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Trader Talk with Bob Pisani

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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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  Tuesday, 24 Jun 2008 | 11:35 AM ET

Global Markets Struggle With Inflation

Posted By: Bob Pisani

Stock markets around the world have been weaker recently as they struggle with the implications of global inflation. Asian markets in particular are worried; Asian currencies have been weak on inflation concerns. Consider the following headlines:

Russia: PPI up 25 percent Year Over Year (YOY)

South Korea: inflation at 7-yr high

Vietnam: inflation up 25 percent YOY

As a result, emerging market stocks have been fading:

China down 54% (from the high in October 2007)

India down 32% (from the high in January)

Russia down 7% (from the high in May)

Meantime, companies in the U.S. are emphasizing the impact of inflation on their bottom lines. Lowe's is seeing "unprecedented requests for price increases;" Dow Chemical is raising prices for the second time in a month; energy costs up fourfold last 5 years.

All this is putting pressure on U.S. indices; the Dow is sitting near the 52-week closing lows from back in March.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 24 Jun 2008 | 9:22 AM ET

Reliance Steel Upgrades Guidance, Dow Chem "Upgrades" Prices

Posted By: Bob Pisani

1) Reliance Steel just jumped 5 percent as they updated guidance, raising it 30 percent from previous guidance, due to much higher increases in carbon steel prices.

2) Dow Chemicalis raising prices again, the second time in a month--by as much as 25 percent, joining other chemical producers who are being hit hard by higher oil and gas costs. How much higher? Dow says costs for have jumped fourfold over the past five years--they will spend $32 billion this year on energy bills (!!).

3) UPS down about 4 percent, as they copied FedExby pre-announcing lower earnings on slower U.S. growth and higher fuel costs.

4) In autos:

--Cooper Tire cut production of tires due to lower demand. This is no surprises; the Street has been selling off Goodyear and Cooper since May on expectations that car sales would be weak.

--A Japanese paper said that Toyota is making plans to lower is group sales target for 2008, due to slower sales in the U.S. and a slowdown in luxury car sales in China

5) NYSE Euronext is buying a 25 percent stake in the Doha Securities Market (the principal stock market of Qatar) for $250 million--though the NYSE also has a stake in India and Brazil bourses, as well as strategic relationships with the Tokyo Exchange, this is the NYSE's largest investment in a foreign exchange to date. NYSE will hold three of the eleven board seats at DSM, and will provide proprietary technology systems and help to manage the exchange over the next five years. The deal is interesting, because Qatar owns 15 percent of the London Stock Exchange, and both NASDAQ and the LSE were reportedly also involved in the bidding.

6) In the food business, Krogerbeat estimates; ConAgra is raising earnings for the quarter just completed, though they didn't provide specifics.

7) UBSup about 5 percent on vague rumors that HSBCmight be interested in buying them--and while buying the biggest wealth management firm in the world at a comparatively low multiple sounds appealing, it seems awfully unlikely they would be able to pull off a deal of this size in the middle of the biggest banking downturn in decades, not to mention how much opposition would be seen in Switzerland if a London bank tried to buy the crown jewel of Switzerland.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 23 Jun 2008 | 5:23 PM ET

Low Volume, Lots of Damage

Posted By: Bob Pisani

After the close, UPS cut its guidance, speaking as FedEx did recently about the increase in the price of fuel, and how it is slowing the broader economy.

It was a low volatility, low volume day, but regardless: there was a lot of damage done. Two stocks declined for every one that advanced. The number of stocks at new lows at the NYSE was the highest since the March bottom.

Financials have been sold almost every day this month, and again today; as a group, they were down about 3 percent, with new lows in AIG , Bank of America , Citi , and Merrill Lynch .

Retail and housing stocks were also weak, with companies like Home Depot down nearly 5 percent.

The only group on the upside were energy stocks, where we hit new highs in many oil service names, as well as coal companies like Massey .

Predictably, airline stocks dropped double digits on the rise in oil.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 23 Jun 2008 | 9:38 AM ET

Oil Whipsaws, S&P Flat as Quarter End Looms

Posted By: Bob Pisani

Oil was trading up early in the morning, despite the Saudis agreeing to raise oil production 200,000 barrels a day -- however, about 8:30am ET, after the dollar had been strengthening, oil began moving down. Gold also weakened, down 2.7 percent.

Options on gold and all the metals expire on the 25th, one trader said it was "just too much for the funds." That is too much unknown news with the Fed meeting, and they don't know how much more the Saudis will raise oil production.

(Nore: If crude comes off it drags down gold).

The Fed meeting this week is widely anticipated to be a non-event, with no rate raise and a lot of rhetoric about inflation.

More important is the end of the quarter, with only six days remaining. The S&P 500 is essentially flat this quarter, which is a major disappointment, since April and May were up; we have fallen apart in June (down nearly 6 percent!) and are now very near the lows for the quarter. With a flat quarter, many traders signalled that they expected meekness and defensiveness to be the prevailing strategy going into the close of the quarter.

Well, there are some mergers this morning, which should put a few much-needed shekels in the coffers of the investment banks.

Bunge to buy Corn Products for $4.8 billion for Corn Products, $56/share, a 31 percent premium to Friday's close.

Corn Products is the #4 manufacturer of high-fructose corn sweeteners. The deal will supposedly broaden the products it sells to customers and extend their reach into new markets in Asia.

Bunge also announced they were raising full year guidance to $9.35-$9.65 from $7.10-$7.40 (!) Remember, they are also in the fertilizer business, as well as agribusiness.

Republic Services formally announced they were buying Allied Waste, in deal that had already been widely leaked.

The deal is $6.1 billion, valuing Allied at about $14.04 a share, a small premium over Friday's close. The deal combines the number two and three companies in the solid waste industry (Waste Management is #1)

The Chicago Mercantile Exchange announced a share buyback program of up to $1.1 billion of Class A stock and a special dividend of $5; up nearly 3 percent pre-open.

Citi plans to dismiss up to 10 percent of the 65,000 people in their investment banking division, according to the Journal (Citi will not confirm), while the Financial Times is saying Goldman Sachs cut its investment banking division last week.


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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