Tuesday, April 17, 2007

12 for 13

Market Action:
The overnight futures seemed to be worried about the possible negative inflation news opened in the form of CPI that was coming before the market. So, when the news hit, which happened to show the CPI up 0.6%, the market was relieved and the pre-market futures popped. Yes, the “Core” CPI was only up 0.1% which is the Only number the market seems to be concerned about.

At the same time, housing starts came in higher than expected along with building permits. This news brought happiness to the housing sector in general. All of this brought the market a nice positive tone for the bulls to continue buying, at least in the Dow type stocks.

The tech world had a much more subdued day with very little movement. The Dow itself managed to push into an area where it could have put in an all time new high close but the air leaked out at the end of day keeping the Dow out of the new high.

After the market closed, we heard from a few companies of interest with regard to their earnings. IBM showed some decent numbers but the company said that slow US capital spending were responsible for keeping the numbers from being better. According to the WSJ, IBM said it saw an unexpected US sales slowdown in March. This is something that caught the attention of the analysts on the call.

For INTC, the headlines were important because they said that INTC’s numbers climbed 19% but that, if you took out a tax accrual issue, the numbers were much more in line with expectations. Right now, we are listening to the call and the company is predicting a strong second half with higher margins. This seems to us like they didn’t listen to the IBM call—but, seriously, we hear about this seasonal bulge every year. Maybe we should believe them this quarter. Well, the market bought it and pushed up the stock a couple of percent in trading after the call.

Then there was YHOO which wasn’t so pretty. YHOO reported a drop of 11% for the first quarter and revenue growth slowed again. This news pushed down YHOO’s price about 8%.

Certainly we don’t agree with the market in their read on either CPI or building starts. First of all, CPI needs to be reflected in its entirety but the market is so focused on the core rate, since the Fed has instigated that thinking. The world knows that CPI is higher but the only fear is that the Fed might raise rates and cool off this party.

Secondly, when the builders decide to increase their building at the same time inventories are rising, we think there is a lot of denial out there--like adding gas to a fire. We realize that the market thinks the sub-prime mortgage market has been dealt with enough to say that it is now behind us. We think differently and believe that the demand for housing will continue to drop pushing the housing prices down, too.

With the Dow continuing its winning ways with a current streak of 12 up days out of 13, the market seems to be coming to an inflection point as we mentioned in yesterday’s post. The market is overbought and should at least take off some of this buzz. Alternatively, we expect that the market makes a new low for the year on this next down move.

Dow Industrials: 12,773.04 +52.58
VIX: 12.14
HUI: 365.09
QQQQ: 45.16
QQQRS: 0.95 bid
QQQRT: 1.40 bid
RYVNX: 16.10
RYAIX: 21.01
RYCWX: 36.30
TLT: 88.09
BEGBX: 13.98

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