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Trader Talk with Bob Pisani

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  Wednesday, 2 Jul 2008 | 4:24 PM ET

Why Stocks Were Lower

Posted By: Bob Pisani

Stocks moved lower midday as oil and heating oil moved up. The dollar was also weaker, as the ECBis set to raise rates tomorrow.

The key event today was the weakness in leadership groups. Today coal and energy stocks were notably weaker on no real news. There is two schools of thought here: 1) macro types argue that energy stocks should weaken as global demand slackens, and 2) bears argue that in an ongoing bear market the market leadership eventually gets taken out along with everyone else. Then we can start talking about a bottom.

They are not the only leadership group that has weakened; steel stocks were down for a second day in a row.

The primary risk for traders in the next day is headline risk: fear that some event, usually around oil, might happen over the long weekend.

But this will all be gone soon enough, and next week earnings season will begin with Alcoa July 8th. The shares have gone from $40 to $32 on worries that global demand for aluminum would be slowing down. But I am told aluminum prices are holding up, and while North American demand may have weakened, Asian demand remains strong. Alcoa's comments on global demand will be one of the key events next week.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 2 Jul 2008 | 1:59 PM ET

Sell Into Rallies Still Rules Street

Posted By: Bob Pisani

We are getting just the kind of trading that would be expected: modest rally on shreds of good news, met with selling (or just buyers stepping away) midday.

Remember the basic facts of the market: 1) stocks are oversold, 2) traders are extremely bearish, and 3) "sell into rallies" remains the dominant trading motif.

With that said, there is some hope that the tape is in a consolidation mode. What's that mean? In plain English, they're hoping we are at yet another bottom. Yes, another bottom--if we stop here we have a Triple Bottom (cue the creepy music), with January, March, and now the end of June.

But a bottom on oversold sentiment is not enough, not by a long shot. We will need a string of positive comments to really move things. Deutsche Bank and UBS saying they don't need to raise more capital, and GM saying June sales not as bad as expected are a good start. Tomorrow, nonfarm payrolls, if better than expected, should create a modest rally, but even there, expect selling into rallies if it moves too far.

Particularly troubling are materials. I have noted for days that this former leadership group is showing signs of topping. Again today steel stocks are under attack. I am told by traders that the fundamentals are still intact, that foreign countries are keeping up production giving support to the domestic producers.

Today, for the first time, coal stocks have come under attack.

If you are bearish, this fits in well with the main thesis: that in a bear market, it's not over until the leadership groups get sold off.

If you believe this thesis, the bears say, then energy is next.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 2 Jul 2008 | 9:22 AM ET

Markets Oversold, Traders Bearish

Posted By: Bob Pisani

The market remains oversold and traders remain extremely bearish. Example: the Investors Intelligence survey of financial newsletter writers continues to drop, with Bulls down to 31.9 percent (vs. 33.7 last week) and the Bears at 44.7 bears (vs. 39.3 percent last week), the lowest readings since the market bottom in March.

The most important news this morning comes from Europe: Deutsche Bankis up 5 percent pre-open after staring they would make a profit in the second quarter and would not require more capital. Yesterday UBS also said it would not require more capital.

Also overseas, please note that the Nikkei is down 10 days in a row.

Elsewhere:

1) UnitedHealth Groupagain cut its earnings forecast, but they are up 5 percent as the stocks have already reflected the prior forecast cuts from them and other HMOs. The problem: the amounts they are charging are not in line with the costs they are incurring (margin squeeze).

2) Blockbusterhas withdrawn its bid for Circuit City, citing market conditions. Circuit City said its "announced exploration of strategic alternatives to enhance shareholder value is an active and ongoing process."

3) I mentioned yesterday that the hot IPO of the week was over at the NASDAQ--Energy Recovery (ERII) makes energy recovery devices for water desalination plants. It priced 14 m shares at $8.50 a share, toward the high end of the $7 to $9 estimated range.

