Wall Street Wrap

Wall Street Wrap – Amazing Amazon and the Microsoft Revival

By Robert Perrego, at 4:59 pm on October 23rd, 2009

Two of the world’s biggest companies just got bigger, and they did it by executing and making money.  Amazon.com Inc. (NSDQ: AMZN) announced Q3 earnings of 45 cents a share vs. the 33 cents analyst’s expected, and this number propelled the stock to a new 52-week high (+26.79%, +$25.04, $118.49).  Amazon reported strong results across the board and that their number of ‘active users’ had risen to 98 million people.  And guess what?  The Christmas shopping season is right around the corner!

Microsoft Corp. (NSDQ: MSFT), that old stodgy PC based software company that Apple loves to poke fun at… you know, the ‘uncool’ tech giant that has a nerdy businessman on those TV advertisements… well that nerd is banking a LOT of profits.  Mr. Softy reported revenues at a mere $12.9 billion and their earnings were just $3.6 billion or 40 cents a share.  The street expected 32 cents, so this 25% beat jumped the company’s stock to $28.02 (+5.37%, +$1.43).  Hidden behind some good numbers is the fact that Microsoft did not book all the Windows 7 orders they received into this quarters numbers.  It has been eight years since XP came out, and with Vista being hailed as a disaster, most PC owners avoided it and are still running old operating system software.  A very strong upgrade cycle looms of users jumping straight to ‘7′, and now all the orders taken in Q3 that have not been booked into the Q3 numbers, are being pushed into Q4.

You would think that with two companies of this size reporting earnings like this the market would be up, right?  If I told you the dollar was up what would you think then?  In keeping with the latest trend; ‘Dollar Up – Dow Down’, the dollar ETF (NYSE: UUP) was up 12 cents (+0.53%, $22.43) and the Dow dropped 109.13 points (-1.08%, 9,972.18).  The S&P 500 dropped 13.31 points (-1.21%, 1,079.60) and the Nasdaq 100 lost 9.52 points (-0.53%, 1,753.63).

The dollar rallied against the pound sterling today on bad news released about U.K. GDP.  In response to this, the UUP broke above its short term down trend line that dates back to October 1st.  The UUP currently has two important down trend lines, one that shows the long term decline of the dollar and this one broken today, which has a steeper downward slope.  This break signals some near term strength in the dollar, and if the recent relationship with the Dow holds true, weakness for the stock market.  But not to worry, the long term down trend line looms above at about $22.55 (and as it is down sloping, this number gets lower every day).  According to my charts, by November 3rd, this line will come down to $22.43 and possibly reverse the dollar back to the downside.

Why the market seems to think a weak dollar is good news is beyond me.  Having the reserve currency for the world has kept our interest rates low and been a tailwind to our productivity for the last 50 years.  Right now our national debt is blowing up, and if we lose the relatively low interest rates we pay on this debt, the future costs of losing the dollar as the reserve currency are staggering to say the least.  The simple explanation for why the market is going up when the dollar drops is ’stock inflation’.  This smells like a bubble to me.

New York Spot Gold dropped $6.50 to $1,053.30 an ounce (4:39 p.m.) after trading as high as $1,068.50 prior to the stock markets open this morning.  Gold may trade in the commodity pits, but the wallop the Gold ETF (NYSE: GLD) packs from the stock market into the commodity pits is significant.  The GLD opened up at $104.50 but traded off most the day to close at $103.39.

Nymex crude dropped 69 cents a barrel (-0.86%, $79.65) and closed below $80 a barrel.  This weakness (as with gold’s) is most likely attributable to today’s strong dollar.  Many investment professionals are saying this high price for oil does not reflect the fundamentals of supply and demand properly, and that a move higher to the $100 area will cripple the economic recovery.

These days it seems watching the stock market is a lot more complicated; you have to keep an eye on the dollar, oil and gold as indicators.  Luckily we have the ETF’s for all of these now.

Numbers on the Week:

  • Dow Jones -23.73, -0.23%
  • S&P 500 -8.23, -0.75%
  • Nasdaq 100 +14.31, +0.82%
  • Gold ETF (GLD) +$0.31, +0.3%
  • Dollar ETF (UUP) -$0.04, -0.17%
  • Oil ETF (USO) +$0.46, +1.14%

Looks like that if you were in tech or commodities this week you were a winner.  If you were not, it is Friday.  Go enjoy your weekend and get ‘em next week!

