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Trader Talk with Bob Pisani

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  Friday, 18 Jul 2008 | 4:08 PM ET

Big Three Financials Deliver

Posted By: Bob Pisani

I know, it wasn't exciting, but exciting wasn't what most traders were looking for. After a wild week, a quiet stable day was fine. There was no concerted attempt to sell off financials, and that is why it was a successful day for bulls.

The financial rally this week is a tough call. The good news is that the big three--Wells Fargo

, JP Morgan , and Citi --all delivered. There were no capital raises, no dividend cuts. Will that continue? Many regionals next week may challenge that assumption. Wachovia is the stock to watch, with earnings on Tuesday. There is new leadership there, but also problems: heavy exposure to housing, and there have been concerns about the possibility of a capital raise and/or a dividend cut.

The early bet is that we will be seeing a bifurcation, with companies with greater leverage undperforming higher quality names.

At the close, the CFTC reports that the net spec long position in the S&P 500 rose to the highest level since Dec '06.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Jul 2008 | 11:16 AM ET

Crunch Time for Financial Rally

Posted By: Bob Pisani

Is there any doubt that big-cap financials are the key to this market?

What's worked for two months? Sell the rally in financials. This is crunch time for the two-day rally...and not surprisingly, they are pushing the old trade hard today.

The two most important stocks are Citi and Merrill . Citi had a loss, but better than expected, and since the fourth quarter they have progressively cut the losses in half (from a loss of $1.99 to a loss of $1.02 to a loss of $0.49). Bad by historic standards, but a steady improvement.

Merrill took bigger writedowns than expected, a bigger loss than expected, and already bulls are arguing that this is another "kitchen sink" quarter for the company (they said that last quarter). Still, the overall numbers are still so weak it's hard to argue for any kind of rally here.

What is likely to happen here is a bifurcation of financials: those that are considered the best-managed, lowest-risk, like JP Morgan , will outperform the others, and this is how it should be. But this time, they may outperform by a wide margin.

Already, regional banks like Huntington Banc shares , Zion , Fifth Third are back to their Sell on Rally mode, down 5-9 percent. However, brokers are clearly looking to hold their gains, Merrill is trying to go positive, and Lehman is up nearly 5 percent.

Finally, I don't want to act like I'm ignoring tech. There are problems here. I won't do fundamentals, I'll make it simpler. Consider that:

1) tech was considered a safe haven;

2) tech is now the largest sector of the S&P 500 (16.4 percent);

3) Google and Microsoft make up about 18% of the tech index.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Jul 2008 | 9:07 AM ET

Key To Market? Big Cap Financials

Posted By: Bob Pisani

Is there any doubt that big-cap financials are the key to this market? Despite earnings below expectations for Microsoft and Google, and a large writedown from Merrill Lynch,it was Citigroup beating expectations that moved futures up almost 15 points this morning.

This is crunch time for this little mini-rally--since the earnings news is mixed, it will be critical for the market to move sideways or up today, and avoid retracing any of the last two days gains.

Options expiration today.

Citi'sloss of $0.49 was better than the loss of $0.66 expected. Doesn't sound great, but things are getting better: they reported a loss of $1.02 in the first quarter, and a loss of $1.99 in the fourth quarter. Yes, there was $7.2 billion in writedowns, but even that is an improvement. As with Wells Fargo, net interest margin was a bit higher than expected. Up 9 percent pre-open.

Elsewhere:

1) Freddie Mac still trading up, despite the fact that the WSJ reported they were considering raising up to $10 billion in equity through a sale of common and preferred stock.

2) Meantime, Honeywellbeat on topline and revenues, and raised their guidance (it's in-line with estimates).

Aerospace sales (about a third of sales) were strong. Remember, all the aerospace companies got slammed in June on concerns that aerospace sales would be slowing globally. Up 4 percent pre-open.

3) Mattelalso beat expectations, up 12 percent.

4) Bank and credit card giant Capital Onereported earnings below expectations, down 2 percent pre-open.

