The falling wedge patterns on the indices are extremely bullish, and if Goldman Sachs $GS and Citibank $C can recapture 160 and 3.50 respectively, the market should be off to the races.  In fact, while I’ve avoided the financials like the plague for what seems like an eternity, I’m starting to get interested.  Certain insurance and foreign bank names are showing good relative strength.

The heart of my exposure continues to be in technology and services.  I’ve also added decent exposure to healthcare as the biotech space is currently surging.  Energy is definitely on my radar right now, I took a shot at $DRQ on Friday after it was smacked around on the open, but didn’t see the dip buying I expected, so I exited the position with a small loss.  I’ll be focusing on the smaller driller and energy service names instead of the big boys.  Major M&A action is going to take place imminently, we got a little taste this week with the buyout of Smith International $SII.

It was oh so delightful to see the action in $PALM this week.  This is such a great example of the fact that although in the short and intermediate time frame, fundamentals can be wiped aside by capital flows and momentum, in the long run the fundamentals matter and a company has a real value based on its earnings.  Was I short, no, unfortunately not, I don’t have the patience or mind set to be a successful value investor, on both the long or short side.  The Palm story was all smoke and mirrors from the beginning, one last ditch effort to get acquired by an even more incompetent and uninnovative company (Nokia?).  This week the stock got what it deserves, a pounding.  By the way, Motorola $MOT is next in line to get whacked, same story, all smoke and mirrors, no one bought the Droid and no one ever will.  $MOT is a short to 5, at least.

Another market catastrophe  this week took place in Game Stop $GME.  Their business model has been broken for a long time as Wall Mart $WMT entered their space and crush them on margins.  If you were a money manager invested here, you should be fired, now.  Nothing about that chart, the earnings, or the story said to own this stock.  It’s been a crazy ride on the short side, and I’ve participated at times, but this thing could really go to zero at some point.

Winners this week included $DV, $CPLA, $IPXL, $SBAC, $CREE, $CTRP, and $MJN which finally broke out on Friday.  The $IPXL earnings were gangbusters and this is a stock I can see being a huge winner.  The education names are on fire and I love their low correlation to the overall market as I’m heavy in tech.

Losers this week include $V, $NTCT, $ARUN, and $ALGT.  I’m getting a little frustrated in $ALGT as the airline sector was hot Friday but Alegiant did not participate.  Visa is also having issues but I’m more likely to give it a longer leash.  The pullback in $ARUN looks constructive, I expect to see the next leg in the coming week, if it falters from here I’ll be banking more profits there.

I sold whole positions in $DECK, $PEGA, $PCLN and $DLM this week.  Though, I added back the Priceline position on Friday.  $DECK was the only mistake, they crush earnings Thursday after the bell and were up greater than 10% the better part of Friday.  Oh well…

New positions in Ford $F, $SFSF, $GMCR, $IMAX and $HAS were added this week.  I’ve been wanting a piece of Imax for a while now as well as those guys at Green Mountain who make coffee pots.  Personally, I don’t drink coffee, I try to stay away from dependent substances, primarily because I have an addictive personality.  I also just hate the taste of coffee.  But people are buying these things left and right, we just got one for the office, and the trend is excellent.

After you’re done fighting people at the store for your Kourig machine on Sunday morning, don’t miss the gold medal hockey game, USA vs Canada.  I could talk about this for hours, but I’ll leave it at this.  Although the Americans are not nearly the underdogs that they were to the Soviets in 1980, and have already beaten Canada once in this tournament, do not underestimate their disadvantage in both skill and size compared to Les Habitants.  Yes, the Americans are all bonafied NHL players, and most stars,  they don’t nearly match the skill on the other side of the rink.  If they play as a team, as they’ve shown throughout this Olympics they can, they’ve got a decent shot, but it will still be a monumental upset for the books.

