echotoall

oh the profanity :)

2012-02-28T16:52:00.000-05:00

Over the months, I have been told my use of profanity goes a bit far, and to ease up. I understand the obvious reasons to do so, and I only do it to emphasize a situation. Yesterday, I was talking to my brother about this very issue, and was explaining to him many bloggers (well known bloggers) do this to emphasize a point.

Today I saw the below video, and I was simply amused by the title from a respected bigboy investor emphasizing a point. Investor Peter Kiernan is making the rounds on the financial shows highlighting his book "Becoming China's Bitch".

Market Thought... GDP

2012-02-28T15:50:00.001-05:00

The US GDP number comes out tomorrow. Currently consensus is projected to be 2.8%. If the number comes in at 2.8% or above, that will be the second quarter where US GDP growth was above 2.5%, while the 10yr treasury was seeing yields below 2%.

Over the past few months we also were able to remove the uncertainty of an EU banking crisis. (And tomorrow's LTRO will further solidify the certainty that EU banks will not cause a financial collapse.)

So I ask the simple question, why are 10yr treasuries trading below 2%?

Once I see the treasury yielding at more realistic levels, I will have far more confidence with the SP500 at current levels.

(Fundamentally, I have no issue with the market to move higher from current levels. After all, the markets are simply where they were prior to the EU crisis caused markets to collapse. But we need confirmation to support a thesis of multiple expansion, and the rise in the 10yr will provide that confirmation.)

notable chatter this week - mobile payments

2012-02-28T08:25:00.001-05:00

The most notable web chatter this week is, without a doubt, mobile payments. I just see article after article highlighting the services and potential.

The most obvious winners are MA, V and AXP as they will still be the backbone to the majority of the offerings. And even if they are not, an option for their services will still be present. (IMO, they got the better brand for mass marketing for people like me who do not care for PayPal.)

The only problem with the credit card names is that their multiples have expanded with recent positive earnings reports. For instance, I follow and trade MA. Its trailing multiple has expanded toward 28, the higher side of its range, and it is very overbought. Both are not the type of conditions I want to see making an initial entry.

The chatter this week is too strong to ignore, and it speaks volumes to industry trends. As MA consolidates, I will look to play longer-dated call options on MA.

(I really like AXP also, as they really are making good headway via social and the local space, but the growth of their processing biz just does not compare to V or MA.)

Market Thought... a bit frustrating

2012-02-27T17:15:00.000-05:00

The market has been pretty frustrating since 1350. (Between 1350-1370 is a bracket of technical resistance for the SP500.) Every potential pull-back around 1350 has not seen any follow through, none. Every potential pull back has been met with purchases of one sector or another supporting the market.

For instance, in the AM the market declined fairly hard today, then had a nice turn-around. The names that were acting as strength in the AM (like industrials), were flat in the PM. And then in the PM financials were supporting the market higher. It was an interesting dynamic, and a frustrating one for me since I was positioning for a shallow pull-back, with some sort of follow through. (Not one that would reverse intraday.)

The frustrating aspect of today was how the treasury yield was not supporting the market's upward push. The treasury yield was acting weak throughout the day, which made me think the market would have pushed back from its intra-day 320SMA. (Ultimately leading to some follow through, on a market pull back.)

But the opposite took place, yields were weak as the market pushed higher, and the set-up has me fairly perplexed.

The market is pushing a trailing multiple of low 14, and if this market is to keep pushing higher (through the upper bracket 1370 resistance), it will be through multiple expansion. In order to get multiple expansion, and provide fuel for a potential market breakout, we need to see a sell-off in treasuries. Obviously we are not seeing this.

I do not think all names need to pull back here, as some names have not seen multiple expansion or are relatively consolidated (ie DIS, ATI, SLB etc). But there are other names that have seen multiple expansion, and are very over bought (ie AAPL, QCOM, IBM, JPM, CAT, ETN, etc). This mix is why I believe the overall market pullback will be shallow, but shallow with some sort of healthy follow through.

At the moment I fail to understand the market dynamic, but one day does not make a trend. I am still expecting a shallow market pull-back.

Google is making a mistake

2012-02-27T10:19:00.001-05:00

Andy Rubin indicated Google will build a 'firewall' between Android and Motorola.

