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Trader Talk with Bob Pisani

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  Friday, 4 Apr 2008 | 4:28 PM ET

Markets Hold Gains From Tuesday--Sell In Rally Theory Over?

Posted By: Bob Pisani

Don't let the light-volume, low volatility day lull you into thinking nothing happened today.

The disappointing jobs report (including downward revisions in January and February ) failed to significantly drop the markets. More importantly, the markets have held the gains from the 400-point move on Tuesday, weakening the "sell the rally" mentality that has been the primary market trend since October 2007.

The market bottom so far has been March 17, the first trading day of the Bear Stearns buyout. This will give added weight to those who are arguing that the Fed has indeed effectively created a floor for the market through its assistance in the Bear Stearns buyout and its action to provide liquidity to the market.

Another important point: financials have led the gains this week, though there were also substantial gains in tech, energy and materials, as well as builders (up 8 percent with many at 7 month highs), retailers, and REITS.

Be careful of complacency here, since earnings for a lot of big financial names are coming the week of April 14th. Expect writedowns and cautious commentary, but how big will the writedowns be? JP Morgan this morning said writedowns for the first quarter will be lower than for the fourth quarter.

Financials this week:

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  Friday, 4 Apr 2008 | 9:05 AM ET

Jobs Number Bad But Financials Still Key For Traders

Posted By: Bob Pisani

The March jobs report (and the downward revisions in February) was a bit worse than expected, which is a disappointment for stock traders.

Let's be clear: stock traders want signs of stability and bottoming in economic statistics. They DO NOT want weak numbers on the theory that the Fed will continue to cut rates. They will gladly trade less rate cuts for an improving economy.

The dollar was down on the jobs report, dashing hopes for a dollar rally this week.

The real disappointment today is among those looking for a bottom in financials. This week is the best opportunity we have had to break long-term downtrends in stocks like Goldman Sachs , Lehman ,Citigroup , Wachovia , and many others. Traders have been itching to buy them recently; if they close on the upside despite this news it will be a significant victory for bulls.

Elsewhere:

1) British Air said there has been a 5 percent fall in business class passengers in March, acknowledging that slower economic conditions is beginning to affect their core business passenger business (first and business class passengers are about 60 percent of their profits).

2) Fertilizer company Mosaic reported earnings well above expectations . Strong demand for food and ethanol have driven prices for Mosaic's phosphate business up dramatically; despite the price increases, net sales in the phosphate business were up 82 percent on big increases in selling prices. They're also expanding their potash business. Raw material costs (sulfur and ammonia) were up significantly. Most important of all: two-thirds of their business is outside the U.S. (Note: Cargill owns the majority of the company).


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 4:41 PM ET

Trader Talk: Critical Moment for Banks

Posted By: Bob Pisani

Don’t let the flat market fool you: This was still an important day.

First, the Street yawned at the two main news stories of the day. Despite a marathon, 5-hour Congressional session inquiring into the origin of the Bear Stearns mess, and a new series of proposals from the Senate to address the housing crisis, the net effect on the stock market was... nothing.

Nothing, because:

1) while many on the Street are interested in who knew what and when with Bear, this is backward-looking information and will not move the markets, and

2) the Senate proposals do little to address the fundamental problems of the housing market, i.e., funds for downpayments (which have increased), difficult underwriting standards, and buyers who are understandably hesitant to purchase a home that may fall in value.

Traders felt that most of the proposals being floated, including one that would give a $7,000 tax credit for people buying new homes or properties in foreclosure, would not be large enough to make a significant impact.

What did move the markets was an interview Merrill Lynch's CEO gave to a Japanese newspaper, where he said that he did not need to raise more capital. That moved up Merrill up 1.7 percent, as well as other financials.

There was little volatility; and as to volume? This was the lightest day of the year.

That's the bad news. Now let me give you the good news: Stocks have held the big gains on Tuesday for the second day in a row, even if they did drift lower into the close. Given that "Sell The Rally" is still the mantra, that is BIG NEWS.

Now we have to break out. This is the best opportunity since October for financial stocks to break out of the downtrend they have been in. That's why the Merrill news is a positive. We have a chance to begin changing the mindset. This is a critical moment for financials.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 3:29 PM ET

Analyst On Home Building Stocks: "Take Profits At These Levels"

Posted By: Bob Pisani

So we have yet another plan to help save homeowners in trouble, the latest in a long string of proposals. Are they enough to solve the housing market's problems? Is this a game changer? There's plenty of skeptics who think the answer is an outright no.

Ivy Zellman, who has been a homebuilding analyst for all 18 years I have been at CNBC, put out a note to her clients this morning saying the Senate proposals were "More Talk Than Substance." While her concerns are primarily with the homebuilding industry, her point is that there are still significant headwinds ahead for the industry before it burns through old land and begins creating economic value.