I’ve been mentioning for a while that I felt there was a lot of institutional selling taking place into the end of the year.  I’ve also been adamant about the fact that tech would be the leader if we moved higher, and to stay the hell away from the financials on the long side.  It seems that at least two of those three were great calls.  But I still believe we saw large institutions close their books and greatly reduce risk in October to guarantee a solidly positive year after the drubbing they all took in 08′.

This has obviously turned into a stock pickers market.  Instead of being whipped around all over the place by the broader indices, stocks are carving out their own paths, making it far easier to see the wheat from the chaff.  I’ve got a long list of stocks on my screens that shows excellent momentum and is giving no sign of slowing down.  I’ve got another long list of stocks that look prepared to break out in a big way.  I’ve got yet another list of stocks that can’t get out of their own way.  The point here is that opportunities abound, and you need to take your eyes off the indices.

The best way to play this market is to pay attention to sector strength and weakness, find the leaders and the laggards, and ride them.  Wait for trending stocks to come back towards the 20 day moving average and take positions there.  Look for large triangular consolidation patterns, in trending markets they most always resolve themselves in the direction of the trend.

One interesting point I’m seeing now is a large resistance level in the transports $IYT.  We’ve been bumping up against the high from the crash reversal.  I say the crash reversal, because the overall equity market crash took place in October of 08′, although the transports were obviously not done with their greater than 60% sell off.  No other sector besides the financials showed as much relative weakness to the market back in March.  This important level, denoted by the red line, sits at about 76.  The chart you see below obviously represents an inverse head and shoulders bottom pattern.  In the short term, the transports look to be rolling over a bit, I wouldn’t be surprised to see another test of the 50 day moving average, now located at 72.

Lastly, please take a moment to bash your head in if you believed the Motorola $MOT Droid was going to sell any significant number of phones.  I don’t cheerlead or strut around proclaiming how omniscient I am, none of it really matters unless you have money in the trade, and even then, it’s not in good taste.  But for a second now, please just take a look at 5 charts, real quick, $MOT, $PALM, $NOK, $AAPL, $GOOG.  If it’s not obvious to you who is winning the mobile internet war, you need a better pair of glasses.  Apple and Google are head and shoulders above the competition when it comes to innovation.  The other pretenders are holding their stock prices up with smoke and mirrors, which are slowing being run over by large tanks in the form of iPhone sales numbers.  The Droid is a crappy piece of hardware, Palm’s Pre was a sham from the start, and Nokia hasn’t even tried to compete in this market.  It’s so glaringly obvious that Google is about to release an amazing piece of hardware to go with its great Android operating system, just look at the stock for god sake.

I saw two more empty store fronts on the upper east side today a few blocks down the street.  Madison Avenue is a disaster, once the home to overpriced upscale boutiques, now retail vacancies all over the place.  Between 65th and 68th I counted 10 vacant lots.  This was the PRIME retail space serving the uptown ladies who lunch a few years back.  Even the richest still aren’t spending, unwilling to spend 500$ on a pair of sunglasses or 2,000$ on a suit.  When stores stop disappearing from Madison and start filling those empty windows, I’ll start believing the consumer is back.

I hate saying I told ya so, but did you see the $PALM numbers this week, uuuggggllllyyyy.   Sales are down year over year, and this is after releasing the Pre and Pixi.  The smoke is lifting and the mirrors are being shattered.  This company is royally fubar.  $RIMM killed earnings and sold one hell of a lot of phones, frankly this took me by surprise.  I wasn’t on board with the $RIMM doom and gloomers, I see them more like I see $MSFT, stuck in neutral, piling up cash with no real vision of the future.  Remember, in this business, if you’re not inventing your dieing.  The Bold is an excellent device, and enterprise users love it.  But on the retail side they are falling behind $AAPL and the soon to be released $GOOG Nexus.  The Storm is a piece of crap, I don’t know anyone who doesn’t wish they had gotten an iPhone instead.  Look for the $AAPL numbers to be out of this world, if they’re not, oh boy, can you say blood bath.