5) Barr Labs, which had been a speculated takeover target for a couple days, is being bought by Teva for $7.46 billion , about $66.50 in cash and stock, a 42 percent premium to Barr's closing price on Wednesday. Teva is the largest generic drug maker in the world.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 17 Jul 2008 | 5:15 PM ET

IBM "Feels Goods" - The Rest of the Techs Do Not

Posted By: Bob Pisani

It wasn’t great after the close. Merrill had losses greater than expected, Google missed, Microsoft missed. Only IBM beat and says they "feel good" about the full year outlook. All trading down after the close.

As for Merrill, writedowns of $9.7 billion, as well as earnings well below expectations (loss of $4.95), was disappointing but perhaps not surprising. Already, some are arguing that this was the kitchen sink quarter (but some said that about the last quarter).

As for techs, traders note that there has been less focus on that sector, because everyone is still in the process of unwinding the Long Energy/Short Financials trade. These numbers will reinforce the bear position that we are in a poor market for tech.

How bad is this cumulatively? Futures are down, but not dramatically--we closed at 1253.4, now trading at 1248.

Two points about tomorrow: Citigroup in the morning will be the key stock of the day, and remember that tomorrow is an options expiration


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 17 Jul 2008 | 4:19 PM ET

Traders: At Least A Short Term Bottom For Now

Posted By: Bob Pisani

Traders got the one-two punch they needed to extend the rally out to two days: a good report from JP Morgan, and oil dropping below $130, now down over 11 percent in the last two days.

Financials rallied as JP Morgan reported earnings better than expected.

Consumer discretionary stocks like autos, hotels, and retailers all rallied as oil dipped midday.

Bears have written to me suggesting that these stocks have all been crushed and these bounces are "insignificant" in light of how far down they are from the highs. The point isn't whether these stocks get back to their levels of a year ago in two days; the point is that traders have been looking for some signs of at least a short-term selling climax, and there is some evidence that might have happened this week, at least with financials. As for a bottom, most traders I talk to don't believe that has happened.

What's a selling climax? It happens when we see a steep decline one day, followed by a rally the next day that finishes at the high of the day. On both days, we need to see heavy volume.

That is what happened to the overall market, and to financial ETFs, on Tuesday and Wednesday. Tuesday was a big down day on 7.3 billion shares, the second heaviest volume day ever at the NYSE, while Wednesday saw a big turnaround, also on huge volume of 6.5 billion shares.

Same with the financial ETFs. The Financial Select SPDR (XLF), a basket of the financial stocks in the S&P 500, had its largest volume day ever on Tuesday as it hit its historic low, then its second largest volume day on Wednesday as it had one of its biggest turnarounds ever.

Today, the XLF is again experiencing record volume.

Other financial ETFs, like the ProShares Ultra Financials (UYG), which provides 200 percent upside to financials, also had its largest volume day every on Tuesday and Wednesday.

So is this the bottom? Most traders are doubtful; indeed, it's surprising to see how many do not believe it is. But most would agree that there was some kind of selling climax seen, which will likely represent at least a short-term bottom.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 17 Jul 2008 | 2:19 PM ET

Market Rally: Look Who's Doing Well

Posted By: Bob Pisani

Stocks have rallied just after 1 pm ET as oil broke through the lows of yesterday ($132). Oil is now down 11 percent from its intraday high last Friday.

The overall market rallied, but in particular consumer discretionary stocks (retailers, autos, home builders) rallied. Good examples: General Motors(up 9.6 percent), Marriott(up 7.9 percent), Lennar(up 6.6 percent), Lowe's (up 4.8 percent).


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 17 Jul 2008 | 11:24 AM ET

Wachovia "Probe" Brings Down Market

Posted By: Bob Pisani

Financial stocks and the overall market moved a bit lower in the past few minutes on word that regulators have come to a St. Louis office of Wachovia seeking dcuments regarding marketing practices.

More than a dozen Wachovia agents have been subpoenaed, according to the Wall Street Journal. After initially dropping into negative territory, the Dow is now flat on the day.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 17 Jul 2008 | 9:34 AM ET

Market Bottom Finally In Sight?

Posted By: Bob Pisani

Are we at a bottom? Still not clear, but when you have rallies like yesterday, when you have Lowry, the oldest technical analysis service in the U.S., say to their clients, "The last two days appeared to represent a possible selling climax," you do get a lot of people nibbling, and today we are helped by Jamie Dimon and friends.