That is a huge mistake. That is not my opinion, that is the opinion of the DATA. The data being Apple controlling 2/3 profits of the mobile space. That is the data where Apple's iPhone business is worth more then all of MFST and Google businesses combined.

I am simply shocked a company that focuses so much on data is blatantly ignoring the data set staring them in the face. It is fascinating to witness such a mis-step. I hope it is just rhetoric for the other OEMs.

The strategies Microsoft and Google have taken are simply giving Apple control of the mobile space, and the longer they dick around, the more control Apple will have. (I am an Apple fanboy, so I do not mind this, but from a competitive stand point, this view point is quite ridiculous.)

I was about to write a post on why, after the MMI acquisition closes, Google would be in the best position to compete with Apple, detailing Google's competitive aspects and the few weaknesses. But after seeing this comment from Rubin, Google will remain far from a competitive threat to Apple's profits in the mobile space.

Now I have to witness Google's actions vs their rhetoric in order to be more bullish on Google. (Because right now, Google seems to be seriously missing the threat Apple's mobile presence presents to them.)

DNDN seeing better margins

2012-02-27T09:19:00.002-05:00

Slowly Dendreon is improving on their margins. Below is the Cost of Rev-to-Revenue.

Q2 = 58%
Q3 = 85.5%
Q4 = 74%

Basically, they are improving on their fixed costs in relation to their new growth projections.

They did miss analyst ave revenue projection, but increased exposure and marketing is a work in progress.

Overall not bad, but they need to do better with the cost of revenues. (Inefficiencies is just an opportunity for improvement.)

ECRI maybe fundamentally wrong

2012-02-25T11:20:00.001-05:00

After watching this interview, ECRI's perception on some indicators maybe wrong.

Lakshman Achuthan highlights jobs are a lagging indicator, and past perception this seems correct. But over the past year there has been a new thought process, by some big names in the money game (via Pimco and El Erian), that puts jobs as a leading indicator. Jobs as a leading indicator is significant because the majority of Achuthan's argument becomes a muted one.

Frankly I am disappointed that the 3 CNBC anchors did not bring this up in the discussion, especially since El Erian's point was made on CNBC.

Basically, if employment is viewed as a leading indicator, ECRI's recession call is dead wrong.

ballsy trades... AAPL, GOOG

2012-02-24T09:57:00.000-05:00

As AAPL approaches 526, again, its trailing PE become 14.98 (15). In relation to its patterned trading dynamic, that multiple removes current market inefficiency. (Even if you believe the stock is its own asset class.) The set up is interesting for a short-term short. Factor in the above, with overbought conditions, the stock can push back toward its supporting SMAs or 500.

With Apple coming off its highs, that may lead to a domino effect, that could exaggerate a Google short as well.

Fundamentally, I still believe the market needs to flush out the margin hit from the MMI acquisition. Technically, Google is already struggling at current levels. (If Google breaches the 50SMA, that would be bullish, and change its trading dynamic for the better.)

These are all short-term potential trades.

Looking to go long AAPL as it consolidates, and enter Google options near its 85SMA.

Oil commodity - equity disconnect

2012-02-23T23:56:00.000-05:00

There is a disconnect with respect to oil, the commodity, and oil related equities.

Obviously there will never be a very high correlation between the trading of a commodity and a stock related to that commodity, but as oil keeps rising, related equities have some catching up to do. Especially in an unrelenting bullish market.

Over the last year Brent and WTI saw current prices because of geopolitical concerns.

Right now there are some geopolitical concerns, but nothing as serious as last year. (Last year there was actual conflict with production cuts, and right now its just BS tit-for-tat political rhetoric.)

Unfortunately, the oil related stocks I follow (SLB and SU), are lagging the commodity.

Basically, for SU and SLB should trend toward the mid 40s and low 90s, respectively. As they did last time Brent and WTI was at 125 and near 108, respectively.

As the commodity price stays elevated, and I believe it will due to global demand, the value of equities will rise.

NOTE: I recently sold off SU because it is pretty overbought, and am looking to actively take it back on, as a consolidation takes place. I am in SLB, and am looking to add to the position on declines.

most interesting market correction, ever

2012-02-23T10:44:00.000-05:00

Correlation is D.E.D, dead!

We have a correcting market, while certain names are green, and the most telling is IBM. While the market should be correcting, this mofo is breaking out!

