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Trader Talk with Bob Pisani

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  Monday, 9 Jun 2008 | 9:19 AM ET

Market Trader: "Downside Potential From Current Levels."

Posted By: Bob Pisani

Not surprisingly, market technicians who were bullish two weeks ago are in a state of despair. Talk about minor support at 1,350 for the S&P 500 is half-hearted at best; the truth is that other than the March closing bottom of 1,273 there is no one willing to draw many lines in the sand here.

In emails over the weekend, several traders noted that both the Martin Luther King Day and St. Patrick's Day bottoms were accompanied by 75 basis point eases from the FOMC, but those bullets have now been used. "The market is now left to its own devices to create its next low," one trader wrote. "Since future prospects for the economy remain dismal, there is considerable downside potential from current levels."

Moreover, it is important to note that Friday was a horrific day for large macro hedge funds, thanks largely to comments made by the ECB's Tichet .

Recall that Mr. Trichet signalled that rates may rise in Europe; at the same time, the poor U.S. employment report indicated that rates in the U.S. were not going to rise due to the weak economic outlook.

Mr. Trichet's comments were the main event, and his comments were the main topic of traders over the weekend. Here's why: many macro funds were set up for what is called the "convergence trade"--i.e. that rates in the U.S. and Europe would come closer together. Everyone was set up for that to happen--specifically, for the U.S. to raise rates, and the ECB to cut rates. That trade required traders to be long European bonds, and short U.S. Treasuries, and generally find some way to be long the dollar.

However, Trichet through a bucket of cold water on that trade--and in addition was largely responsible for that big rise in oil. Why? Because many traders went long the dollar by being short commodities, specifically oil. If you no longer believe that the dollar will rise, you have to cover that short in oil. Voila. Big oil rise.

The big hope is demand destruction in oil. Malaysia has now jointed Indonesia and Taiwan in dramatically reducing subsidies for oil. In Malaysia's case, this is resulting in a 40 percent rise in fuel, which was announced last week. The big question is whether China will end subsidies after the Olympics, but as Vince Farrell noted, they have a budget surplus--and they are unlikely to change those subsidies dramatically.

Elsewhere:

1) Big insurance deal this morning: Willis Group , the third largest insurance brokerage firm in the world, is buying Hilb Rogal & Hobbs , for $1.7 b, in a cash and stock deal valued at $46 a share. Since Hilb went out at $30.89 on Friday, that is a more than 40 percent premium.

2) Lehman lost $2.8 b loss ($5.14 a share loss) and is expected to raise $6 b in capita l. There convertible offering, according to our David Faber, expected to carry an 8.75 percent coupon; the common stock will be offered at $28 a share.

3) McDonalds out with strong same store sales in both the U.S. and internationally ; up 4 percent pre-open.

4) UBS was briefly halted in Europe to investigate a mistrade; it has resumed trading, now down about 4 percent, near a 5-year low. There has been plenty of talk of further asset markdowns in the second quarter.

5) CIT up 10 percent on a $3 b financing deal, provided by Goldman Sachs .

6) New Zealand and Australia, Hong Kong and Shanghai markets are closed.

7) Expect more of this in the coming days: JP Morgan is lowering 2008 earnings estimates on the S&P 500 (from $90 to $89) to reflect the higher cost of oil, with particular hits to auto and airline earnings. That hit is offset somewhat by slightly higher earnings for energy. Despite the downward revision, they remain upbeat on stocks: "We still stay long equities even with oil headwinds...The US Economy has demonstrated impressive resilience despite these headwinds, with modest job losses, and moreover, JPM's Economics raised their 2Q GDP forecast to 1.0% from 0.50% previously."


Questions? Comments? tradertalk@cnbc.com

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  Monday, 2 Jun 2008 | 11:00 AM ET

Out Of The Office This Week

Posted By: Bob Pisani

I will be out of the office for the rest of the week but I will be back with news posts very soon. See you then.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 30 May 2008 | 4:30 PM ET

Month's End: Defining the May Market Story

Posted By: Bob Pisani

It's the last day of the month and no one wants to be a hero.

With that said, the Street is struggling to find a narrative -- it's not clear where we are, so instead of broad narratives I am getting a lot of little (and somewhat timid) stories.

