today’s tape

The markets ended the third quarter of 2007 – one of the most turbulent in recent memory – with minor losses as investors will now begin to shift their focus to a new season of earnings releases. Despite the heavy swings in trading from the past 90 days, the S&P 500 is trading near the levels from 3 months ago.

Of course, this does not mean most sectors (and the stocks they they are comprised of) have not changed in three months time. Technology, oil, basic resources, agriculture, and infrastructure are all trading considerably higher than their second quarter levels. Check out the three month performances of stocks from each of these groups.

RIMM, POT, FWLT, SLB and RIO are representatives for the current leaders of this market. They have withstood the increased volatility and broad market selling to reach new 52 week highs. Over the past 2 plus months I’ve provided more than enough stocks to consider from each of these five sectors. Continue to stay long the strength of this market.

The strong broad market up trend that entered the now closed third quarter was quickly disrupted by the subprime mortgage crises as more and more companies began publicizing their exposure to bad debt. I warned of the “growing divergence” between the financials and the S&P 500 back on July 23rd:

So far, the markets have been able to remain strong despite the weakness in the financials and the banks. However, with these sectors making up a large portion of the S&P 500, one should monitor the the growing divergence. I’m not sure how long this can last before one starts to follow the other.

It was only a few days until these groups started to lead the entire market lower. I recommended being short the brokerage houses, banks, mortgage lenders and hombuilders until the FED cut the interest rate by 50 basis points. This strategy also produced strong gains in the third quarter.

Next week’s headlining event will be the September jobs report. Traders will be watching to see if this next Friday’s number confirms last month’s dramatic reduction in payrolls. Like always there are two sides to this coin. If we get a big miss to the downside (like last month) investors may begin to worry that the economy is in fact headed for a recession. If we add more jobs than expected, traders may sell the news if they believe the FED will become less dovish on interest rates. As always, no one knows what will happen. But the game plan remains the same: stay long strength, and short the weakness.

today’s tape

A shorter update than usual today…

A choppy session ended with the major indices edging higher with energy stocks pacing the gains. Crude oil surged 3% to a new recent high amid growing tension in the Mid East. But not all oil stocks were up. I’ve been pounding the key board, insisting that names like SLB, CAM, RIG and NOV should be bought instead of the refineries. Case in point: TSO, VLO and HOC all finished much lower on the session. Being long a service name and short a refiner might work as a potential straddle.

Metal and mining stocks also continue to lead the market higher. RIO, BHP, PCU, FCX – all the usual names I keep mentioning are reaching new highs everyday. Don’t waste you time looking for names that have yet to participate in this rally. Some of the infrastructure names have slowed a bit the past few days. But FWLT and MDR remain strong buys.

Agriculture and technology continue to rally. The housing stocks gained ground even though KBH said 2008 will only get worse for the homebuilders. No new items to get excited about. Stock with what has been working.

future stock to watch

On Tuesday, I recommended to stay with LVS and WYNN in the casino operators sector because these names were the best performers.  MGM, I claimed, was not exhibiting the necessary (short term) strength to buy, in place of WYNN or LVS.  Well, the past two days MGM is up $5 with on above average volume.

MGM has now broken out above the $90 level to a new 52 week high.  With the overall strength throughout the casino operator sector, MGM could be off and running.

today’s tape

The markets traded higher all day but were provided extra boosts from two unlikely sources.  First, the strike at GM ended, prompting a 9% gain in the stock price.  I suspect many traders became short the past few days, and they were likely buying back stock to close those positions.   This likely helped push the stock back to the 52 week high from the end of June.

Speculation that Warren Buffet might purchase a 20% in BSC also provided a late day boost to the broad market.  BSC gained $9 in about 10 minutes once this information was leaked.

It’s becoming increasingly risky to short even the worst performing groups.  MS, MER and LEH also put in swift 2-4% moves on this news.  The one too own in this group remains GS.

Perhaps there is still one sector to continue shorting.  The homebuilders all fell again, and they may drop for a sixth straight day tomorrow if KBH’s earnings are as dreadful as LEN’s.

Crude oil put in a very volatile session today.  After regaining the $80 level early this morning, the price quickly lowered after an unexpected rise in inventories.  However, late in the session, the price rallied again to finish up 1% on the day.  Crude oil is now back above $80 a barrel.  Energy stocks finished lower on the day.  No matter, stick with the service names.