Into the new year I still like certain consumer goods companies who sell excellent products at decent prices.  People still need to buy shit, they are just buying smarter.  Here are your winners, all good investments: J-Crew $JCG, Urban Outfitters $URBN, Ralph Lauren $RL, Whirlpool $WHR, Green Mountain Coffee Roasters $GMCR, Tupperware$TUP,  Lululemon Athletics $LULU, Treehouse Foods $THS, Diamond Foods $DMND, Amazon $AMZN, Costco $COST, Colgate $CL, Whole Foods $WFMI, Apple $AAPL, and a host of foreign retailers.

Here is your weekend reading:

If you read one this this weekend, read the mobile internet report from (Morgan Stanley)

Has Exxon $XOM finally woken up to the reality of depleting oil reserves (Gregor McDonald)

This is one of the best pieces of writing I’ve read in a long time (Chris Nelder)

To all of those who believed we went to Iraq for the oil, you people were cynical idiots (Washington Post)

Has China embarked on its own green power moon shot (New Yorker)

Here it is, the $GOOG Nexus, the first phone that will take a bite out of $AAPL iPhone (TechCrunch)

What happens if the banks need another bailout down the road (Washington Post)

The military and state department realize the issues in AfPak, now do they have a strategy to deal with them (Thomas Barnett)

Goldman Sachs $GS is betting on global warming, rule #1, don’t bet against Goldman (New Republic)

I can’t believe how badly the treasury screwed the pooch on their Citibank $C sale, oyyyy (The Atlantic)

Glass-Steagall needs to be reinstated, I am 100% for it (The Big Picture)

]]> http://www.leighdrogen.com/weekend-reading-11/feed/ 0 http://www.leighdrogen.com/a-look-to-201/ http://www.leighdrogen.com/a-look-to-201/#comments Wed, 16 Dec 2009 23:07:32 +0000 Leigh Drogen http://leighdrogen.com/?p=1282 StockTwits has organized a new stream of tweets focused on the symbol $TWENTYTEN for the community to make predictions and share their views about the year to come.  I encourage you to participate by writing a blog post or simply tweeting your predictions or views.  Just tag your tweet with the symbol $TWENTYTEN.  Nothing in this post or on this site should ever be considered investment advice or an invitation to buy or sell any security.  Please feel free to leave comments or argue against my predictions, I love the banter.  I may add to this post as we approach the new year.

The Market

After two years of massive swings in each direction, the market settles down.  The trading range in the S&P 500 $SPX will not exceed 30%.  In 2008 investors dumped everything.  In 2009 investors bought everything.  In 2010 we get back to a more “rational” market as investors start making bets on companies instead of asset classes as a whole.  While the past two years have been marked by a high level of correlation amongst many assets and asset classes, in 2010 we will see this break down.  2010 will be the year of the stock picker.

Google $GOOG will buy Twitter $TWIT because they want to own the world and know “real time” is the next step in search.

The Google phone, also known as the Nexus, will be the first to take a real bite out of the $AAPL iPhone.  Google’s business strategy was insanely good.  Release your excellent operating system on a bunch of marginal hardware, get everyone else to pay for the advertising to introduce said operating system, Android, build an awesome piece of hardware yourself, launch it with a ton of buzz, own the hardware and the software and take a real bite out of the iPhone.

Facebook $FBOOK will go public, it’s too big to be bought at this point.

Palm $PALM will either trade under six dollars at some point, or be acquired, maybe both.

Financials as a whole $XLF will continue to lag, along with the homebuilders $XHB.  Healthcare $XLV will take the lead, outperforming the market as healthcare reform is finally out of the way, one way or the other, and investors are able to place bets knowing what the new rules are.  I’m especially a fan of the electronic medial records providers like Athena $ATHN and Cerner $CERN.

Retail investors will lose money trying to ride the gold miner $GDX train, getting whipsawed all over the place.  Smart fund managers like Paulson will make a killing in gold and gold miners.  Gold $GC_F will hit 1300 dollars.

Citibank $C will not trade over 7$.

Bank of America $BAC will spin off Merill Lynch $MER.

Economics

While the low end of the housing market will only fall another 5-7%, the upper end, above 1,000,000 will fall another 10%.

