Big Cap Technology Stocks Hold Back Stock Gains
July 19, 2008
After the bell Thursday MSFT and GOOG missed expectations sending both stocks lower after hours. Come Friday little had changed as these two gigantic technology stocks weighed heavily on the NASDAQ. AAPL joined the fun and ended lower on slightly higher volume. Options expiry failed to inspire volume to rise, it certainly gave the impression traders were simply not around for the trading session. Stocks finished off their lows on lower trade and was a quiet day overall for the entire market.
At Big Wave Trading, we feel this market is not our new bull market. With that said, we are finding some stocks that are setting up nicely and starting to present opportunities to make money. In the grand scheme of things we aren’t in an environment where we are going to grab our 1000%+ winners. Therefore, we are keeping our cash levels high and, new trades small, taking profits quickly, and (THE MOST IMPORTANT THING) cutting our losses (keeping them small).
We continue to see market pundits believe we have bottomed in financials. However, this was stated back in September ‘07, Jan. ‘08, March ‘08, and again now. When will we bottom? Here at Big Wave Trading we only care when we know our new bull market is here. At the moment the VIX, VXN, NH to NL ratio, and lack of a follow through day tell us we are not there yet. The real big tell is that we are not seeing as many stocks come through our market scan as we would normally see in a bull market. Stocks simply aren’t ready to make a giant leap forward. Until they do, we’ll be cash heavy read to pounce on the new opportunities.
Looking forward to seeing Josh back on the saddle!
Aloha,
Market Speculator
Big Cap Technology Stocks Hold Back Stock Gains
Gamblers Need Not Apply
July 19, 2008
I am in the belief that we have not seen our ultimate lows in the market. We have not seen the type of capitulation selling you typically see at the market’s lows. VIX and VXN continue to show the lack of fear in the market to show a real turn in market direction. If you are a gambler, step away from the market. This market is one for the birds and will present little (slim odds) upside potential. Gamblers will look to place abnormal risky bets using far too much capital placing them at risk to be wiped out. When the market is presenting such small odds for winning trades it is best you step aside and let it self work out.
The worse trait to have as a trader/investor is the gambler mentality. All the greatest speculators in the world knew how to cut their losses and avoid trendless/bear markets. Our current bear market is one that should be avoided all together. IBD research has shown that Monster Stock gains arrive when we are at the beginning of a new bull market. Why not use this research to our advantage and get a large cash position. We can still find some stocks that are setting up nicely in a bear market but our odds are not as great as if it were a bull. The key is to take profits a bit more quickly in bear markets and make sure you keep your losses small! Not only will you see gains in your trading but you’ll be well capitalized for the next Bull Market!
Aloha,
Market Speculator
Are Commodities Reversing or Consolidating?
July 19, 2008
Bill Luby submits:
It has been a dramatic week in the markets, with the long oil and short financials trade reversing hard and a number of the relationships that have been intact for the past nine months being thrown into disarray.
As I have been maintaining since early in the year, speculative money is likely to be flowing into either commodities or equities, but not both. That basic premise has not changed, but what has been called into question is whether the second half of 2008 will be more friendly to commodities or equities.
Are Commodities Reversing or Consolidating?
Notes on a Schizophrenic Market Week
July 19, 2008
Trader Mark submits:
It seems like weeks ago, but we began this week fearing if the current system of funding home mortgages in the United States was to remain upright in current form or not. Once we were assured the government will print enough money as it takes to prop up … er, support … er, promise to support but only in worst case scenario and don’t you dare call it a bailout …the GSEs, and then financials as a whole took off. And we had our "rotation" because as you know in this stock market, we cannot have all sectors working at once; so if "early cycle" stocks work than that giant sucking sound you heard (those of you old enough to remember Ross Perot know what I’m referencing) was hedge fund money being sucked out of commodities.