What is most interesting about the current market is the divergence between the large and small cap names, and, to a lesser extent, the S&P 500.   The NDX was outperforming before the FED rate cut, and this index continues to out pace all others.  Forget the notion that the S&P 500 will start to outperform because that’s where the banks, lenders, insurers and other stocks expected to receive a boost trade.  Just look at the following chart.

The one problem that worries me is the extreme divergence in the performance of these major indices.  The S&P 500 is still 2% below its 52 week high (the Russell 2000 is much worse), while the NDX is trading 1.5% above its July high.

It is often the case that one index acts as a market leader.  When the subprime mess shocked the equity markets it was the S&P 500 that led the markets lower.  At the moment, the NDX regained the lead with names like AAPL, AMZN, RIMM, GOOG, INTC, CSCO, EBAY, EMC, NVDA and others taking the markets higher.  We’ll have to see if the financials can follow tech’s lead and start to trend higher, as well.  If they don’t they could eventually turn this market lower again.  We’ll just have to wait and see.

future stock to watch

Some traders use the options of a stock to predict where a stock may land.  And when one day’s volume in a certain strike price equals 5 to 6 times the open interest, something might be brewing.  Today, the $32.50 and $35 strikes of CFC traded over 74,000 and 53,000 contracts, respectively.  The open interest in these strikes before today’s trading were 12,000 and 8,000.

If the trend weren’t so bad, the trading of these puts might not catch my eye.  But the this is just another indicator of the bearish in this CFC.

today’s tape

The markets started off in the red, but finished mostly higher as technology continues to lead the current rally.  The early negative sentiment was shaped by disappointing news from two major retailers – TGT and LOW – and an unending stream of disastrous housing news.  LEN posted a gigantic loss in its latest quarter; existing home sales hit a 5 year low; and, just for good measure, BZH was downgraded by UBS.

One full week after the FED rate cut – and the predictable short term rally – the homebuilders are getting killed again.  And the selling may continue later this week.  KBH will report before the opening on Thursday.  Don’t own these stocks.

The investment banks were mixed, but LEH, MS, MER and BSC are falling again and should be avoided.  As I have been sating recently, the only name to own in this space is GS.  But even then you might want to balance that position by shorting LEH or MER.

Commodity prices have eased somewhat – Crude oil is now back below $80 – and this helped the beaten up airlines recovery slightly from yesterday’s drop.  You still don’t want to own any name in this sector.  The declining energy prices have pushed oil stocks lower the past few days, but the same drillers and service providers are right to own.  CAM, NOV and SLB.

The agriculture stocks remain some of the best performers in the market.  TRA, CF, POT and MON all gained multiple percentage points.  Most of the names in this group are without any over head resistance.  This may allow for giant returns, similar to that of the previous 12 months.

And, of course, the large cap technology stocks are pulling the entire market higher (or least preventing a true decline).  The NDX was up 1% while the S&P 500 finished lower.  Even with the 50 basis rate cut from the FED, my basic strategy of short the S&P 500, long the NASDAQ is continues to work.  AAPL, AMZN, GOOG, RIMM, NVDA, CSCO – even MSFT and YHOO; this remains the best place to store your capital.  The navigation system companies – GRMN and NVT – continue to run.  Each had explosive days on large trading volume.

Most talking heads have become quite skeptical on whether the current run in Chinese equities will continue.  As always, my philosophy is, I have no clue what will happen.  But I don’t pick bottoms, and I don’t pick tops.  The FXI shows that hiccups in the Shanghai index will be jarring, but we have yet to see a reversal in the trend.

Individual names, such as ACH, LFC, BIDU, and CHL showed be owned and not sold based on fear of a collapse.

future stock to watch

Many stocks broke out to new highs on large volume today (EMC was noted in today’s tape).  Another name that has recently struggled (relative to past performance) is CROX.

Finally ending session well above the $60 level, the extra today’s volume may indicate that buyers are coming back to push CROX higher.  And the 1 day chart show the buying started to pick up in the final hour of trading as the rest of the market was falling.

CROX may be headed for another long term run.

today’s tape

We begin the first week post-rate cut on the down side. The NDX was the only major index to finish in the green. This has not been uncommon; the large cap tech names have outperformed the rest of the markets for weeks and months. EMC led the tech names higher, breaking above the $20 resistance level.

People have been wondering (complaining about?) when EMC would and start to rally again, as VMW has done (EMC owns about $2.7 billion of VMW). Well, today may be just the beginning as EMC jumped 7% on 180% of its normal trading volume. Also, gaining in the land of tech were AAPL, MSFT, GOOG (new 52 week high), RIMM (ditto), NVDA, INTC, GRMN, BIDU (hello $300) and AMZN. Stick with these names until they stop working.