Commercial real estate will fall another 10%, but large well capitalized REITs will benefit from their ability to prey on distressed situations, setting themselves up for a positive year.

New York City residential real estate prices will continue to fall.  Phantom supply from recent construction that was turned rental will hit the market after developers default on their debt and banks take control, willing to sell at any price to liquidate inventory.

The official unemployment rate, which stands just north of 10%, will not dip below 8% by the end of 2010.

The Federal Reserve $FED will raise interest rates to no less than 2% by the end of 2010.

Politics and International Relations

Iran will announce that it has the capability to build a bomb, but won’t overtly say they’ve built one.  Neither Israel or anyone else will attempt a military strike on Iranian nuclear facilities.

No less than 5 senators or governors will be disgraced by some type of scandal.

Technology

Starting with AT&T $T, telecom providers will begin publicly restricting the bandwidth used by mobile internet devices as their networks literally choke on data.  I have the feeling that this is already happening in some form or another as they track massive network usage on my iPhone and degrade my service because of it. The war for net neutrality will become a headline topic as the telecom giants fight the edge developers for control over the future of the internet.  If you think that Verizon’s $VZ network is any better, just wait, they will choke on data as well.  The network providers will partition the network and charge an extra fee for your data to be priority.

Cloud computing will take over your computer experience like never before.  Soon, you will subscribe to programs in the cloud and access them over the internet instead of hosting them on your personal machine.  You may already be using Google docs, Pandora Radio, or Lala, the cloud based music service recently bought by Apple, but you haven’t seen anything yet.  The Google Chrome OS will usher in a new paradigm in how we interact with our computers.  Companies like Rackspace Hosting $RAX will continue to grow and are solid investments going forward.  Sales of netbooks by $HPQ will continue to grow as the computer requires less and less, everything is moving into the cloud.

I’m not a huge fan of location based services like fouresquare, I have no desire to tell people where I am at all times.  I don’t believe other’s will choose to make this information public in a massive way either.  But……location based marketing will take off in 2010 and a company will come to the forefront and rule the space.  You will download an application to your mobile internet device which will recognize you are walking into a certain store, let’s say Urban Outfitters $URBN, it will know your previous purchases and offer you discounts tailored to your history when you walk into the store.  It’s already starting with Google.  It will be huge, and you will love it, no more clipping coupons.

Mobile payments through services such as Square will be ubiquitous.  You will be able to pay for a t-shirt in the stadium parking lot by sliding your credit card through a little reader attached to an iPhone.  Once again, it will be awesome and you will love it.

Mobile video will be all the rage with USTREAM on your mobile phone.  You will broadcast your kids soccer game live to your husband, or wife, traveling on business.  Is this StarTreck shit or what!

Apple will introduce a tablet device, it will sell over 5,000,000 units in the first three months.

The Large Hadron Collider (CERN) in Switzerland will create miniature black holes, the earth will not be sucked into one of them, and if it is, you won’t be around to bash me for being wrong.

Other

Plans will be announced by the NHL to move a hockey team to Quebec within three years, most likely the Phoenix Coyotes, Atlanta Thrashers, or Tampa Bay Lightning.

Derek Jeter will be publicly embarrassed by something, no one is that perfect, everyone has skeletons, I love you Jeter but no one’s a saint.

Tiger Woods will NOT go on Oprah with Elin, and @stein will owe me a hamburger.

The brokerage firms put out price targets for most major assets, along with average prices for most commodities so that clients can hedge their exposure.  Let me make this very clear, the only time when price targets make sense is when you are a deep fundamental investor and are willing to buy or cover when things look ugly and sell or short when the market is in love.  I have such a great disdain for much of the sell side community, I won’t even get started.  Ignore these predictions, all they are is marketing.  Ignore anyone who tells you they know where an asset will trade any more than 6 months from now and are willing to put money on that prediction.  It’s fun taking a guess at where things will fall in the months and years to come, but as a trader, price is king.  Pay attention to price above all else, allow it to confirm or refute your thesis.

