Monday, July 21, 2008

One AAPL Spoils the Whole Evening

Top Line: We have been looking to add some shorts this week anticipating a small rally. Stocks opened higher on Monday which gave us a small opportunity but we didn't take advantage of it. We do want to have these positions in place by the end of the week...

The big news on the market came after the bell on Monday when AAPL announced earnings and provided lower guidance. This gave AAPL a 10% haircut in after hours trading and brought other stocks down along with it. The article still has bullish undertones by saying that, "Apple has a reputation for conservative financial forecasts". Even so, several owners are now ex-owners...

The other news late in the day was from American Express, who said profit fell 37 percent as more consumers defaulted on loans according to the article. We have discussed CDSs here on occasion but we thought we would add just a few comments on them here. CDSs, or Credit Default Swaps, are derivatives that allow investors to, what we call, "get on" or "get off" the credit risk of any particular company's bonds. The price goes up when credit risk increases which is what the article says happened with the American Express CDSs. A CDS protects or insures the value of the bond. So, if you own a bond you can eliminate, or "get off", your credit risk by buying protection. Or, if you don't own the bonds but want to "get on" the risk because you are speculating that there will be an improvement, you sell a CDS.

We are trying to find an entry point for getting short on stocks this week and we are hoping that the news from AAPL tonight won't preclude us from getting good prices on our shorts. We think it's possible to get a rally out of this low on Tuesday morning.

FSI: 79.49 (still higher than April 17th)

FSI if calculated after hours: 76.66 (now this Is finally lower than the April 17th level)

The good news is that we do have some new pics of Jackson this evening, courtesy of his Mom, Danielle. Thank you, Danielle. Oh, you'll have to come back tomorrow to see another one :-)

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