Another group that has been working (and under the radar) are the water transportation stocks. EXM and DRYS have each surged over 200% the past 6 months.

These are strong trends, and volume has recently increased as evidenced by the 150% trading levels from today.

Many of the same commodity related stocks aslo moved higher by more than 2%. RIO, PCU, BHP, RTP, are back leading the metal and mining groups to new highs.

Two of the best stocks from the past three months are casino operators. LVS and WYNN each jumped over 7% today after already gaining more than 50% over the past few months. MGM has yet to participate in this absurd rally. A classic example of why trying to find the “next stock to move” is not as profitable as buying the best performers.

There were two main groups that were absolutely destroyed today – and they are both sectors I recommended shorting, or at least avoiding at all cost. The Airline sector dropped over 5% after AMR stated it now anticipates worse than expected results in the next few quarters. AMR fell over 14%, it’s worst performance in years. LCC, CAL, UAUA and ALK also dropped on large volume.

The home builders also traded much lower on disappointing news. SPF eliminated its quarterly dividend, and the stock promptly lost 13%. The sudden jump from the FED rate cut is over. These stocks will continue to head lower as more news leaks out. You’d be hard pressed to find an individual homebuilder not trading at new 52 week low.

today’s tape

The markets finished their best week in years thanks to a larger than expected cut of the FED Funds rate.  The FED has now shifted the mood of the equity markets, and most investors now believe the major indices will reach new 52 week highs before the end of the year.  Whether this scenario comes true remains to be seen.  But the price action in stocks now indicates that the bulls now outnumber the bears – in most sectors.

The most dramatic change in sentiment happened in the investment banks.  LEH, BSC, MS and GS all reported earnings this week.  Only GS was bid higher after its report; the other three have fallen since their runs into the FED announcement.  The actual numbers each company reported may be secondary to the fact that they did release them.   There was little transparency as to how these firms were performing during the whole subprime meltdown.  No one knew how exposed each firm was to mortgage backed loans.   Simply exposing their quarterly performance to investors may have helped more than anything else.  Going forward, I still think this group has the potential for more downside.  The only name I would own is GS.

Housing stocks have already started to retreat back to their 52 week lows after the initial surge from earlier in the week.  The housing market is not getting better, and there is still the potential for some companies to reach bankruptcy.   If you worried about shorting an individual name, stick with the XHB.

The commodity related stocks are now the leaders of the current rally thanks to surging Gold and Crude oil prices.  Gold was finally able to break the $685 level early this month and has not slowed down.

Most gold stocks have had similar performance.  FCX has been the strongest performer all year.  This continues to be the name to own.  With crude oil now regularly trading above $80 a barrel, all energy stocks are moving higher.  In the oil sectors, the drillers, integrated and service companies remain the strongest.  Don’t be fooled thinking the refineries will start to catch up.  Here is a one month comparison chart of SLB, COP and TSO.

Stick with what works.

This includes the solar companies.  FSLT, JASO, LDK, TSL and STP all surged upwards of 5% on huge volume.  With oil trading above $80, I wouldn’t be surprised to see additional buying in these names.

The second best group from Friday is another industry I have mentioned many times.  Most agriculture stocks are at 52 week high, once again.  POT, TRA, CF, MOS, AGU all moved 5% or more with strong volume.  I mentioned POT as my stock to watch four sessions prior when it was trading at $92.37.  It ended the week over $10 higher.

Infrastructure, metal and mining stocks and the same technology names are also still working.  Don’t forget stocks like RIMM, GOOG, AAPL, JNPR, NVDA, BIDU and BCSI.

Next week may provide less excitement than we have been accustomed to.   The FED announcement is behind us, and the kick off for the next earnings season still two weeks away.  Whether the current momentum can be sustained for the rest of the year is an interesting question no one has the answer to.  Stay tuned.

future stock to watch

Yesterday, I mentioned the gains in the defense and aerospace sector. And today, BA and BEAV each gained over 1% against today’s red tape. My favorite aerospace/defensive name, though not technically in either one of these sectors, is PCP.

PCP manufactures and provides metal components to the aerospace sector. I’m sure it does other stuff, too. The price action is unquestionably bullish, and the stock traded near an all time high on 127% of its regular trading volume. It very well could break the $145 level and be off for another run.