I was really hoping to pick IBM up near 190 or 188 with the consolidating market. But alas, I will probably have to settle to the mid 190s. Its overbought now, so I am waiting for an ease of the overbought condition.

Some interesting set ups:

ATI - Oversold, and near lower end support. I was surprised to see the weakness yesterday, considering the aerospace industry trends. But an interview with the third largest lease operator CEO may have explained it. He puts into question the recent orders from emerging market airlines. Although, I was kinda perplexed by his comments because emerging market growth is where the vast majority of economic growth is coming from. So from a macro-economic perspective, the orders make sense.

BGCP - Ideally I would have liked to have waited for 6.40, but the set up is interesting for a trade to the low 7s. I took on half of the position, and will take on a full position if it declines to 6.42.

Ann Winbald on tech trend

2012-02-22T11:31:00.001-05:00

The most interesting statement from her video (its on a CNBC ad loop), "the next big thing... are the growth companies... that leverage the commoditization of storage and hardware..."

As soon I saw her interview in the morning, I immediately thought of FIO (and, of course, IBM). FIO leverages commoditized flash memory market to facilitate real-time Big Data analytics and data center efficiency.

Yesterday, an analyst came out highlighting Intel's efforts to commoditize the very thing Fusion-io does. My response to such a well-paid analyst was 'no shit'. Intel has been trying to do the same type of commoditization to the MacAir, with their Microsoft Premium thin notebook computers, but has not threatened the MacAir. Any technology that stays stagnant is threatened with commoditization, but FIO is in the position to keep innovating and utilizes the commoditization to its advantage.

I am looking to add to my position in FIO. Probably around 25.

EU flash PMI all below consensus

2012-02-22T08:35:00.000-05:00

The flash PMIs are coming in for Europe, and they are generally below consensus. The markets seem to be taking the information in stride, and are not over reacting. (More signs of a healthy market.)

IMO, the market reaction is the right one. I already made the case for a lower Euro to support a stronger Eurozone PMI in the post 'positive chatter'. Below is an update on this chart.

The above chart tells me the PMIs were relatively strong, and within trend, despite a stronger (or flat) Euro. It also tells me the Euro's down side maybe limited. The Eurozone Euro sweet-spot maybe near 1.20 EU/USDol, which may also limit its downside.

Market Thought... interesting set-up

2012-02-21T12:45:00.000-05:00

The market has approached an interesting set up. I don't really care about the Dow 13,000, but the SP500 near 1370 is more relevant to me.

Between 1350-1370 is an obvious technical resistance with the SP500. We are now at the top-end of that resistance, after a spectacular (and justified) run up.

My last market post was 'magnitude', and imo, the same thesis holds. The economic fundamentals remain pretty robust, and there is underlining strength. Especially with the 10yr treasury continuing to sell off as the market rises. (But both the market and the treasury are controlled, which to me is very healthy.)

From a very short-term perspective, there may be a push-back in the treasury.

The market should see a short-term hiccup here, with treasury yields declining somewhat. The obvious support is the 14SMA. But if the current market consolidation is going to feel real, it should move to the 32 SMA or so, before it breaks the 1370 level.

The lower-probability scenario is that the market does not care for a pull back. Then we should see a continued move in the treasury yield, and the market to push higher. (At which point I will nick-name this market rally 'unstoppable' :)

Microsoft reactive nature continues

2012-02-21T11:11:00.002-05:00

More evidence just trickles along, by the day, proving Microsoft needs new management. We all know Ballmer laughed off the iPhone and the iPad, then shifted the mobile offering to be more like Apple's offering. Now we have more evidence of their 'reactive' nature.

Over the weekend, a blog post has been circulating the tech sphere suggesting how Microsoft really fucked up, with Office and the strategy in general.

Today, coincidentally enough, the iPad version has popped up, even though it has been ready since november. (see here)

Corporate translation to the above scenario: Shit, we are getting mocked, and assumed to be irrelevant. Leak proof that we do have the Office for iPad ready.

Real world reaction to the leak: Shoulder shrug. The damage is done.

Microsoft is in a sprint, and they are content being in third. As an investor, I am just not a fan of this strategy. If Microsoft acted as a product leader, and stopped reacting to almost every popular product, I would really like the company.

FIO moving

2012-02-17T11:58:00.001-05:00

At 10:15am FIO started to really move. There is no news on the stock, and the only chatter I could find was vague rumors regarding a takeover.

