Wednesday, March 26, 2008

ORCL Scares Market After the Close

Top Line: There seems to be a little fear left in the market, a concept that aligns well with our position that the general public is not understanding the turn in the market...at least not yet. When they do think the market has turned, the pros will be looking to sell some stock to them.

In the mean time, there is plenty to keep the fear going. In the news, we had durable goods orders that were far worse than expected but the lower housing numbers were "better" than expected. The news should continue to be less than encouraging but the market is behaving like the news doesn't matter right now--we say that happens all the time, at least on a day to day basis. The market is in confusion mode right now, so prepare to be confused...like this blog isn't confusing enough.

From a purely fundamental point of view, we think the economy is a thin ice and will continue to break through it until it's under water. That doesn't mean the market has to follow that line of reasoning. The market is going to do what it wants to do and we have to try to figure out what that is going to be.

After the market closed ORCL (Oracle) thought it was bringing great news to the market in the form of higher margins and profits. The market didn't think the "revenue" news was all that great and sold the stock off by nearly 10% (8.3% by the end of after hours trading). The news put fear into the tech sector such that the NASDAQ 100 futures are trading about 1% lower in overnight trading. This could lead to some selling in the morning but we know how that goes...

The Bear Stearns trading seems to bring additional confusion. Today the stock is trading up over 11 while JPM is down over 4%. The traders here seem to think that the stock would be worth more if JPM wouldn't be there to hold it up...unbelievable. In the afternoon, there was a news story that Senate Banking Committee Chairman Christopher Dodd was going to hold a hearing on the role of the Fed and other regulators in the JPM Bear deal. There was also a mention that there would be questions raised about..."the Fed's investment in illiquid mortgage securities."

Right after this story broke, Bear Stearns jumped more than a point in about five minutes but it did manage to come back to earth before the close. Still, BSC is trading well above the value that would normally seem to be applicable to it, the one based on JPM's price. Since each BSC share will fetch 0.21753 share of JPMorgan stock so at the 44.11 price JPM closed at, a BSC share would be worth rougly 9.60 and it closed at 11.21...in the words of Coach from Cheers, "Yeah, that makes sense."

FSI: 77.22 (the highest close since late February)

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