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Trader Talk with Bob Pisani

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  Monday, 30 Jun 2008 | 9:29 AM ET

Traders Seek Positives In New Quarter

Posted By: Bob Pisani

Traders are again seeking some short-term catalyst out of the stock market doldrums. It's likely we will get a one or two-day bounce as the new quarter begins tomorrow, but with oil remaining at a record and the dollar rally falling apart last week, that hope is thin gruel indeed.

The dollar is again an issue, as euro zone inflation jumped to a record 4.0 percent in June, and the ECB will almost certainly raise rates this week.

Elsewhere:

1) H&R Blockearnings beat expectations , and 2009 earnings guidance is slightly above expectations. Once again, international growth was stronger (6.1 percent) than U.S. growth (3.8 percent). Up nearly 9 percent pre-open.

2) Good heavens, someone finally said something positive about our parent GE! No less an ax than Robert Cornell at Lehman today said that "shares could be near a bottom." Why? He notes that history suggests that shares of GE could trough at a 25% discount to the S&P500 (where they were about 1989-1992). Cornell says shares are currently at an 18% discount to the market. "We think shares could return to up to 20% premium as current headwinds from GECS exposure, 1Q08 miss & evolution dissipate," Cornell concludes.

OK, it's not an upgrade, but it is a positive comment.

3) The Chicago Mercantile Exchange is moving its listing from the NYSE to NASDAQ--what's going on? The NYSE wants to get into the futures business, that's what's really going on here.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 27 Jun 2008 | 8:40 AM ET

Out Of The Office

Posted By: Bob Pisani

I am not on the trading floor today so no blog posts. I'll be back on Monday so I'll see you then. Have a good weekend all.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 4:05 PM ET

Traders Just Plain Confused

Posted By: Bob Pisani

There is a change in sentiment as traders are trying to get their hands around the extent of the slowdown in global growth.

New issues for the market:

--global growth slowing

--poor guidance from Oracle,RIMM

--sector weakness spreads beyond financials & autos

At the same time, some old issues won't go away:

--housing bottom uncertain, as indicated by Lennar'sresults;

--oil & dollar not moving in right direction.

--endless cutting of estimates for financials

Of the issues the market has addressed today, slower global growth is a particular concern. Oshkosh, which makes heavy-duty vehicles for many commercial industries, is getting a lot of trader attention because they talked about weak business here and overseas, with specific reference to softer conditions in western Europe, so companies that make any kind of heavy equipment are weak today, including Terex,Caterpillar, Federal Signal , or heavy duty truck companies like Navistar and Paccar .

On top of the slowing growth issue, we have central banks raising rates in all the markets where growth is occurring, particularly emerging markets, which is adding fuel to the fire.

Bottom line is traders are confused. The market is messing with their heads:

1) blue chips dropping 3-5% a day? What's cheap anymore? They don't know.

2) traders complain stocks are oversold, but they are not Oversold, they're Underowned. No one wants them right now, which makes cash attractive.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 2:08 PM ET

Global Growth Slowing And It Hurts

Posted By: Bob Pisani

Stocks are weaker here today, and while I have enumerated many reasons (see my previous post) , the main concern is that global growth appears to be slowing.

Here, you want to look at capital goods companies. In the last two days, two midcap companies have lowered their guidance:

1) Today Oshkosh, which makes heavy-duty vehicles for many commercial industries, talked about weak business here and overseas, with specific reference to softer conditions in western Europe, so companies that make any kind of heavy equipment are weak, including Terex, Caterpillar, Federal Signal, or heavy duty truck companies like Navistar and Paccar.

2) Yesterday Rockwell Automation, makes factory automation systems, yesterday warned that business was slowing in the U.S. and Europe and lowered its fiscal year guidance, which ends in September.

This may not seem like a lot, but on the heels of warnings by UPS and other companies about suddenly slowing business in June traders are clearly nervous that more companies will be revising their earnings outlook downward.

And they are increasingly nervous about slower growth in Europe, as well as slower emerging market growth.

The comments from Oshkosh are particularly important, since they sell to many different industries, including the non-residential construction industry. Today stocks that have significant exposure to this area are also weak, including Tyco, United Technologies, Emerson, and H&E Equipment Services.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 12:59 PM ET

Market At Bottom--Or Not? Answer Seems No

Posted By: Bob Pisani

The market is dealing with multiple issues today:

--initial jobless claims creep up

--GMdowngrade

--Financial weakness on downgrades

--techs weak on guidance

--aerospace continues weak

--oil trading at top end of its range

--dollar at a three week low.

The Dow is at a 21-month low; recall that the Dow has underperformed the other indices this month because financials and autos have been getting killed, but now we have other sectors under assault, particularly aerospace, and today even techs, which have held up comparatively well, are under assault thanks to Oracleand RIMM's comments.

And still we wait for a bottom, scanning the horizon like sailors lost at sea. We look for the classic signs, including a capitulation bottom, which is not evident.