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News

Market Wrap – Microsoft and Yahoo sittin’ in a Tree…

By Robert Perrego, at 4:40 pm on July 29th, 2009

The big news today hit before the market opened with Microsoft (NSDQ: MSFT) and Yahoo (NSDQ: YHOO) announcing a business alliance which will have Yahoo using Microsoft’s Bing search engine on their websites and Yahoo selling ads that appear next to the Internet-search results.  There was no cash exchanged in the deal and Yahoo’s stock dropped significantly today as some analysts speculated that an up-front Microsoft payment of up to $3 billion would be included.  It looks like Yahoo needed the deal worse and did not want to walk away from another Microsoft deal after Jerry Yang and Terry Semel missed the chance to sell the company to Microsoft for $31 a share in 2008.  Yahoo closed today at less than half that bid at $15.14 (-$2.08, -12.07%).  Microsoft gained $0.33 (+1.4%, $23.80).

Other big news that came out before the open was that the Chinese stock market had its biggest fall in five weeks with a one day drop of 5% after running up 7% in the past five trading days.  China sold off on speculation that banks would tighten up their lending.  China, the largest of the world’s emerging economies, threw a damper on emerging market exchanges worldwide.  Having the highest GDP growth rate, and also one of the few current positive GDP growth rates, has made the Chinese economy appear to be the growth engine of the planet with the drop in this market throwing copper and other commodities into a tailspin.  The double whammy of China’s perceived lessening appetite for commodities to fuel its economic build out, and the fact that many emerging market economies are commodity exporters, set an opening negative tone for the U.S. market as many foreign exchanges were lower and the price of commodities, especially economically sensitive copper was falling.

Durable Goods orders released at 8:30 a.m. showed a drop of 2.5% vs an expected drop of 0.5%.  This was the headline bad economic news until 1 p.m. when the 5-year Treasury auction met with tepid demand.  $39 billion of 5-year notes were sold at 2.689% with a bid-to-cover ratio of 1.92, the lowest b-t-c since 2002.  As mentioned in an earlier “Raked InSights” report on Treasury Auctions (7/27/2009), it appears there still is strong interest in very short term Treasury maturities as they are much less risky.  Once you start going out the curve the big buyers (China, Middle East, anyone with a brain) are getting much more worried about the value of the dollar with a U.S. $1.92 trillion dollar 2009 budget deficit and plans to fund such future expensive programs as socialized health care, cap and trade and a journey to the center of the Earth (OK, so I am exaggerating just a little).  This poor auction caused bonds to fall and interest rates to rise and this is very worrying.  If I were holding a lot of long term Treasuries and was worried about the dollar falling, I would be quietly selling off what long paper I could as not to cause a selling spiral, and so that the front page statistics did not show I was dumping Treasuries, I would be buying back into the short term paper so I can say ‘look Ma’ same dollar holdings’.

Weakness in the longer end of the Treasury curve is something we do not need right now as it is one of the things that could kill any economic recovery.  The big question remains; If our traditional large long term Treasury buyers shy from the upcoming huge amount of issuance scheduled, causing interest rates to spike, what then?  This could leave the only serious buyer of U.S. long term debt being Bernanke and the Fed with his quantitative easing program.  This would basically eliminate any efficacy of this program as the U.S. would be selling the bonds with one hand and buying them with the other and that is nothing short of monetizing the deficit and printing money – which would cause rates to rise and the dollar to drop.  The only hope we have that foreign money will continue to finance our spending and deficits is that they need to prop up the dollars and bonds they already own, but just like with OPEC – countries and people will cheat.  Maybe by selling long term and shifting assets to short term?

In spite of the bad news today the market held up surprisingly well so there still is hope.  The Dow Jones lost just 26 points (-0.28%, 9070.72) with the S&P 500 dropping 4.47 points (-0.45%, 975.15) and the Nasdaq 100 losing 5.86 points (-0.36%, 1599.61).

NYMEX WTI Crude Oil had a rough day getting clocked for a huge $4.29 a barrel at 4:42 p.m. est (-6.40%, $62.93) on a reported build in inventory of 5.2 million barrels and the beginning yesterday of hearings held by the Commodity Futures Trading Commission into position limits on the commodities markets here in the U.S.  Gold, which could also be affected by these hearings, dropped $7.80 an ounce ($929.20/ounce at 4:43 p.m. est).

The sectors that led today were consumer non-cyclicals up 0.36% and technology while losing 0.10% lost less than the other sectors.  Down big was energy on the oil drop at -2.54% followed by industrials down 0.60%.

