Summary for July 16th, 2008-

All of the news will be good, anything bad will be buried (or dismissed) as much as possible.  Maybe. This could be the start of the next bear market rally, or not.  Don’t you just love that decisiveness!  Financials certainly got a boost today.  The last few weeks have seen them beaten into the ground, and then some.  So it’s really no surprise, on top of Wells Fargo reporting alleged good numbers, that there would be some kind of rally.   I’m not as optimistic on WFC as some people are, with the growing delinquencies on their books, but the stock was up over $6 today (31%).  Sure enough, one of the CNBC commentators questioned if this was a sign of a turn-around in the financials.  You know, "the worst is behind us" kind of thing. The drop in oil futures prices was another catalyst to push the market higher.  I’m not impressed with that pullback, either.  But, if it would keep dropping about $5 a day, I could do a happy dance!  Feeling a little nostalgic, I went back through our previous posts to see the progression of the credit crisis.  I had posted this to the site back in December.  It’s not a bad idea to take a look back to see where we’ve come from, because it helps with that short-term memory problem I mentioned earlier.

Hank "give me all your money" Paulson, continues to do his best impression of "I’m from the government and I’m here to help you."  Ben Bernanke continued his useless blubbering before the Senate, and the SEC’s Cox was busy figuring out new rules for the market.  The SEC’s garbage of no naked short selling has turned into a total joke.  Let’s see, we now have something along the lines of "it’s ok to short stocks, but only certain stocks, and it only applies to some traders, but not market makers." (SEC is considering short sale exemptions for market makers).  I thought I was being indecisive!  Make up rules as you go along, to benefit those you like, and next thing you know, you have totally eroded everyone’s confidence in trading in the US market.  Way to go Christopher Cox, Ben Bernanke, and Hank Paulson.  Can’t wait to see what your next trick will be.

JP Morgan reports tomorrow, before the bell.  It’s anybody’s call what they will say or how the market will react to it.  So much is being hidden in these earnings reports, and I don’t know how one regains confidence in the market until that changes.

We are into earnings season and this is options expiration week, so truly anything is possible.  I hate to sound vague concerning the way forward, but we’re watching and waiting with the rest of you.  Daytrade cautiously and take profits out of long positions when you can.  That is the best I can tell you.  The underlying fundamentals have not changed since last week, if anything it’s just getting worse.  Indicators show oversold/extremely oversold conditions in some indices or stocks, while other stocks are not oversold at all.  So we could be looking at a relief rally, or a "sideways" rally.  It’s difficult to say how much "relief" we could get, but we just watch support/resistance levels. Keep an eye on oil prices and we’ll keep you informed of important earnings reports.  The technicals and the fundamentals are at war.  It’s too soon to tell which one leaves the battlefield on a stretcher.

Here’s an updated XLF chart:

EBAY Earnings Report

This is what we have so far, and the stock is trading down after hours (guidance is lower, margins decreased):

EBAY REPORTS Q2 $0.43 V $0.41E, R$2.2B V $2.17BE
- Guides Q3 EPS $0.39-$0.41 v $0.41e, R $2.10B-$2.15B v $2.18Be
- Guides FY08 Revenues $8.80B-$9.05B v $9.0Be
- Guides FY08 EPS $1.72-$1.77 v $1.74e
- Q2 marketplaces revenue $1.46B (+13% y/y), Skype $136M and Paypal $602M
- Registered users as of June 30 338.2M v 219.6M y/y
- Q2 new listings 19% y/y
- GAAP operating margin decreased slightly to 24.8% for the quarter, compared to 24.9% for the same period last year. Non-GAAP operating margin decreased to 31.9% for the quarter, compared to 32.4% for the same period last year.

Naked Short Selling/Market Close

Apparently, naked shorting isn’t "illegal".  The SEC even thinks it helps market liquidity, at certain times.

The SEC’s website has this, in part, to say about naked short selling:

Naked short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity. For example, broker-dealers that make a market in a security⁴ generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market. This may occur, for example, if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time. Because it may take a market maker considerable time to purchase or arrange to borrow the security, a market maker engaged in bona fide market making, particularly in a fast-moving market, may need to sell the security short without having arranged to borrow shares. This is especially true for market makers in thinly traded, illiquid stocks such as securities quoted on the OTC Bulletin Board,⁵ as there may be few shares available to purchase or borrow at a given time.