Folks, I have not had time to really delve into economics or interesting stories this week since we’ve been focused on transactions and the crazy life of financials, but I highly recommend some weekend reading of this damning story by Portfolio.com in regards to Countrywide Financial’s CEO Angelo Mozilo and his "Friends of Mozilo" program - i.e. give preferential mortgage terms to those in power in return for… ? (dare we utter it out loud) Hah. Does it say everything we talk about all the time - what a corrupt system - the regulators watching over the financials are partaking in this favoritism? Foxes watching henhouse, Senator Dodd? I tell you, if Dodd had somehow been the Democratic presidential candidate this story would be #1 on every news channel in America. Instead it’s just for people like me to scoff at on back channels; but truly it is an example of why our leadership is such a disaster.
But I digress. This was a tale of two weeks - (a) Monday, Tuesday, Wednesday, and Friday. And then (b) Thursday. The day the music died … and this guy ——> showed up to strike his light saber through our sternum. Ouch. Thursday alone we dropped 3.5% while the S&P raged up 1.2% so we lost 4.7% points of relative performance versus the index in 1 day. Horrid. (But hey, Mr Ken Heebner lost 5% that day) 
If you owned commodities you were blindsided and smacked on the side of the head. Now on weeks like Thursday in the past corrections, we actually would have had even more pain applied by remaining short financials, and real estate, so we learned that lesson. So instead of losing 6% that day we lost 3.5%. Small victory. The other 4 days of the week we actually beat the market by 1%, but it was impossible to overcome Darth’s visit on Thursday. We had some excitement this week when something that should have been fantastic, our #1 position being taken over, turned relatively sour quickly. Instead of enjoying a nice 30%ish pop on a 5% stake,we actually lost money in the position this week. Go figure - did I mention how much I enjoy bear markets?
Notes on a Schizophrenic Market Week
We need oil (CNQ, rated BUY)
July 19, 2008
We need oil; it’s a simple as that. All the talk of alternative forms of energy is interesting, but I don’t see any of them playing anything more than a bit part in our overall energy needs for the next decade. The world has plenty of oil, but it’s just that the oil we have is harder and more expensive to get than the oil we’ve had. The technology exists today to extract energy from oil sands, there is a bunch of oil in the sands, and I think they will play an important part in providing energy to North America for decades to come. CNQ is executing well on its Horizon project and will be poised to generate nice free cash once all of the production comes online.
FreeportMcMoRan Copper & Gold Inc (FCX) is a BUY
July 19, 2008
A strong metals maker, it is a prime candidate for Vale and Rio to add to its copper and molybdenum exposure in the middle of a global infrastructure boom. Options expiration week has created profit-taking, which is now a buying opportunity, as the sector trend continues.
UBS made a statement, which can be found here:
http://www.streetinsider.com/Analyst+Comments/UPDATE%3A+UBS+T…
FreeportMcMoRan Copper & Gold Inc (FCX) is a BUY
Companhia Vale Do Rio Doce (RIO, rated BUY)
July 19, 2008
BUY: Companhia Vale do Rio <o:p> </o:p>
Doce (nyse: RIO) <o:p> </o:p>
Companhia Vale do Rio Doce is the world’s <o:p> </o:p>
largest producer of iron ore, and a top player in <o:p> </o:p>
coal, nickel and other base metals. It holds <o:p> </o:p>
exploration claims that cover 24 million acres <o:p> </o:p>
in Brazil and 9.8 million acres outside Brazil. <o:p> </o:p>
Despite the fact that diluted earnings per <o:p> </o:p>
share rose 62.9% last year, the stock is selling at <o:p> </o:p>
a ridiculously cheap 12-times expected earnings. <o:p> </o:p>
The stock is on sale because short-sighted <o:p> </o:p>