Its always nice to see a stock I own move like this, but I think the rumors are bullshit. If they are true, the buyer will really have to pay-up. (Like 5-6x the current market cap, $10-13B.)

Every interview I have seen with management has always pointed to a company that wants to go at it alone, innovate and change the database landscape. And Fusion-io is on the leading edge of a complete disruption at the back-end of every cloud based company around. (And since all companies are moving toward cloud based initiatives, any sane investor can see the value in Fusion-io's offerings.)

Is it crazy to think FIO can eventually be worth $10-13B? Considering their revenue growth curve, and sector disruption, I think it is very reasonable (if not conservative), albeit in a time frame measured in years.

But alas, I am a trader, and will actively trade the name based on its patterns of oversold and overbought conditions. Despite the move (and the obvious short-term resistance at the 68SMA, FIO is still not overbought, hence I am not letting go. (Although at current levels I do not want to think of trading it. I would rather actively trade it when it begins to break the 30s.)

ITRI

2012-02-16T22:18:00.002-05:00

Your other day, Itron produced some impressive numbers and announced a really interesting acquisition of SmartSync, and the stock reaction was awesome.

The potential value creation from the eventual Smart Grid buildout can be huge, and that is why back in August I placed ITRI along side my 'timeless portfolio' (although it is not in the portfolio). From August to now, there has been obviously a lot of volatility, along with serious management changes with ITRI. Yesterday showed the effectiveness of those changes.

Current management took a ton of restructuring charges, and highlighted during the CC that Smart Grid project thought to be happening, are going to be happening. It just takes some time.

Normalizing out the restructuring charge, ITRI had a pretty weak 2011, growing operating income by some 5-6%. Justifying the weak performance.

Going forward, they projected a 2012 eps between 3.80-4.20. With the current stock price near 48, that places a forward multiple of around 11-12.6. Not bad, but considering the 2011 operating income growth, and 2012 projected revenue between $2.1-2.3B (which is lower than 2011 revenue of $2.4B), the 20% appreciation in the stock seems like a bit much here.

Regardless of the numbers, I am still a fan of the smart grid build out potential, and Itron's position to benefit. I also really like the SmartSync acquisition, as it fills a void in Itron's offering, better positioning the company from a software and services perspective.

Based on Itron's guidance, they don't seem to be expecting much from an industry growth perspective for 2012. But from a company perspective, they are better positioned to take advantage of the buildout, when it eventually comes.

Google's opportunity

2012-02-16T12:48:00.001-05:00

Before I left Pfizer, I was a successful manager. I managed my projects and people very well. (That's not me being arrogant, its just a fact. The numbers back me up.) So when I saw this headline yesterday about the delay Motorola will experience updating phones to Android 4.0 I just shook my head.

Google is about to buy a hardware company that can not coordinate software updates in real-time, let alone a reasonable timeline. Obviously there are reasons for this, phone specific hardware and software that needs to be upgraded to support the new OS. (A lot being Google's fault.)

The scenario continues to highlight the weakness Google has over the iPhone. With my manager hat on, if I had a role project managing software/hardware updates for Android and Motorola with the combined company, I can say with complete certainty, I would never allow the above scenario to take place. Never.

If I was an executive level manager for GOOG+MMI, once I witnessed the iPhone controlling 2/3 profits of the entire mobile phone industry, a need for tweaking the business model and strategy becomes obvious. (Seeing the below chart, created by asymco.com, the realization would be more like a bag full of bricks smacking you in the face.)

At a certain point Google is going to have to stop dicking around, and improve their mobile offering.

An inefficiency is simply an opportunity to improve. If I can realize this, I am sure the smart people at Google have thought of it too.

Google is in a pretty enviable position, especially after the MMI acquisition. They have all the pieces they need to properly compete, and create a viable ecosystem with enough differentiation to the Apple strategy. (Heck, I would love the opportunity to merge the units and create the synergies to produce a kick-ass mobile offering. But the above chart tells investors, this objective is very important, so-much-so, it belongs to an individual reporting directly to Mr Page.)

If the combined company can concentrate the phone offerings, thereby increasing manufacturing margins and removing the lack of coordination highlighted above, as key areas of focus, then Google can become a viable competitor to Apple.