Here are a few observations:

1) a lot of traders are long credit cards, but this is a CROWDED long;

2) energy and materials are tough shorts: a lot of traders want to short 'em, but many got burned at the end of April doing this;

3) brokers: buy when oversold, for a trade is the usual mantra, but quarter ends today for Lehman, Goldman, and Morgan Stanley. Lehman is the key here. If traders like what they hear on losses and capital preservation, as well as a broad vision of where they want to go, brokers could lead the financials higher.

4) some tech leadership is forming: stocks like EMC, Apple, and Research in Motion had a good month

5) retail: everyone is just staying negative on consumers until proven wrong. J. Crew's poor guidance does not bode well for May sales

6) fundamental on coal and metals still very strong: look at Joy Global , a mining machine maker, new highs today on positive comments. Fertilizers remain strong but many believe if oil comes in so will they.

7) macro outlook is cloudy: there are sizeable cash positions that need to be invested when the fear of a nasty recession ebbs, as does credit fears.

For the month: S&P up 1.2 percent, Dow down 1.2 percent (thanks to terrible performances from GM and the financials) -- this is the first time the Dow and S&P have diverged since June of 2006. Nasdaq up 4.8 percent.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 30 May 2008 | 1:24 PM ET

Lousy Volume? The Whole Picture Of Trading Is NOT Really Shown

Posted By: Bob Pisani

What's up with this lousy volume?

I've been asked repeatedly by traders to explain the puzzling drop in volume we have seen since the start of the second quarter, particularly at the NYSE. Most feel it is due to traders simply stepping back in light of the uncertainty of the market.

While there is certainly some truth to this, a more likely explanation comes from a failure of some of the statistics to reveal the true extent of trading.

Simply put, the volume that is reported on the floor of the NYSE now only represents a portion of total trading; when trading in NYSE stocks by all exchanges (including the NASDAQ) is included, as well as the crossing sessions (where stock that is matched up or "crossed" by brokerage firms are printed on the NYSE), a different picture emerges.

Here's the facts (my thanks to Rich Repetto at Sandler O'Neill for the data).

1) Quarter to date, total volume in all NYSE-listed stocks (which includes trading in all NYSE stocks by all exchanges, including the NASDAQ) is UP 23 percent. However, volume to date in NYSE stocks that are traded at the NYSE (which includes Archipelago) are DOWN 10 percent.

2) For NASDAQ, total volume in all NASDAQ listed stocks (which includes all exchanges) was down 5.2 percent, and volume to date in NASDAQ stocks traded at Nasdaq was down 14 percent.

What does this mean?

1) total trading in NYSE stocks continues to expand, due largely to increased electronic trading;

2) trading at the NYSE itself, particularly on the floor, however is lower;

3) trading in some of the more mature electronic stocks (those normally listed at NASDAQ) appears lower.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 30 May 2008 | 9:15 AM ET

Money Flow: More Out Of Bonds Then Into Stocks

Posted By: Bob Pisani

Last day of the month, S&P up 0.9 percent for the month. End of quarter for Lehman ,Morgan Stanley , and Goldman Sachs .

Dell up 8 percent pre-open on a stronger than expected report . But oil is up, bonds are reversing their recent decline, and other metals like gold and copper are up slightly today, though a modest dollar rally continues.

Art Cashin made a good point yesterday: that the amount of money going out of the bond market seemed to be much greater than the amount of money going into stocks.

Elsewhere:

1) Solar companies, which were killed yesterday as oil dropped, are rallying a bit this morning on fairly strong volume, for solar stocks. Suntech and Yingli Green up 6 percent, LDK Solar up 3 percent.

2) J Crew down 17 percent pre-open,they beat estimates, but guidance for the current quarter and full year is below estimates. JCG cut to sell at Citigroup

3) Tiffany up 4 percent, beat expectations handily($0.50 vs. $0.41 expected) and guided higher slightly for the full year. It was international that again carried the day: comp store sales in the U.S. were flat (though sales at the New York flagship were up 16 percent due to tourist buying!), sales in Asia Pacific up 4 percent on a constant exchange basis (Japan was weaker than expected), European comp store sales up 12 percent on a constant exchange basis.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 29 May 2008 | 4:19 PM ET

Has Market Thrown Off Oil "Tyranny"?

