Monday, May 28, 2012

Big week for macro data

Hope you all had a great long weekend, but its time to get back to work, and what a week this is going to be; 3 jam packed days of macro data that could throw markets anywhere.

Lets look at what has happened so far in the last couple weeks:

We saw the starting of a downward trend at 1,360; since then we have lost nearly 60 handles, and the pattern looks to continue for some time. We had a big explosion to the upside to start off 2012 and in my opinion that plethora of buying will probably continue after a slight pause, I’m just not sure when or how much we can regain.

Looking at Earnings reports from last week, Home Depot reported a surprisingly good quarter; margins looked pretty solid, with operating income at its highest since Q2 last year. Same with Deere, which doubled its net income from last quarter, but the rally was stalled by the overall market. Going forward after this report, DE could be well into the 90’s the fundamentals are getting cheap now and surprised me.

On the other hand, AAP reported what I thought would happen. This quarter was great, but their comments on the second quarter were very bleak. Shares plunged over $20, but have since recovered about $7 of that back. I would look to buying AZO instead.

As I previously stated, this is going to be a huge week, here is what is going on, all EST:

·        9:00AM Case Shiller 20-City Index   Prev: -3.5% Exp: -2.8%
·        10:30AM Dallas Fed Manufacturing Prev: -3.4 Consensus: 3.0
·        7:00AM MBA Mortgage Index  Prev: 3.8%
·        10:00AM Pending Home Sales   Prev: 4.1% Exp: -1.0%

·        7:30AM Challenger Job Cuts Exp: 11.2%
·        8:15AM ADP Unemployment Report  Prev: 119K Exp: 145K Forecast: 165K
·        8:30AM Jobless Claims  Exp: 370K  Forecast: 365K
·        8:30AM Continuing Claims Exp: 3.265M  Forecast 3.25M
·        8:30AM GDP 2nd estimate Q1  Prev: 2.2% Exp: 1.9% Forecast: 1.9%
·        8:30AM GDP Deflator 2nd estimate Q1 Prev: 1.5% Exp: 1.5% Forecast: 1.5%
·        9:45AM Chicago PMI Prev: 56.2 Exp: 57.5 Forecast: 55.0
·        11:00AM Crude Oil inventories Prev: .883M barrels

·         8:30AM Non-Farm Payrolls Prev: 115K Exp:155K Forecast: 175K
·         8:30AM Non-Farm Private Payrolls Prev: 130K Exp:172K Forecast: 185K
·         8:30AM Unemployment Rate Prev: 8.1% Exp: 8.1% Forecast 8.0%
·         8:30AM Hourly Earnings Prev: 0.0% Exp: 0.2% Forecast 0.1%
·        8:30AM Average Workweek Prev: 34.5 Exp: 34.5 Forecast 34.5
·        8:30AM Personal Income Prev: 0.4% Exp: 0.3% Forecast: 0.2%
·        8:30AM Personal Spending Prev: 0.3% Exp: 0.3% Forecast: 0.2%
·        8:30AM PCE Prices-Core Prev: 0.2% Exp: 0.2% Forecast: 0.2%
·        10:00AM ISM Index Prev: 54.8 Exp: 54.0 Forecast: 53.0
·        10:00AM Construction Spending Prev: 0.1% Exp: 0.5% Forecast 0.0%
·        2:00PM Auto Sales Exp: 5.0M
·        2:00PM Truck Sales Exp: 6.0

Here is how the week will shape up with earnings reports, not much going on:

Tuedsay: DryShips (Which I still own and will go into detail on)

Thrsday: Canadian Imperial Bank
               Joy Global
               Vera Bradley

DryShips is one of the names I have been long now for about 6 months basically on a bargin hunt at 2.00. After announcing the backlog of orders from their substantial stake in OceanRig the stock has done rather nicely, but pulled back. I still believe that the growth is there, they are back to making money, while increasing their cash and accounts receivables to respectable levels.

Last quarter, they reported a small loss, after a very nice net income of 25M. I am expecting another beat here, but could just break even or be a smaller than anticipated loss. I will continue to hold this as a long position for now. Trading at 3x sales, this is a bargin to me. I am a big believer in dry bulk shipping to be the 1st thing to rebound when we do get a substantial recovery, and while I wait, as I have said above, they have a sizable stake in an oil driller.