I wish you all an excellent new year, and hope to see your predictions in the days and weeks to come.

Here are a few things I’m looking at…

Once again, the high grade corporate / high yield / treasury correlation chart did its thing.  We saw a high grade corporate bonds and treasuries get hit at the close on Friday while high yield debt ticked up hard, with equities closing on the lows.  And like clockwork, we saw equities open strong this morning through the first hour with $JNK popping as well and $LQD and $TLT getting hit.  Watch this correlation into the close again today as it has worked the past week.

Update 5:30 PM – I did not see anything at the close today which would lead me to believe we open either direction tomorrow, time machine took a day off while the Goldman Sachs battle bots toyed with the market.

We now have a sell signal on the $SPY as I talked about late last week.  I will no longer be looking to swing long positions, they will be short term trades as we have an absence of trend.

I talked a while back about what would happen if we saw gold keep climbing and the equity market start to fade.  My major question was, what would happen to the gold miners $GDX?  Were we going to see the two move together, or have $GLD act as a safety play and $GDX get dumped as a “risk asset” with the rest of equities.  It seems that we are begging to get some answers.  Gold is acting in an extremely bullish fashion while the gold miners are sorely lagging.

Gold did exactly what it should have, tested the breakout level at 1027 and bounced hard even with the $USDX moving up.  $GDX is moving back down to its trend line support.  You can buy it down here with a stop below that red line.

My last little bit today is a question about the mobile internet theme, or more accurately, wave we’ve seen since the March bottom.  Everything mobile internet has been on fire until about two weeks ago.  Investors are booking gains quickly and many of these stocks are falling apart.  I will be looking for them to find support at significant retracement levels.  If you’re an investor, this will be your chance if you believe in this theme.  Personally, I believe in some of it, specific names, and believe that others (cough cough $PALM) are complete pretenders.

Apple blew the numbers out of the park again, what’s new.  Look, the iPhone is the be all end all of mobile right now, it just is.  Does it have every single feature that you would want in a phone, hell no, I can think of one hundred million and one things I would add to the iPhone to make it better.  At the end of the day though, I don’t want any other phone, $AAPL just has me by the balls.  What’s going to happen to my music, my apps, my videos, all of the crap I have saved on there.  Are there other phones which do one of these things better, maybe.  Do I want to take the chance that it will do everything else worse, not a chance.  People like sure things, and right now the iPhone is a sure thing.  I have no doubt that in the future other companies will produce mobile gadgets that will unseat the iPhone, but right now it ain’t happinnen.

Note to Palm and Motorola, you suck.  Sucking isn’t as bad as blowing like Nokia though, which is so bad that it can’t even muster a attempt at taking on Apple.  The Palm Pre and the yet to be released Motorola Droid are just attempts by desperate companies to gain enough attention from the even worse Nokia in hopes that they will get bought out.  This whole farce is being put on with smoke and mirrors while Apple grows its top line in the worst recession /depression since the 1920′s.  Advertising and buzz can only get you so far, at some point you have to actually sell shit, something $PALM is failing miserably at.  All three of these companies are at the top of my hit list to short when the market turns (don’t hold your breath for that to happen any time soon).

Where is $RIMM left in this game?  In no man’s land really.  RIMM has tapped out the business market and its valuation is dependent on the ability to break into the retail market in a meaningful way.  I had a crackberry, before I had an iPhone, enough said.  @howardlindzon is right, RIMM will get bought by someone like Microsoft who can add value to the platform, RIMM is just out of ideas.  Either that or Jim Balsillie is spending too much time trying to pry the Phoenix Coyotes from the desert.

Speaking of other companies going nowhere fast, Dry Ships hasn’t participated in this move in equities.  I was long $DRYS a month or so ago when I believed the momentum was there to push it along.  When I saw it wasn’t I GTFO.  Could it still rally, sure.  But the action here is telling us that even in a world where everything goes up due to the wave of liquidity that has been unleashed, the global economy is at a standstill.  I check the satellite image of the Singapore harbor once a week, the boats are all still there.