Upgrades/downgrades:

--Meredith Whitney at Oppenheimer reduced estimates for Merrill Lynch (from a gain of $0.20 to a loss of $4.21!), saying they will likely do some form of capital raising in conjunction with the second quarter earnings release.

--Bernstein upgraded ExxonMobilto Outperform, saying that earnings revisions were coming.

--Finally, in the gee-thanks-for-that category: Merrill Lynch downgrades GM, reduces the price target for $7 from $28 (read that again: to $7 from $28) and adds we believe there is potential downside in the stock below $7 and "bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised." GM down 4 percent.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 1 Jul 2008 | 4:09 PM ET

How Today's Market Took Step In Right Direction

Posted By: Bob Pisani

Don't let the flat final numbers fool you: there was lots of market drama today.

This morning, in discussions with my colleague Dylan Ratigan, I stuck my neck out and said that the market should trade up modestly today for several reasons: 1) ISM was better than expected, 2) first day of the third quarter is historically an up day, and 3) the market is as oversold and bearish as I have seen it in many years.

But there was little interest in buying through a good part of the day--indeed market leaders like tech and energy stocks were being sold through the early afternoon. More hand-wringing.

Stocks began coming off their lows just after 1 pm ET, but there was still no catalyst to move things notably higher.

Then, just before 2 pm ET, GMannounced auto sales for June were just down a little over 8 percent, much better than the decline of nearly 20 percent expected. GM rallied, but so did all the other stocks in the auto sector (even Ford, which didn't report better than expected numbers), and then the short-covering began as the market turned around.

How oversold is the market? Take a look at the S&P Oscillator. An oscillator is just a fancy word for a program that looks at how oversold or overbought the market is. Without going into details, it triggers a Sell signal when it is +4 or above, and a Buy signal when it is -4 or below. An extreme oversold is -8 or below.

Last night it was -9.4, the most oversold reading since July 2002. The market, you'll recall, bottomed in October 2002. THAT is what I mean when I say the market is oversold.

As any market wag will tell you, the market can remain oversold for a long time. So can bearishness, although the levels I am seeing now are rather extreme.

Bottom line: this was a battle between bulls and bears, and the market revealed itself to be very oversold, but not strong enough to rally significantly. It’s a step in the right direction.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 1 Jul 2008 | 12:33 PM ET

Why Buying Remains "Muted"

Posted By: Bob Pisani

There are several reasons we ought to get modest buying interest today: 1) ISM was stronger than expected, 2) start of the quarter is traditionally more of an up than down day, as traders put new money to work, and many nibble on beaten-up groups, and 3) we had a 90% downside day June 26th, which coming on dramatically oversold conditions should attract some buyers.

And yet, buying interest remains muted, a fact that is preoccupying technical analysts this morning. For example, Lowry's noted that "the failure to rally is occurring in the face of persistent short term oversold readings suggests substantial underlying weakness in the market."

There's no doubt we are in unconventional times. The big issues aren't going away: capital raising/writeoff worries for the financials, tapped out consumers, no clear bottom in housing, and global inflation.

Still, the question remains: how long will the "go long commodities/short financials" trade go on? Forget energy stocks--materials like steel and metals are already looking toppy, with many in a downtrend for the past two weeks:

--Freeport-McMoran topped out in May;

--Nucor at the lowest levels since April;

--Alcoaat the lowest levels since February

--International Paper at a 17 year low.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 1 Jul 2008 | 9:14 AM ET

How Bad Is It? Even Liquor Sales Are Down

Posted By: Bob Pisani

Historically, the first day of the third quarter is an up day, but we are starting on a down note. Housing numbers are weak in the U.K., so the FTSE is down nearly 3 percent and sitting near a 52-week low.

Traders are scanning the horizon for some kind of bottom--some kind of selling climax, but it is not immediately obvious what that will be.

Elsewhere:

1) The rest of Europe is weak as well, as UBS is down 5 percent after announcing a management restructuring, including the elimination of the Chairman position and a stronger role for the board of directors. Four board members are resigning; replacements will be elected in October. Remember UBS recently issued over $15 billion on a major rights issue; the stock is now trading below even that deeply discounted price. UBS, which was close to $60 13 months ago, has just broke below $19.