Posted By: Bob Pisani

Appropriately, the stock market rally hit a top the minute oil stopped trading at 2:30 pm ET. It was a strange day: a surprising draw-down in crude oil inventories was met by an equally surprising selloff in oil, and stocks continued their modest rally.

All this caused bulls to say that the market was finally shrugging off the oil tyranny which has dominated stocks for the past two months.

It's far too early to call a top in oil (we tried this with oil at $120 at the end of April; the shorts got killed the following week), but certain trends, including dollar strength, decent economic news (revised Q1 GDP up 0.9 percent, not great but not a recession either), a continuing bond decline all helped bulls.

Then there's those commodities. Not clear if energy commodities are in a top, but certain other commodities are clearly looking toppy.

Commodities (from highs):

Copper down 10.7% (hit high in April--base metal inventories are up in London)

Gold down 12.7% (hit high in March)

Aluminum down 9.2% (hit high in March)

Materials and energy stocks were the notable losers today.

One final point: note the big move down in solar stocks today, with names like Yingli Green down over 10 percent. Some are saying this weakness is giving confirmation to this down move in oil.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 29 May 2008 | 3:16 PM ET

Bulls And Bears: The Case For Both Sides

Posted By: Bob Pisani

Bulls and bears are engaged in a furious fight today--bulls are emboldened because oil traders sold off oil, despite a bullish drawdown in inventory, and stock traders did not sell off the market when those bullish oil numbers came out.

They say this is the beginning of the end for oil's dominance of the stock market. Let's hope so, but so far the evidence of a top is tenuous.

The bulls’ main arguments:

--Economic data weak, not awful (look at GDP)

--Dollar rally resumes

--Commodities are acting toppy: not just oil, but copper is at a 2-month low, look at charts for gold, aluminum, platinum, palladium: all toppy

--Bond selloff continues—while traders are not delighted with the prospects for higher rates, it does represent a renewed awareness of inflation and bonds down means more money potentially for stocks.

Bears are equally adamant:

--These are brief rallies in ongoing bear market: it is a lot of nothing

--Attempts to call bottoms in homebuilders, financials, retailers unsuccessful!

Bears have a point here. They note:

1--Bulls have attempted to call bottoms in HOMEBUILDERS since November--since then there have been at least 3 significant attempts at rallying--all of which have amounted to nothing, i.e. we are exactly where we were in November.

2--Bulls have attempted to call bottoms in FINANCIALS, beginning at the end of January, when they argued that fourth quarter results would see "the mother of all writedowns" and financial would begin rallying in the third week of January. That rally lasted 2 weeks. Another rally that began at the bottom in March also fizzled, and we are essentially just a few points above the March lows for most financials;

3--Bulls argued that RETAILERS were ridiculously oversold in January, but like financials brief rallies in January and March were immediately met by selling, so most retailers (ex-Wal-Mart ) are only a few points off their lows.

So, the rally is VERY DICEY and traders, particularly bulls, are VERY NERVOUS. Is it a new bull market? We don’t know yet, but be encouraged that there are traders (maybe only 10 percent of active traders) who are betting there is.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 29 May 2008 | 9:03 AM ET

Morgan Stanley Says Business Travel Suffering

Posted By: Bob Pisani

Dollar stronger again; bond rout continues. Stock futures dropped a bit as GDP revision came in in-line, up 0.9 percent from 0.6 previously.

Morgan Stanley out with a long note on business travel this morning, not surprisingly with the title, "Business Travel Fundamentals Worsening." A summary:

1) room rate renegotiations, which first surfaced with financial business travelers, is now spreading to other sectors;

2) group cancellation rates are increasing.

3) rising airfares, already impacting leisure travel, will impact corporate travel this year.

They cut their ratings on Marriott , and reduce the price target to $40 from $47. Marriott closed at $34.14. They go further: "...we do not recommend putting new money into lodging with the exception of stocks with unique catalysts."