On the Street, bitter complaints we are Oversold and due for a bounce, but are we Oversold, or Underbought? Lowry's, the oldest technical analysis service in the U.S., notes that while traders are bitterly complaining about oversold conditions, the trading patterns do not indicate that heavy selling is occurring. Rather, this current down phase looks more like the market is Underbought; traders show no interest in adding to stock positions.

This is different than January and March, when we did indeed see heavy selling.

So are we at a bottom or not? Lowry's suggest we are not: "Capitulation selling has, historically, been considered one of the primary elements in signaling the final phase of a bear market. If that's the case, then the recent market low fails to qualify, as the selling that preceded the low was substantially lighter than the selling leading to either the Jan. or Mar. lows."


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 10:12 AM ET

Looks Like Downbeat Day For Market

Posted By: Bob Pisani

So let's see, we have problems:

1) it's another beat-up-the-brokers day, let's take the estimates down (see below);

2) With the Fed out of the way, it is now all about second half earnings and guidance. Several important companies have been notably downbeat on their outlooks today:

--RIMM,one of the last darlings of momentum traders , down nearly 10 percent after their second quarter guidance is below analyst consensus;

--Oracleissued a conservative forecast that has got tech buffs worried that tech sales may be weaker than bulls expected,

--to illustrate how downbeat the Street is, Nikeis trading down, though they reiterated 2009 revenue growth targets "in the high single digit" percentages;

3) initial jobless claims continue to creep up.

Back to brokers:

What is this, beat up on Merrill Lynch day? Yesterday I noted that the biggest fear on the Street was the lack of catalysts for owning stocks this summer, post-Fed announcement, particularly for financials. That fear is being born out by financial analysts today.

Start with Goldman Sachs cutting estimates on all the brokers. Your first reaction should be, "So? Everybody has!" And you would be right, but now we are entering a new period of one-upmanship (you can thank Meredith Whitney for this), where brokers are trying to get out ahead of the companies (and the rest of the Street) by taking numbers WAY DOWN.

Back to Goldman: remember they raised their view of brokers after the Bear Stearns debacle? Well, today they reduced their view (to Neutral from Attractive), "as we see limited near term catalysts."

They added Citi to the Conviction Sell List, because they see additional write-downs ($9 b for Q2), higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales. Anything else? Oh, they moved estimates to a loss of $0.75 from $0.25.

They cut estimates for Merrill too, estimating $4.2 b of Q2 write-downs, and lowered quarterly estimate to a loss of $2.00 from $0.25.

On top of that, Bernstein slashes estimates for Merrill to well below consensus as well: to a loss of $0.93 per share, down from a gain of $0.82 per share.

Nyah-nyah: Wachovia downgrades Goldman! Oh, they make apologies: it's the top name in the space, etc. etc. But the bottom line is "we see both banking and prime brokerage slowing as we enter slower months."

Get it? Fear of the summer, lack of catalysts. Bulls are now arguing that the Street is cutting second half numbers so much that there will be a rally when the numbers do not come in as bad as expected--but that, if it happens, is months away, and we have the summer to get through.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 25 Jun 2008 | 4:45 PM ET

Fed's Nuanced Statement No Help To Market

Posted By: Bob Pisani

The market rallied modestly after the Fed announcement, then came back down. Why? While the Fed statement was nuanced, and clearly indicated the Fed was increasingly concerned about inflation, it was perhaps too nuanced for bulls. The dollar deteriorated, and oil moved higher.

Stock bulls want the Fed to protect the dollar, which will push oil lower and will help the airlines and the autos and the FedEx'sof the world.

Aerospace was notably weaker. Boeing had a Sell rating slapped on it from Goldman Sachs. While the downgrade is due partly to the general observation of "continued weakness in the economy, continued high fuel prices, and our view that Aerospace stocks underperform when both occur simultaneously," they also went on to take a specific shot at Boeing's critical 787 business: "we believe there is more risk to the 787 program than is currently priced in as the program has yet to even enter flight test, where historically most issues on development aircraft are found."

Boeing closed at a two-year low, and other stocks that had aerospace exposure, like United Technologiesand Rockwell Collins, and those in the aerospace supply chain like BE Aerospace, Honeywell,Triumph Group and Precision Castparts, were all weaker.

Elsewhere, financials could not maintain even a modest two-day rally; most came down late in the day and ended on either side of fractionally positive or negative.

The hope for a summer rally is predicated on a notable crack in oil (a sustained drop below $120 or so). After that, the notably oversold conditions (which could last a long time), and the lopsided bearishness of the Street should enable some kind of short-term bounce, bulls hope.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 25 Jun 2008 | 3:12 PM ET

Any Reason To Own Stocks This Summer?

Posted By: Bob Pisani

What’s next for stocks? The good news for the Fed statement is that it was exactly what the moderate camp was expecting: ratcheting up concerns on inflation, ratcheting down concerns on the weak economy. It was a nuanced statement, and the stock market showed very little reaction.

Unfortunately, a little more chest-beating on inflation would have helped the bulls. It was SO NUANCED that the dollar has drifted lower, and oil is unchanged. Not good.

