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Trader Talk with Bob Pisani

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  Wednesday, 9 Jul 2008 | 4:45 PM ET

Bears Get "Wish": Selling Into Rallies Continues

Posted By: Bob Pisani

Financials give up all of Tuesday's gains; on top of that home builders, REITs, techs and retailers were also weak.

The issues were again around the Government Sponsored Enterprises--Freddie Mac down 23 percent, Fannie Mae down 11 percent; as I noted before, the most likely concern is short sellers continuing to press the stocks on concerns over their exposure to mortgages vs. their capital base.

On top of that an, article posted on the Fortune website just before 2 pm ET may also be a contributor to the weakness. In it, the author basically goes over the recent Lehman Brothers analyst report, and is titled: "The Fannie and Freddie doomsday scenario: It's time to wonder what would happen if Fannie Mae and Freddie Mac failed."

There have been a series of 90 percent downside days (days where the down volume/up volume and points gained/points lost exceed 90 percent) in recent months; for a bottoming process to form, traders are expecting some sign of buying enthusiasm. This would typically take the form of a series of 90 percent UPSIDE days.

But it isn't happening. We are continuing to see selling into any rallies. It is unfolding as bears have hoped: it's not over until all hopes are dashed, and even the leaders are taken out and shot.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 9 Jul 2008 | 3:38 PM ET

Washington Mutual: Watch It At Today's Close

Posted By: Bob Pisani

Aside from financials in general, the stock to watch at the close is Washington Mutual. After the close, Washington Mutual'ssharecount in the S&P 500 Index will be increased by 647 million shares to account for the conversion of preferred securities.

As a result of this announcement, analysts estimate the S&P 500 index holders will have to purchase about 51 million shares of Washington Mutual; that is about an entire days worth of average trading.

I am being asked why Freddie Macand Fannie Maeare trading down so much again (19 percent and 10 percent, respectively); as in all these matters, the most likely concern is short sellers continue to press the stocks on concerns over their exposure vs. their capital base.

On top of that, an article posted on the Fortune web site just before 2 pm ET may also be a contributor to the weakness. In it, the author basically goes over the recent Lehman Brothers analyst report, and is titled: "The Fannie and Freddie doomsday scenario: It's time to wonder what would happen if Fannie Mae and Freddie Mac failed."


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 9 Jul 2008 | 9:21 AM ET

Oversold Bounce Or Real Bottom: Market Debate

Posted By: Bob Pisani

Oversold bounce or bottoming process? That's what everyone's debating right now. Or maybe it's a longer-term trade. This morning Lowry's noted noted that the rally in March lasted two months, while the rally from the bottom in January lasted only a matter of days.

True, we did see a nice bounce yesterday in drugs, financials, industrials, and retailers--all the beaten up groups. Believe it or not, traders are suspicious of a rally that is led by financials, because they have been so burned before by these head fake financial rallies.

That's why sentiment remains so bearish. Some three weeks ago,I said I haven't seen the Street so bearish since just after 9/11 . This morning Investors Intelligence reported that their Bull/Bear survey of financial newsletter writers fell to 27.4 percent bullish, the lowest reading since July 1994. Bears rose to 47.3 percent, the highest since 1995.

Elsewhere:

1) Alcoatrading up on a solid earnings report. The good news was right up in the first paragraph: "Higher input costs impacting the entire aluminum industry were offset by higher volume and stronger pricing." As FBR Capital noted when they upgraded the stock this morning, since June 1 aluminum prices have increased 7 percent while Alcoa's stock has decreased 18 percent. Up 4 percent pre-open.

2) Morgan Stanley cut price targets for JC Penney,Coach, Nordstrom,Abercrombie,Staples and other retailers, as well as restaurants, while reiterating that Wal-Mart remains their favorite stock. They say it's still too early to move heavily into the more discretionary sectors of retail. My favorite line from the report: "Last year's clothes and TV may have to do."

3) When you come to the fork in the road, take it: A regional bank upgrade? Yes indeed. Wachoviaupgraded at Merrill Lynch, which titles their report, "WB is now at a fork in the road." The to through a long list of negatives, noting the possibility the company will not be sold, and that they still face considerable issues, but concludes that "credit headwinds appear priced in."