Elsewhere:

1) We have been getting retail earnings reports for the past week, with mixed results.

a) Men's Wearhouse reported earnings a bit below expectations, and guidance for the quarter and full year appears a bit below expectations as well. Down 6 percent pre-open.

b) Big Lots and Costco beat expectations; Big Lots up 8 percent pre-open as they raise their full year guidance slightly. Costco reported good comp store sales growth --U.S. up 6 percent, international up 16 percent.

2) NYSE IPO: Safe Bulkers (SB), a marine drybulk shipping company, priced 10 million shares at $19, below the expected range of $20 to $22 a share.

3) German chip maker Infineon down about 12 percent pre-open, after they lowered their outlook for their communications unit.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 28 May 2008 | 3:08 PM ET

What's Causing The MILD Panic In Financials

Posted By: Bob Pisani

It's finally happening...there are signs of capitulation in the regional banks as selling has intensified, the Dumb Money is giving up the ghost here and, well....is this finally the bottom we have been waiting for???

Let's step back. There are three events today that are causing a MILD PANIC in financials:

1) KeyCorp doubled the guidance on potential losses, mostly from mortgages but also from home equity and educational loans (there is also speculation the dividend may be cut);

2) Wachovia Bank , which priced a huge 145 million share secondary of common stock at $24 on April 14, saw the price drop below $24 early this morning (selling intensified);

3) Brokers (but especially Lehman , whose quarter is ending on Friday), are notably weak today, as the Street has seen slower client activity, and write-downs of leveraged loans and fixed income continue. There are also vague concerns that hedges that were put on to protect against losses in fixed income were less effective this quarter.

I want to focus on regional banks....KeyCorp's problems are a microcosm of every problem that is facing other regional banks.

1) Now following big banks with more credit losses;

2) More dividend cuts, capital raising likely

3) Earnings estimates still coming down fast, with many analysts and bulls predictably about to say, "I was too early."

As the Street has realized this in the last week, the selling has intensified; many large regional banks (Keycorp, Wachovia, Fifth Third, Regions Financial) are now at multiyear lows.

How much more can you squeeze out of shorts here? In other words, unless you are a believer in Total Armageddon, we appear to be getting closer to Capitulation. This, as one trader said, is the time to be sharpening your pencils, while the Dumb Money is selling.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 28 May 2008 | 9:10 AM ET

Dow Chemical's CEO: Where's the U.S. Energy Plan?

Posted By: Bob Pisani

Futures saw a nice, 5-point pop as durable goods, down 0.5 percent, was not down as much as the expected decline of 1.5 percent. Bonds dropped to the lowest levels of the year.

Scathing words from Dow Chemical about the cost of energy and the failure of Washington to develop an energy plan. They are raising prices by up to 20 percent--that is a really big price increase.

Dow's CEO, Andrew Liveris, noted that first quarter feedstock and energy costs were up "a staggering 42 percent," putting strains on the company and its relations with customers. For most chemical companies, price increases have failed to keep up with raw material increases. He went on to note that:

"For years, Washington has failed to address the issue of rising energy costs and, as a result, the country now faces a true energy crisis, one that is causing serious harm to America's manufacturing sector and all consumers of energy. The government's failure to develop a comprehensive energy policy is causing U.S. industry to lose ground when it comes to global competitiveness, and our own domestic markets are now starting to see demand destruction throughout the U.S."

Elsewhere:

1) Airlines up again this morning (AMR and Delta both us about 5 percent pre-open) as oil drops another $4 to $126. Dollar once again well bid; gold down 1.9 percent, copper down 2 percent.

News on the retail front not bad this morning:

a) American Eagle beat expectations, guidance in line, up 5 percent;

b) Ralph Lauren is up 7 percent pre-open, beat earnings expectations for its fourth quarter, and has reaffirmed its earnings for the fiscal 2009 year

c) Chico's also came in roughly in line with expectations, though they continue to provide sober commentary, expecting negative comparable store growth and lower earnings for the first half of the year.

2) Deutsche Bank is holding an energy conference in Miami, we may hear from Anadarko, Devon and others today. ExxonMobil and Chevron hold their annual meeting today. Our Mary Thompson is in Dallas covering the Exxon meeting.

3) This Friday is the end of the quarter for Lehman , Morgan Stanley , and Goldman Sachs .


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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