Solely based on technical analysis, I will possibly put on a trade for Coldwater Creek $CWTR this week ahead of its earnings report. Looking at 200 shares if I can get them under .85 that would be my target. I know it is a very small position, but I have had luck with this name in the past; last August buying before the move up above a dollar in September, made about $40. Right now, I am eyeing the .84-1.12 level for a very short term trading range.

Above CWTR

Next name I want to look at on a fundamental/technical basis is Vera Bradley. They are a designer, producer, marketer, and retailer of functional accessories for women. Their products include handbags, accessories, and travel and leisure items. As of January 28, 2012, they have Vera Bradley products through its 48 full-price stores, its eight outlet stores in the United States, seven stores in Japan, the website They also sell their products to 3,300 specialty retail stores.

I used to be bearish on these high end retail names, especially VRA when they went public in to ’10 moving in to the mid 40’s price range for the stock. They were trading at a huge premium compared to their sales and earnings, and after a couple bleak quarters, their stock has dropped more than 50% from its peak. In reviewing their last 2 quarters, they were very good and we could be in for a surprise to the upside here. In one year they have doubled their net income, which is one of the main things I look at, another is revenue increase by 30%, always good to see more sales=growth.

They have also cut their long-term borrowings by more than 50% in one year, liabilities are down substantially, so it is always good to see a company that can pay off debt. Cash/receivables are also increasing, another good sign.

Technical analysis shows a breakout above top level of resistance, along with trends and MACD. I have 0 on MACD around 31.5 so we could potentially see a pop toward there in the near term.

I will also be looking at Frontline (FRO) for a potential trade next week or before their report, also Teekay Tankers under 4.00 looks attractive for a trade. I will also be watching, not for a trade but a probable move up in Joy Global. Doing a quick chart comparison to their largest competitor Caterpillar, they are down 30% compared to CAT down 10%. Joy is also trading below October 3rd 2011 lows right at a key support level of 60.00. Follow @peter_eller10 on twitter for updates I should be on all week.

Sunday, May 13, 2012

Previewing the upcoming week

Welcome back everyone, it’s been over a month since my last post, been busy finishing up the last month of school, semester was good overall but not quite exceeding my expectations, win some, lose some. Let’s get down to business. We have been seeing this pattern of equities selling off and the dollar rallying after Fed interventions for the last 3 years now, and it seems like we are currently in that rut. Within the last month Operation Twist/QE3 ended and we have been seeing a bit of pressure on equities. The Euro this week broke below 1.30 and traded down near a 1.28 handle. We still have to remember that nothing in Europe is fixed and the US is not surrounded by a bubble; whatever happens overseas DOES affect us here.
This is what I foresee happening the rest of this month/this summer:
  •         With corporate earnings relatively in line to beating estimates recently, the Fed probably believes that we are back in somewhat of a recovery
  •         No more rounds of QE
  •         We will see equities weaken and the Dollar rally, Euro could go below 1.25
  •         Europe will continue to be a problem with yields still very high, Greece could leave Euro Zone as early as sometime this summer, worst case scenario

What got me a bit concerned was about two months ago when McDonald’s came out with their comps and mentioned slowing global growth, especially China. MCD stock is off about 10 dollars since this, took a huge hit this week, and will be interesting to watch under 90.00 if we get there. MCD is down 8.4% YTD and is one of the worst performing Dow 30 stocks thus far.

 Above (via ZeroHedge) is what I was talking about. Notice equities get a bit uneasy after the Fed stops intervening.

We have a slew of Macro data out next week, some of which will be market moving.
·        Tuesday, May 15th:
o   8:30AM Retail Sales Exp 0.2% Prev. 0.8%
o   8:30AM CPI Exp. 0.0% Prev. 0.3%
o   8:30AM Core CPI Exp. 0.2% Prev. 0.2%
o   8:30AM Empire Manufacturing Exp. 8.4 Prev. 6.6
o   10:00AM Business Inventories Exp. 0.3% Prev. 0.6%
o   10:00AM NAHB Housing Market Index Exp. 26 Prev. 25
·        Wednesday, May 16th:
o   7:00AM MBA Mortgage Index
o   8:30AM Housing Starts Exp. 680K Prev. 654K
o   8:30AM Building Permits Exp. 730K Prev. 747K
o   9:15AM Industrial Production Exp. 0.5% Prev. 0.0%
o   9:15AM Capacity Utilization Exp. 79.0% Prev. 78.6%
o   10:30 Crude Inventories Prev. 3.652M
o   2:00PM FOMC Minutes ßBig event
·        Thursday May 17th
o   8:30AM Initial Jobless Claims Exp. 365K Prev. 367K
o   8:30AM Continuing Claims Exp. 3.25M Prev. 3.229M
o   10:00AM Philadelphia Fed Exp. 8.8 Prev. 8.5
o   10:00AM Leading Indicators Exp. 0.2% Prev. 0.3%