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 8 Jul 2008 | 4:08 PM ET

Oversold Market Helps Move Stocks Up (Alcoa Looks Good)

Posted By: Bob Pisani

Stocks moved up late in the day. Some of this is clearly due to the oversold nature of the market. For example, regional banks were particularly strong: Washington Mutual, Comerica, Huntington Bancshares,Fifth Third,Regions Financial, and Sovereign--the most beaten-up names--were up double-digits today.

Some traders are also turning bullish. John Mendelson of the Stanford Group issued a buy signal late in the day; traders tell me it was his 3rd buy signal in 5 years, and the prior two calls were very good. This report went out about 2:45 ET. Here is what he said: "I think the long correction in the stock market than began early last summer when the NYSE Advance/Decline Line topped out is ending and I look for a resumption of the advance that began in October 2002."

He lists 8 reasons supporting his hypothesis, including 1) reduction in the risk premium for banks, 2) the New Low list declining, 3) the Dow Transports holding well above its January low, 4) rising put/call ratios.

Drug stocks have moved up: Pfizer highest in a month, Abbotthighest since February, Wyeth highest for the year.

Transports up as commodities weakened. As for big cap financials, the best that can be said is that they have stopped going down. For the past few days. That's all I'm saying.

Update: Alcoalooking good here--$0.66, estimate was $0.64, compared with $0.37 last year for the same quarter. The key line: "Higher input costs impacting the entire aluminum industry were offset by higher volume and stronger pricing." Up 4 percent in after-hours trading.

UPDATE: The sentence about Alcoa should have said the company made $0.81 instead of $0.37 for the same quarter last year.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 8 Jul 2008 | 11:22 AM ET

Market Leaders--Energy, Materials--Being Sold

Posted By: Bob Pisani

We noted last week the mantra of the bears: in a real bear market, even the market leadership eventually gets taken out. And that prophecy appears to be coming true. Quietly, traders have been selling the energy and materials stocks, which were the market leaders.

Now look at how far some of the main stocks in these sectors have fallen from their recent highs:

Massey Energy -27 percent
Mosaic -25 percent
U.S. Steel -22 percent
Anadarko Petroleum -19 percent
Freeport-McMoRan -19 percent

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  Tuesday, 8 Jul 2008 | 9:06 AM ET

Financials Are Market Focus--Again

Posted By: Bob Pisani

Oil is below $140, indeed all commodities are down, but it is having little effect on stock futures, which have merely come off their lows for the day. The lack of a positive response from stocks indicates that the Street is once again focused on financials,particularly the undercapitalization of Freddie Mac and Fannie Mae. Today, however, Fannie and Freddie are both up about 7 percent pre-open.

Another issue weighing on financials is the gradual realization that the government is dead serious about additional regulation, particularly of brokerage firms. Fed Chairman Ben Bernanke, speaking at an FDIC forum, argued that the Fed should have broader power to monitor the financial system.

Brokerage firms have dealt with the credit crises, the slowdown in housing, and a slowing consumer and commercial lending environment. Now they are facing the prospects of dealing with additional regulation. Additional cooperation between the SEC and the Federal Reserve, and indeed additional cooperation with other agencies outside the United States, seems inevitable.

The downside, as Dick Bove and others have pointed out, is that regulation will make brokers less competitive and less profitable, and make money more scarce.

Elsewhere:

1) Office Depotdown 13 percent as they essentially pre-announced an earnings disappointment; same store sales were down nearly 10 percent year over year.

2) Du Pontearnings estimates for 2008-2009 are lowered at Bank of America, noting rising material costs and weaker trends in autos and construction.

3) Alcoawill report after the bell today and will provide important insight (hopefully) into global growth and the cost of energy. The general view is that alumina and aluminum prices are stable to slightly higher, but they will be offset by higher energy costs, as well as higher costs for raw materials like caustic soda.

4) Cardinal Healthannounced a restructuring, splitting operations into two segments and cutting about 600 jobs, or 1.5 percent of its workforce.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 7 Jul 2008 | 4:02 PM ET

Markets "Resolve" Nothing

Posted By: Bob Pisani

How stressful was it today? Try this: the Dow was up nicely at the open on lower commodities, at 11,400 right near the open, then plunged 280 points as the dollar dropped, oil rallied, and Freddie Macand Fannie Maedropped notably, all in a half hour period! Then it rallies another 180 points, then moves down into the close.