2) Morgan Stanley out late last night with positive comments on Lehman--"Bruised, Not Broken – and Poised for Profitability" was the title of the piece. They initiate coverage with an Overweight rating and a $31 price target. "We think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing."

3) Auto sales, out later in the day, are also likely to be difficult, as Toyota may pass GM as the largest auto manufacturer and total numbers are expected to be down some 15 percent compared to June of last year; the numbers are likely to be well below 15 m annual sales projected just a couple months ago, somewhere in the range of 12-13 m.

4) How bad is it? People aren't even drinking as much, for cryin' out loud. Fortune Brands is down 6 percent after lowering their earnings guidance for Q2 and the full year--yes that Fortune Brands that owns liquor (Jim Beam, Maker's Mark, Canadian Club, Sauza, Courvoisier), golf equipment (Titleist, Cobra), and home products (Moen, MasterBrand cabinets).

OK, it's not surprising the home products division was weak--but a lot of traders were assuming the spirits division would hold up reasonably well--they had been doing well convincing the world to trade up to more expensive spirits.

It should be noted that some of the problems are also due to additional taxes on ready to drink alcohol in Australia, which is lowering consumption there.

If that wasn't enough, there are also additional cost pressures from steel & particle board.

5) Rio Tinto got increases in their iron ore prices (at least 80 percent) from South Korea.

6) Two IPOs may price tonight. On the NYSE, Galiot Capital, a mortgage REIT, is seeking to raise 16.7 m shares at $15-$18. It's a tough time to go public as a mortgage REIT.

The other, at the NASDAQ, is getting a lot of buzz: Energy Recovery (ERII) is seeking to raise 14 m shares at $7-$9. They are in a hot space: water desalination. Also pricing tonight.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 30 Jun 2008 | 4:09 PM ET

Ending One Strange Quarter--No Other Way To Describe It

Posted By: Bob Pisani

We are ending the quarter the way we lived most of it, with energy stronger and financials weaker. However, this is one of the strangest quarters in my nearly 12 years at the NYSE. Look at this strange spread between the major indices this quarter:

Dow down 7.1%
S&P 500: down 2.9%
NASDAQ up 1.2%
russell up 1.0 %
Midcap up 5.6%

Two points about this data:

1) It's the first time the Dow is down 3 quarters in a row since 1977-78.

2) The point spread between the Dow and the S&P: is the widest since Q4 2000. Why? First, many smaller cap stocks (some of which are in the S&P) did better than the larger cap stocks that are in the Dow; more importantly, financial stocks just got killed in the Dow.

Dow financials this quarter:

AIGdown 39%
BofAdown 37%
Citi down 22%
JP Morgan down 20%

Little wonder that financials are among the big sector losers this quarter:

Housing down 25%
Banks down 26%
Airlines down 40%

While the sector gainers are the usual suspects...energy:

Sector gainers Q2
Oil services up 26%
Natural gas up 24%
Oil stocks up 15%


Questions? Comments? tradertalk@cnbc.com

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  Monday, 30 Jun 2008 | 12:19 PM ET

Bear Market? Not There Yet

Posted By: Bob Pisani

Everyone is making a big point that the Dow has reached bear market territory, which is down 20 percent from its previous highs. This is true, but may not be interesting, since Lowry's and others have noted that the average bear market in the last last 80 years has been 30 percent off its highs.

Furthermore, while big caps are getting killed, it is a different story elsewhere. The small-cap Russell 2000 is down 18 percent from its July high but well off its lows in March. The Midcap Index (11 percent off its July 2007 highs) is also well above its March lows.

The hope here is for a short-term bounce. The Dow has been up 15 of the last 18 years on the first day of the third quarter (that's July 1, folks), according to Stock Trader's Almanac. I know, pretty obscure, but that's the kind of obscure stats that are being passed around these days.


Questions? Comments? tradertalk@cnbc.com

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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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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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