But seeing is believing. Until then, GOOG seems like it wants to come down some more, as it has the perception of dicking around. Or, at the very least, chill at the high 500 level. (I would like to start picking some up near 580.)

AAPL - trading dynamic

2012-02-16T09:58:00.000-05:00

It took two days to ease the overbought condition. The hot money was selling feverishly the last two days. Amazing for a company this size. (Look how the bottom oscillators came down.)

From a fundamental perspective, the stock will forever be undervalued in relation to its revenue and earnings growth, but from a trailing PE perspective, at 488 its at 13.90.

I am paying close attention to its trading dynamic here. (I also started entering light call options.) If Apple decides to base around the high 480s and mid 520s, that would be healthy. More importantly, that would support the thesis that the market, in general, will start trading at a higher multiple.

From trading perspective, AAPL should gradually move toward 530 as quarter comes to a close. (But it may have periods of volatility due to product announcements.)

Market Thought... magnitude

2012-02-15T23:23:00.002-05:00

Now that the most talked about stock signaled a short-term top, this is giving a green-light for market players to accept a market pull-back. (Despite the fact that AAPL and the SP500 had as much correlation as a Leprechaun's love of Valentine's day over the last 6 days.)

Over the past few weeks the economic data has merited a more bullish thesis. The fundamental thesis was presented via 're-evaluation' and 'positive chatter', and remains. Even with the stronger fundamentals, the overbought condition of the market merited a consolidation.

The interesting thing about the start of this pull-back, it was sparked via market internals, not a collective fear of Europe or Greece. There was a down-day because of the Greek drama tit-for-tat, but the market held up relatively well. This suggests a normal, run-of-the-mill, pullback. From an indicator perspective, that would support a shallow pullback, was the fact that the treasury yield was rising as the market was declining at the end of the day.

Below is a bunch of charts highlighting the potential technical support areas.

The daily suggest a potential move toward the 32SMA or near 1320.

If we break 1330 or so, the weekly and monthly chart suggest a move to near 1300.

I am hard pressed to think we break 1330, let alone 1300, but the market can theoretically go lower. For instance, the longer-term rally support is the 360SMA on the daily (around 1260), but we just dealt with some of the greatest negativity since 2008 and were bounced from that area a month and a half ago. The market should not see that level of decline.

As investors, we also can not ignore the fact that at current SP500 levels, the SP500 has basically been consolidating for about a year, and the market multiple identifies this. The SP500 has a trailing PE of high 13. As the European mess gets cleaned up, and the global economy continues to strengthen, the market multiple will begin to expand, justifying a higher market.

A review on AAPL

2012-02-15T10:54:00.000-05:00

Never say buy and hold is dead.

There is currently an impressive positive feedback loop within Apple that is resulting in the stock to be up everyday for the last week and a half.

It places a mockery on to one's discipline, but it is what it is.

The very bullish arguments represented in this positive feedback loop existed for the last three years, however they were all ignored resulting in multiple compression. (I highlighted it here weeks ago.)

Since the technical factors that have successfully guided me in the past are now failing because of this positive loop, I ask myself the ultimate question: what will spark the consolidation?

The unsatisfying answer, when the market decides to stop pushing it higher.

The technicals are suppose to anticipate when the market will stop pushing it higher, but the technicals are over come by the positive feedback loop.

Apple being extremely overbought, and approaching extreme weighted positions on the Qs again, when will the market decide to consolidate the stock?

1. The most obvious answer is after Apple unveils the iPad 3. The reason being, all rumors are already anticipating the 'wow' factor. (In this case, the wow factor would be access to the 4G LTE networks.)

2. The less obvious, when the Qs decide to reduce the weight of Apple on the index, which will cause hundreds of closet-index funds to do the same. (This will cause selling pressure.)

At current levels, imo, dividend becomes irrelevant. Its trailing PE is currently 14.90. In relation to the market multiple, the value boys do not care for this stock anymore.

few thoughts... ATI, SU, DD, TBT, FIO

2012-02-14T13:30:00.000-05:00

Even though the market is pretty resilient, consolidation is taking place. (With respect to the market strength, IMO, its also another sign of a strong market.) Below are some thought on potential trades.

ATI - No recession, and a solid aerospace cycle, ATI does not belong in the 40s. It belongs in the 50s, if not 60s. But sentiment is a bitch, and provides opportunity. I already own it here, and for anyone who is aggressive, now is an interesting entry due to its light oversold conditions. I will be entering a second position at the bottom channel range near 42.50.