Stock bulls want the Fed to protect the dollar, which will push oil lower and will help the airlines and the autos and the FedEx's of the world.

Now we turn to the main issue: where's the catalyst to own stocks into the summer? The lack of strong arguments for owning stocks is the biggest problem the bulls have.

The biggest hope for the bulls is a notable crack in oil (a sustained drop below $120 or so). After that, the notably oversold conditions (which could last a long time), and the lopsided bearishness of the Street should enable some kind of short-term bounce.

For the next few days, going into the end of the quarter, the hope is to stage a modest oversold rally. We've done that from yesterday's lows, but it's pretty, uh, modest: 1 percent off the lows yesterday, and basically flat for the quarter.

Longer-term, we do have the ECB on July 3rd, but they have already telegraphed their hawkish intentions. Traders keep telling me there are still a lot of chips on the table betting on a second half recovery. I would agree that earnings and guidance are the main story after today's Fed statement, but what I see is estimates coming down, even though comparisons for the third and fourth quarter are a lot easier due to the declines of last year.

Ah, the Bulls say, the Street is over-reacting because everyone is SO DAMN BEARISH. They will be cutting earnings, true, but they will not turn out as bad as everyone thinks, and we will rally. So say the bulls. But we are in a hall of mirrors now.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 25 Jun 2008 | 9:51 AM ET

Inflation: Firms Passing On Higher Costs

Posted By: Bob Pisani

AmEx just out with comments, saying "We have seen credit indicators deteriorate beyond our expectations" and it was "too early to assess the impact of deteriorating credit indicators." Down about 1 percent.

Monsanto beat earnings expectations, though revenues were a bit light they were 26 percent higher than the same period last year. Everything generated more revenue: Roundup, and soybean, corn and cotton seed. They raised full year guidance (there is only another quarter left in their fiscal year)

Inflation watch:

1) General Millsearnings were in line with expectations . Interesting to look at the mix: domestic retail operations grew 7 percent, of which 3 points were due to growth, and the remaining 4 points due to price increases. International business up 21 percent, of which volume growth was 6 points, price and mix were 6 points, and a favorable currency were 9 points of the gain. Bottom line: price increases are a significant part of growth, but domestically and internationally.

As for inflation, they noted that they are expecting supply chain costs to increase 9 percent in 2009; their projected earnings growth of 7-9 percent is still quite healthy, though at $3.78-$3.83 is slightly below analyst estimates of $3.84.

2) Despite all the kvetching about high raw material costs, some companies are indeed able to pass on higher costs, and more. Look at Dean Foods : they raised their second quarter guidance, and went out of their way to note that the gain was largely due to "effective management of the pass through of increased dairy commodity and energy costs."

3) Brazil's central bank raises inflation forecast to 6% from 4.6%.

Elsewhere:

--Rockwell Automation has lowered its annual earnings guidance, noting that the company had experienced slower than expected growth in Europe and the U.S. in the past several weeks. Down 8 percent

--Barclays the latest European bank (after Royal Bank of Scotland and HBOS) looking to raise money, $8.85 billion through a share issue. It's being sold to current investors who can buy 3 shares for every 14 now held.

--Best Buy increased its dividend by 1 cent, to 14 cents, but its yield is still a relatively small 1.3 percent.

Boeing down 3 percent pre open (near a two-year low) as Goldman Sachs slapped a Sell rating on it. While the downgrade is due partly to the general observation of "continued weakness in the economy, continued high fuel prices, and our view that Aerospace stocks underperform when both occur simultaneously," they also went on to take a specific shot at Boeing's critical 787 business: "we believe there is more risk to the 787 program than is currently priced in as the program has yet to even enter flight test, where historically most issues on development aircraft are found."


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 24 Jun 2008 | 4:05 PM ET

Oh, Those Fickle Traders

Posted By: Bob Pisani

How fickle are traders? They have the attention span...and the confidence...of gnats.

Earlier in the morning, traders took a shot at buying beaten-up groups: financials, airlines, and builders rallied. These stocks have been dramatically oversold recently.

Not surprisingly, there was also a mild rotation out of agricultural stocks, coal, and energy to pay for the money going into beaten-up groups. It didn't hold; by the end of the day much of the gains in the beaten-up groups had evaporated.

Nobody particularly believed that we were at a bottom in any of these beaten-up names; rather traders have given up all pretense of understanding long-term plays in favor of short-term momentum plays.

For example, in January several traders successfully played building stocks for a couple weeks; some rallied about 30 percent in two weeks before falling back.

In March, a similar situation occurred when money briefly came into financials, and several also rallied 30 percent or more in that time period before falling back.

What will happen at the end of June, beginning of July? Several traders have expressed interest in shorting oil by going long refiners or a few airlines, the theory being that if oil falls, margins will improve for both groups. That is certainly true; it's also true that there have been attempts to short oil before (most recently in May), which have failed.

Several refiners like Tesorodid move up today, but the gains did not really hold.

The difference between now and January and March is that traders could at least play beaten up groups for a few weeks; today they can't even get through an afternoon without having the market reverse on them.


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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