We also have a few earnings reports out this week, biggest ones to watch for:
·        Monday
o   Silver Wheaton
·        Tuesday
o   Home Depot
o   JC Penny
o   Pan American Silver
o   Saks Fifth Avenue
o   Valspar
·        Wednesday
o   Abercrombie&Fitch
o   Chico’s FAS
o   Deere
o   Limited Brands
o   Target
·        Thursday
o   Advanced Auto Parts
o   AutoDesk
o   Bon-Ton
o   Dollar Tree
o   The Gap
o   Ross Stores
o   Sears
o   Teekay Tankers
o   Wal-Mart

Looking at Home Depot before they report, I’m seeing a big sell here. They have performed very well in the past year, especially compared to Lowes.

Above, HD is up more than double, 36% compared to Lowes, 15%. Since people are not buying new homes but fixing them up, I can see why both have done well, but I am still not convinced this rally can continue, especially nearing ’07 levels. What I am most concerned about is their margins. Looking on a q/q basis, we have been seeing declining margins as shown below:

 Going forward, I still think they can be a very profitable business, but am worried investors might sell this off on just a slight miss. They have cut their costs drastically, but revenue has been declining since mid last year.

Next, looking at Deere, I can also see the same thing happening here. If it is true global growth is slowing, this is a name that will be directly affected. Revenue and income took a huge hit in Q1 ’12 down from 8.44B to 6.63B and 669M to 532M respectively.

Technical analysis shows DE as a sell

I also spotted a Death Cross (50day crossing below 100day) in this chart, could have the potential to cross under the 50% retracement 52wk hi-lo which is 75.26.

Next, looking at Target and Wal-Mart. WMT has been in the news recently with some bribery scandals in Mexico, seemed to be a one and done event, stock is up $2 from its low since then, but still more than $3 off it’s 52wk high. I’m a bit cautious here, and want to look more into buying TGT instead. TGT have performed about the same and has a strong chance to get toward 58-60 on a solid report. I like both names, but the potential for WMT going up here is lower, in my opinion. WMT is flirting with all-time highs, wile TGT at 60.00 was last seen in ’10 and still more than $10 off all-time highs from there. Below is a YTD performance of both names.

Last, looking at one of the stronger names for the last few years, but spotting some slowing growth is Advanced Auto Parts (AAP).  We all know the whole story here, less people buying cars, more fixing them up. In my previous posts, I have been a big fan of AutoZone from around 300, has done very nicely since last fall, but I’m seeing some red flags for both. Once again the issue is shrinking margins.

As shown above, there are 2 quarters in a row of revenue decline with net income almost being cut in half, while stock continued to rally. Would not be surprised to see a slight guidance cut for ’12; the stock has had a great run in the last 3 years, time to take some off the table.

Also, putting a big sell rating on Sears before their report; 4 quarters of negative growth and the last one losing 2.4B, not good at all.

That’s all for this week, catch me on twitter @peter_eller10 for more updates.