SU - As oil stays above 80 (for both brent and wti), SU looks interesting again as it gets oversold. I am looking for an entry near mid 32/low 33. (If I can get it near the 38SMA, awesome.)

DD - The daily chart looks kinda scary. The gap may facilitate a move to mid/low 48. Low 48 should hold as the 50SMA via the weekly goes from resistance to support.

TBT - If we are entering a secular bull run, we will see a sell-off in treasuries. TBT is a play on that. I think it re-tests 22-23. (The current action reminds me of the bank stocks in early december.)

FIO - If anyone wants to play the boom in web 3.0, FIO is the play. (Along with IBM, but FIO is a pure play.) There is a lot of mis information about FIO being circulated, and the last quarter the stock took a hit because of compressing profit margins.

First lets tackle the competitive factor. There are only a few competitors: OCZ, a few companies in VC stages and EMC. When FIO is compared closely to its competitors, FIO really does not have a competitor. The details of this belongs in a stand alone post. Here is just a brief synopsis.

1. OCZ - Many comparisons that I have seen compare OCZ's current offerings to older offerings from FIO, which is not like-to-like. OCZ is profitable, but it is not a pure play on the processing speed. FIO is a pure play on the processing strength.

2. EMC - The Fusion-io's CEO has been pretty aggressive highlighting exactly why EMC's offering is so different and does not really compete with FIO's current offerings.

Here a good video explaining the offerings.

A recent report from Cisco, regarding mobile traffic, translates to a huge demand for higher processing power, that shows the need for FIO products: Between now and 2016, traffic on wireless networks will multiply 18 times, and will account for 130 exabytes of data per year.

Now for the margin hit last quarter. The December quarter is usually a high margin quarter for FIO, however they had a very large customer wanting to upgrade to their new offering so they needed to purchase more raw materials. Going forward, margins should approach seasonal trends, but the compression last quarter was actually from higher demand.

The technicals look good for an initial entry here, and I am prepared to add, with a heavier position, in the high teens.

Market Thought... positive chatter

2012-02-11T23:44:00.001-05:00

Over the past week, the positive chatter has increased significantly. A lot of heavy hitters have come out to express their bullishness, their preference of stocks-vs-bonds and the beginning of a secular multi-year bull run.

I usually don't post all the chatter, but the list is filled with pretty impressive heavy hitters. It includes:

-Buffett (stocks vs bonds)
-Fink (100% stocks)
-Summers getting more bullish on the economy
-Ron Baron, Byron Wien and Peter Fisher on cheap stocks and a secular run
-Roubini turns bullish (although this can be a contrary indicator)
-Barron's title of Dow 15,000 by 2013 (the ultimate in contrary indicators, but a reasonable expectation non-the-less when working out the numbers w/multiple expansion)

If their bullishness is correct, and I am hard pressed to argue with the likes of Buffett, then the indicators I am pointing to in my post 'the shift', copper and treasury yield, are correct. Especially the Treasury. A break out in the treasury yield will facilitate the notion of a secular bull market.

Anyone who pays attention to the technicals in the treasury market got very worried last week. A noticeable shift in trading dynamic took place. A bearish one (or bullish w/respect to yield rising).

IMO, there are three reasons for the rise in the yield:

1. Technical - The negative trend is broken. Without an external shock to the system (ie Europe explodes), even with the Fed wanting rates to be kept low, the yield looks to want to move higher.

2. Fundamental - The only reason the treasury is below 2.8% is because of the fear of the Euro-enduced economic collapse. The LTRO, and tangible progress within Italy, Spain, Portugal and Ireland, IMO, are enough to merit higher rates. Greece is still a wildcard, but the most likely outcome is that the some level of austerity is acted upon.

3. Fundamental - The treasury yield is usually representative of US GDP growth. Recent US economic data shows an unequivocal disconnect. At the very least US growth is near the high 2%, and if the recent jobs number is a hint of things to come, growth may even be near mid 3%.

In order for Treasuries to stay at compressed levels China needs to see a hard landing or Europe needs to see a deep recession. Unfortunately for the bears, Chinese PMI and EuroZone PMI strongly disagree with the recession thesis. Recent economic data from China has taken the hard landing thesis off the table. And EuroZone PMI has been improving since Oct 2011, facilitated by a lower Euro.

