Traders,
We are bouncing around some low support areas and waiting for some news to drive us higher. Apple releases their eagerly awaited iPad (Tablet) - the question seems to be is it already priced into the stock? The stock did run up into earnings and then rallied more after earnings - into the tablet release. So at this point it will be the driver of order flow that will either push the stock higher or lower.
The AIG investigation is putting Geithner, the Fed, and Bernanke under some serious light and creating more problems for the Bernanke confirmation and also Geithner's future. It looks more and more that the NY Fed with-held information about the how big the problem was at AIG and the Fed decided to pass through 100% of the capital to the banks. It is certainly causing some volatility and bringing more skepticism to the Bernanke vote which is only 4 days away. He still has the votes for now, but it looks to be slipping as more of the AIG story comes to light.
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| Berkshire
to join S&P |
Berkshire stocks (Class A and Class B) which has traditionally been priced in the 100,000 and 3,000 per share (respectively) , recently split ( 50:1) their Class B shares bringing the price to $68 a share. The split in the stock last week was part of the $26 billion acquisition of Burlington Northern Santa Fe (railroad company). The stock surged after the split after it was announced that it would be joining the S&P 500. The stock is getting lots of attention as it is not only going to be added to the S&P, but it is also priced with the majority of investors are able to participate. Several funds additionally are looking to add it to their portfolio.
Berkshire is also the largest share holder in Coca-Cola and American Express, as well as owning shares in GE and Goldman. Their portfolio is impressive and one must not forget that Buffet also owns 25% of the Berkshire.
The stock has rallied over the last couple of days after the split and now possibly being added to the S&P just makes it more attractive. Expect to see some volatility in the stock, but a general push to the upside.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5zHRTMTbg2g&pos=5
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| CAT
out of the bag? |
Caterpillar successfully navigated the economic crisis and focused on their overseas emerging market growth. The world's largest maker of construction equipment posted stronger-than-expected earnings and said that emerging markets were continuing to show signs of growth. All good news...but....the company also forecast 2010 profits below the estimate. This last bit of news put pressure on the stock in after-hours trading sending it down almost 3%.
The problem for investors is that they are tired of companies lowering expectations and guidance. We played that game last year and this was supposed to be the year of higher expectations. The conservative forecasts that we continue to hear from companies clearly indicate that companies are still concerned about growth domestically and also about the uncertain business policies that may determine the economic recovery.
CAT remains a strong company and their lower forecast for 2010 is probably the proper conservative play. The concern is not emerging market, but rather their own low forecast of U.S. growth (which is just 3.5% - well below previous recovery estimates).
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3KV8LatBzVU&pos=6
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| TOYOTA
ouch! |
Toyota - now the world's largest automaker - halted sales and building of 8 models over a possible accelerator problem which they still have not figured out what the problem is. The stock took a serious hit and there is no timeline on when sales and production will begin again. Bad news for Toyota, but Ford is seeing a strong rise in share prices in the pre-market.
http://www.cnbc.com/id/35087708 |
| Futures Pre-market
Where's the action! |
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The futures were slightly up - but are now again under pressure. Expect a weaker opening. |
| Support / Resistance
Going higher or lower? |
We are getting to some technical support areas that we need to pay attention to. Getting long at these levels should be done fully hedged and with caution.
INDU 10,000 (We are still significantly above the 10,000 mark - but that is a key level to hold. Caterpillar is sending a little concern about domestic economic forecast and that is rattling the futures a little in the pre-market.)
NDX 1800 (This is also a key level that we continue to hold - today Apple reveals their tablet, probably the worst kept secret - it could push the index higher is the hype meets with investor euphoria.)
SPX 1100 (We are slightly below it, but when (if) Berkshire is added - could that boost the index?)
RUT 600 (We slipped almost 1% yesterday - but still above 600 |
| Conclusion
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Usually earnings season is the driver of the market, but with all the news between Obama vs. Banks fight, Bernanke confirmation, AIG investigation, Toyota news, Apple tablets, and host of other news is over-shadowing any earnings news for the most part. The VIX is showing concern, rapidly entered back into the market and keeping investors on edge. We did see a little knee jerk out of equities and into some of the treasuries sending yields down. Where to go and what to do? These support areas should be monitored more closely - as they may be a good buying opportunity or reflect a break to the down-side. They are probably less about support and more about pivot points (or straddle areas) as this market could go either way. So far the news has not been stellar and conservative guidance on earnings is not what investors wanted to hear.
Watch these levels.....
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| Author |
| Michael Williams has 20 years experience as a institututional floor broker and options market maker. He is a partner in both Silexx Financial Systems (a trading software company) and Kinetic Strategic Group (a private investment firm). He co-authored the book "Fundamentals of the Options Market" a McGraw-Hill text and has lectured throughout the country on Options, Risk Management, and Volatility. | |
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