A Dow triple play--Coke,UTX,and JP Morganall beat expectations, but it is JP Morgan that is most important here.

We needed a follow-up after Wells Fargo helped ignite a rally in financials yesterday, and we got it from JP Morgan, which reported $0.54 vs. $0.48 expected (they reported $1.20 for the same period last year). No dividend increase, but Commercial Banking, Card Services, and Retail Financial Services were all up. Provisions for credit losses was $1.33 b, on the low end.

Mike Mayo at Deutsche Bank summed it up: "JPMorgan showed this quarter that it is one of the few financial firms

that are playing offense and showing revenue growth while many others are not."

JP Morgan up nearly 5 percent; Freddie Macand Fannie Maeboth us about 11 percent, Lehman up 9 percent pre-open.

To top it off, an important Northeast regional bank--PNC--also reported earnings well above expectations.

Elsewhere:

1) Futures also rose a few points when housing starts and building permits were both higher than expected.

However, a change in NYC building codes effective July 1st appears to have caused a spike in building; ex-Northeast the numbers are still weak. In theory, this is not bad news; we want fewer permits in order to work off the high level of inventory. Remember, Ben Bernanke said this week that stability in the housing market was the key to stability in the economy.

2) United Technologiesbeat and raised full year guidance.

3) Coke also beat, and even though volume in North America was flat , Eurasia and Latin America were both us 7 percent.

4) Continental up 4 percent, reported a loss of $0.25, half the loss of $0.48 expected. All right, a year ago they reported a profit of $2.10 a share, but it was still better than expected. Surprisingly, the company did note that it is comfortable with its forward bookings over the next six weeks. Remember, there are lots of capacity cuts coming from all the airlines. Offsetting this are the high jet fuel costs ($3.50 a gallon).

5) YUM! Brandsdown about 6 percent, as they reported earnings below expectations, large due to higher inflation.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 16 Jul 2008 | 4:17 PM ET

Buy Commodities, Sell Financials May Finally Be Over?

Posted By: Bob Pisani
The two factors moving the market today were 1) the drop in oil, now down almost 10 percent in two days, and 2) the rally in financials. »Read more
  Wednesday, 16 Jul 2008 | 11:19 AM ET

Energy, Material Stocks Appear To Have Topped Out

Posted By: Bob Pisani

The build in oil inventories is providing a rare, two-day drop in oil and a modest boost to stocks midday. Oil is down nearly 10 percent in the past two days.

On the decline in oil, airlines are rallying, and energy stocks are dropping notably for the second day in a row.

ENERGY STOCKS HAVE TOPPED OUT. As a sector, it is now safe to say that energy has topped out. Since hitting its historic high on May 21, the S&P Energy Sector is down 16 percent.

MATERIALS HAVE TOPPED OUT AS WELL. Material stocks are also looking toppy; since hitting its historic high on May 19th, the S&P Materials Sector is also down 16.6 percent.

BEATEN UP SECTORS LOOKING MORE ATTRACTIVE. At the same time, some beaten up sectors are starting to get attention. There is a lot of chatter about financials again today. Much was made of the fact that the Financial Select SPDR (the main basket of financial stocks) had its highest volume day in its history yesterday (started in 1999). Bulls obviously hoping this is some kind of bottom, but that's not at all clear. Volume is again very strong in the XLF and may again be a record.

It's not just financial stocks. Drug stocks, which endured a bear market of their own this year, have come off the bottom in the last month; on a strong earnings report, Johnson & Johnson is at a new high today. Other stocks like Schering-Plough are also strong in this sector.

Still waiting for some signs of life in retailers, autos, builders, and most industrials.

Finally, are mutual fund investors finally starting to panic, and if so what does that mean? According to Charles Biderman, who tracks fund flows at TrimTabs, they are. He says U.S. equity funds are seeing daily outflows of $1.5 billion in July. Is that a lot? Yes. There were outflows of $1.7 billion in the entire month of January. In the first nine trading days of July, there have been outflows of $13.4 billion. Mutual fund panic is often noted at market bottoms.


Questions? Comments? tradertalk@cnbc.com

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About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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