Is it any wonder that traders are stressed?

We've made a lot of the market's complacency, that even though bearishness is high, fear is not. Today the VIX (CBOE Volatility Index, a fear indicator), moved to the highest levels since mid-March; the S&P moved to its lowest levels in two years.

In financials, light volume and stocks in the green early on turned midday into a route, as prices moved down and volume increased notably.

Energy stocks were strong early on, then sold off as oil fell apart , then rallied modestly but still ended the day down.

Bottom line: this day resolved nothing.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 7 Jul 2008 | 2:27 PM ET

Market's Troubles: Commodites, Freddie And Fannie

Posted By: Bob Pisani

This is a day with a lot of vicious cross-currents, and like many days in the last six months these cross-currents are making it very difficult to trade. There are two major problems:

1) financials, which were flirting with bottoms last week, and which opened strong, sold right off late morning. Sell Into Any Financial Rally is the main mantra of the market, but in this case notable weakness in Freddie Mac and Fannie Mae has caused considerable confusion.

Some pointed to a Lehman analyst reported, noting that if a pending FASB (Financial Accounting Standards Board, which develops generally accepted accounting principles for U.S. firms) rule came into effect, it could require Fannie to add $46B of capital and Freddie to add $29B.

The problem with this argument is: 1) it came out at 1 am this morning, and 2) the FASB rule change has been floated for a long time, 3) there's a good chance the rule will not come into effect.

So what's going on? There have been concerns about Fannie and Freddie for several months. Simply put: Freddie is undercapitalized and they need to raise money, and it's tough to shore up a $500 billion balance sheet with a $10 billion market cap (now below $8 billion), and money raising is getting more expensive...and balance sheets are deteriorating. And they are grossly exposed to mortgages when they are taking on additional risks.

That concern makes some sense, but it is not new. Most likely explanation: fast money guys are again taking the tape down to the lows again on very light volume, using this "report" and other vague worries as an excuse to raise questions. Sound familiar?

2) the other problem is a vicious reversal in commodities, which started weaker on a stronger dollar (helping stocks initially), then reversed as the dollar got weaker midday. Energy stocks started strong, then sold off, and have not yet recovered.

These kind of vicious reversals is why traders find it so difficult to make money, even on an intra-day basis.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 7 Jul 2008 | 9:08 AM ET

Alcoa Will Likely Set The Tone For Quarter

Posted By: Bob Pisani

Commodities are a bit weaker here as the dollar is stronger, stock futures are flat.

Europe and Asia are mostly higher, the Shanghai Composite, however, is up 4.6 percent today, best day in a month on strong earnings forecast from a couple of their banks.

South Korea the latest country to say they will defend their currency. The won has declined in value on inflation concerns.

Elsewhere:

1) Brewer InBev, frustrated by the refusal of Anheuser-Busch'sboard to negotiate, is now announcing that they will attempt to remove the company's entire board . They want the company's shareholders to vote on the board's future and will argue the board is not acting in the company's best interests.

2) GM is again considering cutting thousands of white-collar jobs and is even considering selling some brands, according to the WSJ. June sales were down, but not as much as expected.

3) The stock market in June began pricing in lower expectations for earnings in the second half of the year, but there could still be a few surprises. Much of the tone for quarter will be set by Alcoa, reporting after the bell tomorrow. Alcoa, of course, depends on aggressive commodity forecasts, which will give us insights into the global economy. There is concern over cost escalation due to higher natural gas and other costs. Finally, M&A is still very much a background issue.

4) Disneycut to underweight at Lehman; Merck downgraded at UBS on concerns over Gardasil, its vaccine for human papillomavirus.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Jul 2008 | 1:46 PM ET

The Bull And Bear Arguments

Posted By: Bob Pisani

Materials this week:

Weatherford down 8.9%
AK Steel down 23%
Freeport McMoran down 7.0%
Alcoa down 7.7%
Monsanto down 6.7%

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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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