 

Ok, the Dow was up 277 points.  Why?  Well, why not?  Oversold conditions and a drop in oil; and you can’t forget the options week volatility.  Now the talking heads on financial media are giving all kinds of reasons for the move up, and, as always, talking about a bottom.  Traders tend to be afflicted with short term memory problems and can be highly excitable.  Curb those tendencies if you wish to make it in this business, or even if you want to make a profit in your retirement account.  Keep your eye on the big picture at all times.

EBAY and YUM report sometime after the close, but nothing yet.

I really don’t have much else to say (right now) about the market moves today.  I will have a summary tonight with some charts.  Thanks for all the comments today!  We really appreciate them.

Economic Analysis ala CNBC

As long as people are lining up to buy an incredibly expensive product (iPhone), then maybe our economy is OK after all.  (Paraphrasing, slightly, a CNBC commentator).

The market will continue to bounce around with this being options expiration week, technical oversold levels and lack of confidence still in evidence.  What a combination to deal with.  Be safe!

Strike Three, You’re Out

A Senator has asked Bernanke about the poor savings rate in the US.  He asked Bernanke how people were going to pay for their needs, and save money at the same time, if wages didn’t increase.  Bernanke’s response went something like this:    People need higher paying jobs, which requires more education and they need to be (almost) forced to contribute to 401(k).

Ok.  More education?  The government has done an outstanding job of lowering the standards in public education for decades.  I also know plenty of people with advanced degrees, who are unemployed or under-employed.  Strike one.

Contribute to a 401(k).  Who gets to manage that money that is contributed?  That’s right, the same people who are causing most of the losses right now in the market.  Strike two.

Higher paying jobs.  Educators should be the highest paid professionals, for starters.  Our economy is overwhelmingly a service economy, and you aren’t going to find the "higher paying jobs" in that sector. Strike three.  

Oil Inventory Numbers

*DOE CRUDE: +3M V -2ME;  GASOLINE:  +2.4M V -100KE;  DISTILLATES: +3.2M V +1.8ME;  UTILIZATION:  89.5% V 89.3%E
*API Inventory:
- Crude Inventories: +5M
- Gasoline:  +1.6M
- Distillate: +5.4M
*DOE:
- Distillate Demand -146K bpd to 4.12M bpd
- Gasoline Demand -3K bpd to 9.34M bpd

The build in crude is leading to a drop in the oil price.  It’s trying to put some steam into the rally, but I would still be cautious of the initial reaction.

Pre Market - July 16th 2008

We are seeing some wild movements in the S&P futures this morning. Very difficult to gauge where the market is going today. The headline news of the morning was the large increase in the Consumer Price Index (CPI). We had been saying for months that the Government data was incorrectly reflecting ‘real world’ economic factors for the average person. Today’s increase in the consumer inflation data is the beginning of Government data catching up to actual impact of the economy on you and I.

Today is part 2 of the Ben Bernanke show. Today he speaks to the House of Representatives beginning at 10:00am EST.

Earnings today:

Before the Open: ABT, AMB, ASML, DAL, DSL, GCI, HST, NITE, LSTR, LUFK, MI, MTOX, VIVO, MERX, NTRS, ORCT, PJC, STJ, WFC.

During Trading Hours: AMR, CBSH.

After the Close: ADS, CAVM, CCK, DTLK, EBAY, HOKU, KMP, KFN, LHO, PLCM, RECN, SSW, TER, TBI, UFPI, XLNX, YUM.

Occasionally I make the request that more of our readers chime in and let us know you are out there. If you are a reader of our site please say hello to us, let us know you are out there and share with us your thoughts.

June Consumer Price Index

Ugly, just ugly. 

JUN CONSUMER PRICE INDEX M/M: 1.1% V 0.7%E; CPI EX FOOD_ENERGY M/M: 0.3% V 0.2%E; CPI NSA:  218.815 V 217.903E
- CPI y/y:   5.0% v 4.5%e,  Highest since April 1991
- Core CPI y/y:  2.4% v 2.3%e

 

June CPI  Table

                            June 08     May 08     Year/Year
CPI All Items             1.1%        0.6%       5.0%
CPI, Ex Food,
Energy                         0.3%        0.2%       2.4%

  Food & Beverages       0.7%        0.3%       5.2%
   Housing                        0.5%        0.5%       3.5%
   Apparel                         0.1%       -0.3%      -0.2%
   Transportation            3.8%        2.0%      12.0%
   Medical                         0.2%        0.2%       4.0%
   Recreation                  0.1%        0.1%       1.3%
   Education &
    Communication         0.5%        0.4%       3.4%
   Energy                        6.6%        4.4%       24.7%