Thursday, May 10, 2012

Friendship, College, Jobs

If you enjoy college, have a lot of friends and do well, don’t bother reading this. I just finished my 2nd year of college and I can say that I have to sit here for a while and think about what I actually learned. It is sad that some people actually have to pay close to $35,000/year to go to an institution and think they are learning something they could just go on the internet and read about. Don’t get me wrong, I think this will change next year when I start to get into my major classes, but honestly who is going to use skills they “learned” in their core intro classes the first 2 years later in life? The stuff is so boring, adding to the fact that the professors jam their views down your throat for 150 minutes a week. That could possibly be why people fail them and just don’t care. Me being a perfectionist, or something close to it, struggles in these courses which leaves me frustrated beyond all belief. There is no point to reading the Bible if you are a Finance major. I would rather be doing things to help me become better at my future career, like writing up blogs/tweets on equity analysis or just some fun finance facts that I enjoy. Same goes for any other major out there, I’m sure I can vouch for the GW bio students who work endless hours. Also, in the 2 years I have been here, though it is a small place of about 2,000 students, I still cannot seem to find anyone who likes things I do. There are a few who are very smart Finance majors, have outstanding gpa’s, tons of friends, but spend their weekends getting drunk. I don’t have anything against them, but I just want to be that person to, you know sip on a glass of wine on the weekends discussing some finance; relaxing. As many might know, I don’t have a lot of close friends because I fully believe that we are all acting out of selfish interests, so we need someone there to “help us out” to get to our final goal, being known, popular. There are a majority of people who care about their friends, and that is good too, but I just have different views on it. Think about this for a second, you could have all of the “friends” in the world, but what if you had no money, no job? Well then you would be just like the rest of the American scum on welfare. We have a very small percentage of Americans who work hard to carry the weight for others who are too lazy. “There are no jobs” is no excuse. Educate yourself. Find something. Your job is to look for a job, it is not handed to you on a silver platter. Read news stories at the public library if you are homeless, see where employment is sparking up, sign up, you may get lucky, you may not. Keep going. We can keep pretending or we can plow through it. Hard work is rewarding and don’t let anyone tell you different.

Sunday, May 6, 2012

Two years later: Is investor confidence back?

Is investor confidence back? Some may think yes, but from what I am seeing is that people are still continuing to sit on the sidelines. After May 6th 2010, we saw what happens when humans are not on the other side of the trade and the computers take over. How are we supposed to trust the system? I am no expert in this, but from what I see day to day, events like this are still occurring, at a much smaller level, but this could make it worse, singling out investors. The 10% rule on the NASDAQ and NYSE have helped alleviate the situation to a point, but when they open back up a few minutes later, same thing happens again. Not only does this happen with equity, but commodity names as well. Remember last year this week, silver, gold, oil, all took a huge hit? That for sure was not retail getting out. I stand to stay skeptical and think this could happen again at any moment. I myself as a long term investor and part-time day trader was directly affected by erroneous prints that day. SEC Chairman Mary Schapiro four months later spoke out about this event saying, “high frequency trading firms have a tremendous capacity to affect the stability and integrity of the equity markets. Currently, however, high frequency trading firms are subject to very little in the way of obligations either to protect that stability by promoting reasonable price continuity in tough times, or to refrain from exacerbating price volatility” Another topic of concern is flash trading where participants can see orders fractions of a second before the other side. This is clearly unfair, even if it is 30 milliseconds, this could be a few pennies or a few million dollars, and it usually is the latter. The main issue here is money and not morals, the participants who see the orders early are paying a fee. The exchanges who still use it today say that it is necessary “to provide liquidity”. Looking at where we are today and how unstable the macroeconomic outlook is already, liquidity is certainly not needed. These firms want more liquidity, or volume for that matter to churn for profits. They want to keep collecting those fees, while hurting the retail investor in turn by getting them erroneous prices on trades. What I think will happen in a couple of years is that there will be no more human interaction on the exchanges, and that scares me. Watching CNBC, it seems like the NYSE floor gets quieter and less populated every day, except on IPO days. These exchanges rely on HFT to give them revenue, which is still very much active today, in asset classes other than equities. What I think happened is that HFT got the investors scared, they left equities, stocks basically trade on holiday volume or less daily, now HFT has taken over commodities and whatever else is left. This past week oil was down almost 10%, some of the trades 1.00 at a time, not human. The exchanges will go out of business and trading will all be done on computers. We are already seeing this in Chicago with the only open-outcry pits left are Cattle. A good piece-by-piece documentary called Floored explains from veteran traders’ point of view how electronic trading is taking over and causing price manipulation with the removal of open outcry. Some people down there for 20+ years are now out of a job or have now gone to the screens. It is not the same. It’s scary to think this is all happening right now, with little regulation, and for some people this is their net income, their wealth, and their jobs being affected. We cannot keep continuing to sit on our hands like the US Government/foreign government and their debt problems, it has been two years, and something needs to get done now.