traders are worried about a recession. But most <o:p> </o:p>
of Vale’s business comes from strong markets <o:p> </o:p>
outside of America, especially China, which are <o:p> </o:p>
unlikely to see the kind of weakness we’re experiencing <o:p> </o:p>
domestically. Moreover, steel companies <o:p> </o:p>
all over Asia and Europe recently agreed to <o:p> </o:p>
contract price increases of 60% to 86% for iron <o:p> </o:p>
ore and pellets for the year ahead. <o:p> </o:p>
We’ve owned Vale for less than three years, <o:p> </o:p>
and it’s up 386% for us. I think it’s <o:p> </o:p>
more likely earth will be destroyed <o:p> </o:p>
by an asteroid than that this company <o:p> </o:p>
won’t produce earnings this <o:p> </o:p>
year that more than justify it’s P/E of 12 regardless <o:p> </o:p>
of the overall economy. I expect this stock <o:p> </o:p>
to be at least $46 within a year, and probably <o:p> </o:p>
over $50. <o:p> </o:p>
KEY STATS: <o:p> </o:p>
Recent Price: $40.90 <o:p> </o:p>
52 Week High: $38.46 <o:p> </o:p>
52 Week Low: $17.00 <o:p> </o:p>
Market Cap($BIL): $197.6 <o:p> </o:p>
2007 Revenues ($BIL): $32.2 <o:p> </o:p>
2007 Net Income ($BIL): $11.8 <o:p> </o:p>
2007 EPS: $2.42 <o:p> </o:p>
2007 Gross Margin: 48.9 <o:p> </o:p>
2008 Est. EPS: $3.27 <o:p> </o:p>
2008 Est. P/E: 12.2 <o:p> </o:p>
Dividend Yield (%): 0.3 <o:p> </o:p>
Short Interest/float (%): 1.6
| Analysts’ Recommendation: |
Buy |
| 30 Days Ago: | Buy |
|
|
|
| Analysts’ Target: | $44 |
| Analysts’ Targets | |
| Lehman Brothers | $45 |
| Overweight | |
| Thursday, June 26, 2008 | |
| Canaccord Adams | $45 |
| Buy | |
| Tuesday, April 29, 2008 | |
| HSBC Securities | $44 |
| Neutral | |
| Wednesday, April 09, 2008 | |
| Deutsche Bank Securities | $48 |
| Buy | |
| Wednesday, April 02, 2008 | |
| Citigroup | $37 |
| Buy | |
| Monday, March 31, 2008 |
| Dividend Information | |
| Dividend Yield: |
1.80 %
|
| Dividend Yield 5yr Avg: |
1.90 %
|
| Dividend Rate: |
$ 0.52 %
|
| Dividend Payout Ratio: |
14.00 %
|
| Dividend Payout Ratio 5yr Avg: |
24.00 %
|
| Dividend Growth Rate 3yr Avg: |
26.82 %
|
| Dividend Growth Rate 5yr Avg: |
31.00 %
|
| Dividend AllStar™ Ranking: |
 |
| Consecutive Div. Increases: |
1 years
|
| Dividend Payment Type: |
Cash
|
| Dividend Declaration Date: |
Apr-08-2008
|
| Dividend Ex Date: |
Apr-11-2008
|
| Dividend Record Date: |
Apr-15-2008
|
| Dividend Pay Date: |
May-07-2008
|
| Dividend Amount: |
0.2587
|
| Dividend Payments: |
Last 12 months payments: 2
|
Companhia Vale Do Rio Doce (RIO, rated BUY)
Time To Buy Agency Mortgage Bonds?
July 19, 2008
David Merkel submits:
The above graph shows the difference in yields between a current coupon 30-year FNMA pass-through security, and a 10-year on-the-run FNMA senior note. It is a good proxy for how much value is available in agency mortgages versus the debt that they issue. Now, in mid-March, spreads were particularly high, because mortgage REITs and other leveraged holders of agency mortgages were forced to sell because of rising haircuts on repo financing. Today, the furor is over the solvency of the agencies themselves.
Time To Buy Agency Mortgage Bonds?
VC: Exits? We Don’t Need No Stinking Exits!
July 19, 2008
Erick Schonfeld submits:
Second quarter data is out on venture deals from the National Venture Capital Association and PriceWaterhouseCoopers. Despite the IPO market drying up completely, the What-Me-Worry crowd on Sand Hill Road keep pumping money into venture deals at a steady pace. Venture capitalists invested $7.4 billion last quarter in 990 deals, compared to $7.5 billion in 997 deals during the first quarter (a number that looks like it was revised upwards from the $7.1 billion the same group originally reported last April). The average deal size last quarter was $7.5 million. (Click on the charts for bigger images).
VC: Exits? We Don’t Need No Stinking Exits!
Ascending Triangle (GE, rated BUY)
July 19, 2008
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