Looking on the bright side we are going to get Jobless claims numbers tomorrow!  OK, so it is not a ‘bright side’ to see people losing their jobs and we are expecting 585,000 additional job losses to be announced at 8:30 a.m.  Let’s hope for less than 554,000 as that was last weeks number and this would continue of a trend of dropping job losses and that would be good news.

Earnings season tomorrow continues with many reporting.  The long list concludes:  ABC (0.39) before the open, AOC (0.74) bto, APA (1.07) bto, AZN (1.40) bto, ADP (0.45) bto, AVP (0.34), ABX (0.38) bto, BEC (0.81) after the close, BDX (1.24), CVC (0.29) bto, CRS (-0.28) bto, CI (0.96) bto, CL (1.05), DTE (0.15) atc, EK (-0.37) bto, XOM (1.02) bto, FSLR (1.62) atc, BEN (0.87) bto, GT (-0.70) bto, HP (0.51) bto, IP (0.00) bto, KSU (0.10) bto, K (0.82) bto, LVS (-0.01), MA (2.42) bto, MFE (0.57), MET (0.68) atc, MHK (0.47), MOT (-0.04) bto, NBL (0.55), OMX (-0.07), OSK (-0.18) bto, PBI (0.60) atc, PDE (0.66) bto, COL (0.90) bto, SLW (0.07) atc, SNE (-0.69), TSM (0.13), DOW (-0.08) bto, TYC (0.45) bto, VCI (0.14), DIS (0.51) atc, WMI (0.54) bto, XEL (0.25) bto, YRCW (-1.71) atc

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News

Market Wrap – Nasdaq’s Streak is broken on Microsoft’s soft Earnings

By Robert Perrego, at 4:31 pm on July 24th, 2009

The Nasdaq finished in the red today ending its positive gain days streak at 12.  Weakness in the tech sector was led by Microsoft Corporation, which posted total sales $1 billion less than expected and was also the first ever decline in Windows annual sales.  Amazon.com Inc. also came out after the bell yesterday with earnings that, while they beat expectations by a penny, were not as strong as many had thought they would be.

Amazon.com (NSDQ: AMZN) lost $7.38 a share (-7.86%, $86.49) and Microsoft (NSDQ: MSFT) lost $2.11 (-8.25%, $23.45) today.

The Dow closed up today by 23.95 points (+0.26%, 9093.24) with the S&P also marginally improving by 2.97 points (+0.30%, 979.26) and the red hitting the Nasdaq 100 losing 2.48 points (-0.15%, 1599.06).  After yesterday’s rally it was a positive event that we held these levels but no movement or a market stall like today could also be setting us up for a reversal next week.

Sector movement: Energy +1.03% followed by consumer cyclicals +0.91% with tech -0.01% and finance -0.08% the two losers.

Oil closed out the day with an 89 cent rally (+1.33%, $68.05/barrel) and Gold added $3.70 an ounce but seems to still be stalled out right around the $950 resistance level ($951.70/ounce at 4:15 p.m. est).

Leonardo Fibonacci, in 1202, introduced the 0 through 9 mathematical system to the west and also, through the study of Egypt’s pyramids, noticed ‘The Golden Ratio’ extension 0.618.  Many technical traders use what are called Fibonacci Retracements to measure the size of a reaction (bounce/pullback) to a stock or index move.  Scientists have also proven the existence, and many times for unexplained reasons, of this same ratio or Fibonacci number, in many instances of natural phenomena such as waves on a pond cause by a raindrop.  Regardless of various claims, if enough traders use it, it will become a self-fulfilling prophecy or it could just be that it works for a real reason.

The Dow peaked at 14,198 and bottomed at 6,469.  According to Fibonacci’s Retracement theory the first reaction level should be at;

14,198 – 6,469 = 7,729.

6,469 + (7,729 * (1-0.618)) = 9,421

Now 9,421 looks like another 328 points to the upside to me and I am sure the Bulls would agree.  Currently the market has bounced about 1/3 from the bottom (9,005) which is a level that I have seen many traders improperly use for the first Fibonacci level (1/3). Coincidence?

An important news event today was that the ‘Blue Dog’ Democrats in the House stated that Obama’s health plan will not pass in its current form.  The Bill, which needs to be cleared though three committee votes before going to vote on the floor of the House has been cleared by two, but is blocked by seven Blue Dog’s on the House Energy and Commerce Committee.  Health care companies performed well today and yesterday as a result, many believe, of the stalling of health care reform.  Pharmaceutical – MRK + $0.74 (2.44%, $30.99), Health insurer – UNH + $0.27 (0.99%, $27.32), Hospital Services – UHS + $1.52 (2.97%, $52.61).