The above trend strongly suggests as the Euro declines EuroZone PMI will increase, and recession in Europe will be avoided. (And with the ECB about to infuse a shit-load of Euros into the system at the end of February, the Euro will eventually decline.)

Needless to say, fundamentally, I am bullish.

Technically, there are signs of a consolidation or a healthy pull-back. The market is still overbought, and breached the 5SMA, which suggest the market can go to its 14 SMA.

However, a typical 3-5% decline (from 1354) would suggest the market can touch 1300-1314 or so. The severity of the decline depends on the level of believability of the "economic threat", that caused the decline. In this case, the threat is again the level of economic destruction Greece can cause.

Monti is Calming

2012-02-10T17:57:00.001-05:00

His interview was calming, at least to me. Especially when Italy's production numbers (+1.4% released this morning) were better than expected, and indicating growth. (Which I didn't hear to much about, other than the 1 mention in the early morning print.)

nice action in financials

2012-02-10T10:50:00.001-05:00

There is a lot of strength in financials today. Further evidence that this pull back will be short lived. Thought this was interesting. (Interesting enough for me to cover my market protection, and just wait for market opportunities.)

(XLF is in blue. Pretty clear relative out-performance.)

AAPL - discipline's tragedy

2012-02-09T14:19:00.002-05:00

I have a problem. My problem is discipline. I have too much of it. Many years ago, I got burned, hard, because I gave caution to the wind. Ever since then, I have been trading with a lot of discipline.

Over the last few years (yes, years) I have been very bullish on AAPL, and it has treated me well in return. Most recently, I have consistently highlighted Apple's trading range, why it was a good buy entering its report and pointed out gross hypocrisies from Cramer and other media folks.

All my bullishness, prior to this point was in the face of market inefficiency, causing a severe discount to the stock. But the entire argument was predicated on realism. A few months ago, I highlighted why I believe Apple should, at the very least, trade with a market multiple.

My points of consideration include:

1. Already the largest investor base. (Everyone owns it.)

2. Product growth trends

3. Revenue and earnings growth rates

4. Potential product growth drivers

5. The market has never seen a situation like AAPL

That thesis, imo, hold very true today. Apple's biggest problem is the large investor base. Everyone who wants to own it, already does. And the dearth of value managers who did not own it, bought it when the multiple was between 12.5 to 13.5. Hence, the 8-9% appreciation since the quarterly report.

A good argument can be made between Apple's growth rate and multiple, to show the undervalued nature of the stock, but that argument was valid for the last two years as Apple's growth was accelerating yet its multiple was compressing, and the argument meant nothing.

An undeniable fact still remains, a stock needs demand in order for its multiple to rise. When Apple reported its blow out quarter, that created demand. Any value boy worth his/her management fee could not ignore the stock's valuation. The stock was trading with a trailing PE of 12.6. So the stock appreciated.

Apple is currently trading at 493, which gives it a trailing multiple of slightly above 14*. The value boys/girls who were buying it will no longer do so. New value players will need a new reason to buy the stock. (These same players did not care for the company's growth before, they will not care at current levels.)

New players will need a dividend, or Apple to continue to perform quarter-after-quarter (and be late to the game). (After all, the late players still managed to see a 40point move 'after-the-fact'. Not bad for the late comers.)

Aside from the above argument, which is predicated on the mechanics-of-the-market, there is also technical reason I am cautious here with Apple.

The stock has approached a very cautious level of overbought conditions, as highlighted by the Slow Stoch.

The story is the same via the weekly chart.

So I am of the camp that Apple needs to consolidate at current levels. After reading that statement, do not think for a second that I am bearish on Apple. I am a trader, I do not simply buy and hold, even though I conduct heavy fundamental analysis that can point to such action.

For instance, I truly think Apple will be a $600 stock by the end of the year, so for any buy-and-hold person out there, do not sell. However, I will be actively trading the stock, again, once it consolidates. Right now, I am just waiting.

*The reason I use the trailing PE of 14 is because that is the expected market multiple and where Apple has been normally trading at for the last few months.

(Any 'new' person to this blog reading this and think this is me simply hating on Apple please go to the search box and search "aapl" or "apple", and read for yourself.)