Let’s get all the negative stuff out of the way shall we.  Earnings this afternoon from Zions Bancorp just sucked.  -1.41 a share vs. the estimate of -1.24.  Provisions for bad loans more than tripled this quarter.  No secret here, this bank is fucked and that fact isn’t changing any time soon.  They are so loaded up with toxic crap that it’s turning their branches brown.  I was at a dinner last night with some of the StockTwits crew and more notable members of the community.  We got onto the conversation of the large money center and investment banks versus the smaller regional banks.  Jim Gobetz (@aiki14) and I both agree that there will soon be a great pairs trade to put on going long the large banks and short the regionals.

The idea here is that the government isn’t going to let the large banks fail, NO MATTER WHAT.  They made this choice in February.  The basis of their decision comes from the education of one Ben Bernanke.  In his study of the great depression, he learned that a major cause of large bank failures was the government’s insistence on large banks eating smaller toxic banks.  This practice corrupted the balance sheets of the larger more stable banks and eventually led to their downfall.  The government did force large banks to merge last winter, BAC and MER, WFC and WB, along with others.  They did this due to the systemic risk that the failure of these large institution posed.  The smaller regional banks do not fall under the same category in Bernanke’s book though.  Will Zions fail, maybe, maybe not.  The important thing is how investors perceive their backing by the government, because as we know with all financial institutions these days, it’s all about the government.  The fed will do everything it can to keep these banks from dumping their toxic commercial real estate crap on the market further harming the wall street banks.  How far they are willing to go is the real question, base your trades therein.  BB&T ($BBT) is right up there with $ZION on my list of shorts when the market turns

Speaking of real estate, my father is a real estate attorney here in New York.  He has been bored to tears for the past year and a half, literally no work to do.  He was going into the office maybe three days a week, if that.  He was lucky that his law firm has a very family oriented culture, they take care of you in tough times, you repay them in the fat years by working your ass off.  I remember not seeing my father a whole lot in the fat years when he worked round the clock.  He is one of the lucky ones for sure.  Anyway, he told me about 2 weeks ago that all of the sudden his desk was flooded with deals, refinancing and property sales.  He said it went from 0 to 150 miles an hour in a few days like some kind of gate had just been lifted.  People aren’t building anything, you can be sure of that, but maybe the large residential and commercial market is finally getting liquid again.  Personally I don’t think this is anything more than desperate sellers lowering the ask to get deals done, it’s been how many years since you were able to sell a large piece of property?  Maybe the sellers see a sliver of a window in the market to get deals done before the winter sets back in, literally and figuratively.  Who knows though, take that bit of info as you wish.

Ok, on to the brighter side.  Copper is surging, the rounding top in $HG_F and $JJC is broken.  I had been very bearish (but not short) on copper for quite some time over the past two months.  That bearishness ended last week, and the bullishness started today as JJC broke out surpassing 40$.  As a trader, one of the most important things is the ability to change gears from bearish to bullish.  I was bearish on crude until a few weeks ago, and then got long with a double weighted position.  If copper is turned back at the yearly highs, the question becomes, are we seeing a rectangular consolidation pattern that could last another two months and result in a reversal?  Watch closely.

The Chinese equity market has been in a consolidation period for the past three months, if it can push past these highs convincingly we could see another monster run.

The agriculture sector lit the world on fire today as well.  Agrium $AGU made a huge move breaking out in a large way.  My favorite agg play $CF broke out as well.  I was whipped out of this name a few weeks back.  These things can really go on a tear now, especially given that I have no position.

Enough for tonight.

By the way, the Toronto Maple Leafs are a fucking disgrace to hockey and Canada.  Brian Burke better get his shit together up there quickly or we may see some rioting.  His only saving grace is that Les Habitants are almost as bad.

Oh yea, and my Rangers are leading the league in everything.

No hockey game for me this week as we get some rest, I could use it with my leg still being quite stiff.

Have a good evening.