On the housing front houses for rent rose 6% while houses for sale fell 9%.  This shows a shift from people not choosing to sell their house but rent it out to ride out the price swoon and hopefully get a better price later.  Also, banks are not putting a lot of foreclosed homes up for sale with speculation they are holding off to keep the housing market prices from dropping even further.  I got news for ya’ banks – you are going to have to sell them sooner or later.  It seems like a lot of people are holding off hoping for a better price.  This is like a game of chicken as there are all these people sitting around saying ‘nope, not selling yet’ but as soon as prices improve slightly someone tries to cheat and get their home out there and the prices drop right back down.  Time usually cures this ‘invisible’ supply but that is just the thing – this stretches out the low price time and consequently the bad economic times for all of us.  If all these stubborn sellers would just dump the homes we could make a volume bottom and get on with the recovery.

One main theme heard throughout all the latest earnings is that revenues or total sales have dropped significantly but that companies are beating the earnings numbers analysts expected them to hit.  Most of these beats were caused by ‘increasing efficiencies’ and cost cutting.  Putting this phrase into more immediate and descriptive terms, companies are cutting jobs and that means higher unemployment.  Can the consumer, which contributes to 70% of the economy, lead us out of this recession without having a job?  What will be the next job creation sector or where will the next job wave come from?  Efficiencies usually means less jobs.

Have a great weekend.  See you Monday.

Monday Economic Releases: 10:00 a.m. New Home Sales.

Tuesday: 9:00 a.m. S&P Case-Shiller HPI, 10:00 a.m. Consumer Confidence

Monday earnings Releases: ACE (1.94) after the close, ACV (0.29), GLW (0.32) before the open, EPD (0.41) bto, FCL (0.71) bto, HMA (0.10) atc, HON (0.60) bto, LO (1.43), MTH (-0.71) atc, OMI (0.63) atc, PRE (2.33) atc, PPD (1.64) atc, RSH (0.28) bto, SOHU (0.76) bto, TFX (0.88) bto, TLAB (0.06) bto, VZ (0.63) bto, TZOO (0.02) bto

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News

Amazon and Microsoft both get Hit after the Bell

By Robert Perrego, at 4:47 pm on July 23rd, 2009

Amazon (NSDQ: AMZN) beat expected earnings by 1 penny posting 32 cents a share on $142 in earnings on sales of $4.65 billion.  Last year this quarter they posted $158 million and 37 cents a share.  Shares and quickly traded lower and are trading at $86.11 at 4:47 pm est after closing at $94.03.

Microsofts (NSDQ: MSFT) revenues dropped 17% to $13.1 billion with profits of $3.05 Billion and 34 cents a share.  Last year same quarter profits were at $4.3 billion and 46 cents a share.  The stock was trading at $23.50 in the after market (4:45 pm est) after closing at $25.52 in the regular trading session.

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News

Ba-Da Bing: All a Matter of Perspective

By Taryn Cooper, at 11:55 am on July 15th, 2009

I found this quite interesting, but it all goes to show that the saying three types of lies exist: lies, damned lies and statistics.  But I digress.

This posting has to do within five minutes of going through some RakedIn feeds, three articles came up regarding Microsoft’s (MSFT) new search engine, Bing.

The first one that caught my eye was from Dan Frommer of Silicon Valley Insider.  In Bing’s First Month a Bust, the statistic from comScore (SCOR) that has been repeated today was that in the month of June, MSFT’s search market was up 8.4% from 8.0% in May.  Frommer suggests that this represents a “bust” for Microsoft and Bing, regarding all the advertising and marketing we’ve seen behind the newly vamped search engine.

The second article made me chuckle, as it basically used the same statistic of 8.4% growth in June as a positive spin.  This one, from All Things Digital and titled Another Bing Boost: ComScore says Microsoft Search Share Up in June.  While possibly correctly assuming that this modest boost in market share might not bump Microsoft’s shares right away, compared to that of Google (GOOG), IAC Interactive (IACI) and Time Warner’s (TWX) AOL, this is the harbinger of positive things to come.

Possibly the most correct assumption out there is the third and final article I was able to read – the “Goldilocks-Juuuuuust-Right” theory that Bing Reverses Microsoft’s Decline, but Actual Gain Is Modest from The Puget Sound Business Journal.  Ah, yes, perhaps one month of data won’t tell us exactly what Bing is going to do for Microsoft, but a bump is a bump, yes?

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