The biggest problem right now, she and others point out, is that homeowners don't have available funds for downpayments (which have increased), underwriting standards have become much more stringent, and buyers are understandably hesitant to purchase a home that may fall in value.

The plan under discussion does not address this central problem, so it will be difficult to have an impact on demand short-term. What will matter? Lower interest rates, for a start, which will help the reset problem, but that is not something that can be legislated.

These problems will continue to put pressure on pricing (even more than we have seen). The good news is that banks are now all over the builders, so they have begun selling at significant discounts. Centex , for example, was selling some assets at 16 cents on the dollar. This is painful, but part of the bottoming process. And there are buyers sniffing around: Blackstone this week raised a record $10.9 billion to invest in property in the U.S.

There's also a question of whether the plan would really accomplish much. It seems like a lot of action, but it may not amount to much. The plan would:

--Give local governments $4 billion in grants to buy and refurbish foreclosed properties (concern: not clear how much of a difference this will make. Estimates are that this will allow them to buy 20,000 homes, assuming a $200,000 average price, but Moodys.com estimates that 870,000 homes were lost to foreclosure in 2007, another 1.3 million will be lost in 2008;

--Give a $7,000 tax credit for people buying new homes or properties in foreclosure (concern: doubtful if this is large enough to make a significant impact on demand);

--Permanently increase the FHA loan limit to a maximum of $550,000 in high cost areas, but would also increase the down payment requirement from buyers seeking FHA mortgages to 3.5 percent from 3.0 percent (concern: there were discussions involving reducing the down payment, and while raising the downpayment requirement may be prudent as a policy move, the lack of cash for downpayment is a major problem, and this only exacerbates that. There is also significant debate among traders that the FHA is now becoming the new subprime product, but backed by the U.S. government, leaving significant exposure to taxpayers. Oddly, the much-discussed idea to have the FHA guarantee about $400 b of refinanced loans is not included in the plan).

One things' for sure: all this talk of incentives for home owners in foreclosure has at least put a floor under the home building stocks, which are among the better performers in recent weeks (up about 25 percent vs. a 6 percent gain for the S&P 500 in the last three weeks).

What it hasn't done is improve any of the fundamentals, at least not yet. Zellman's conclusion: "Given the recent strength in the group, we would recommend investors take profits at these levels."


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 1:07 PM ET

Senate Hearings Effect On Markets: Not Much

Posted By: Bob Pisani

Modest rally here, but not on the Senate hearings.

Merrill moving up on reports in a Japanese newspaper that CEO John Thain has said he would not need to raise more capital. This has lifted financial stocks like JP Morgan and Citi, which has in turn raised the Dow.

So, if you are wondering what effect the hearings are having on the markets, the answer is, not much.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 10:13 AM ET

ISM Pushes Stocks

Posted By: Bob Pisani

Stocks popped at 10 am ET as the ISM services index came in above expectations (but still showing signs of contraction).

The dollar has been on a see-saw all day, rallying overnight on concerns over more writedowns of European banks, than dropping on the poor initial jobless claims report, than rallying somewhat on the ISM services report.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 9:07 AM ET

Jobless Numbers Not To Markets Liking

Posted By: Bob Pisani

407,000 initial jobless claims is the highest since the 425,000 reading of Sept 16, 2005. Disappointing. Futures dropped 8 points, bonds rallied.

Continuing concerns over writedowns of European banks caused a brief rally in the dollar, but the poor jobless claims has taken much of the gains out.

Elsewhere:

1) Is the decline in Chinese stocks ending? Hong Kong's Hang Seng index has finally broken a downtrend that began back in November. The Shanghai index, which has been in a freefall since January (down 40 percent or so), which is just off its lows, had one of its best days in a while, up about 3 percent.

2) With all this talk of reform in Washington, where is the proposed FHA expansion that everyone was talking about a few weeks ago, which Barney Frank referenced? It seems to have disappeared. There was significant stimulus in the plan.

Earnings:

1) Micron reported earnings a bit below expectations . Average selling prices were down for both NAND (flash memory chips--down 30 percent) and DRAM (down 15 percent). Despite that, Goldman upgraded the stock, saying DRAM fundamentals would improve later in the year. Up 5 percent.

2) Ruby Tuesdayreported earnings a bit above expectations, and like most restaurants talked about the lower spending by consumers and the emphasis on controlling costs. They tightened full year estimates to $0.40-$0.50 from $0.40-$0.60.

3) Constellation Brands beat, and guided for fiscal 2009 of $1.68-$1.76 (analyst estimate $1.67).

National City said on Tuesday that they were exploring strategic alternatives, essentially acknowledging that they are for sale. But what is it worth? Even a modest premium would be good news for the beleaguered banking business. Today, Morgan Stanley said they thought it was worth $12 as an acquisition candidate. That's about 25 percent above the $9.22 price it closed at. They upgrade the stock, as does Bear Stearns.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 2 Apr 2008 | 9:12 AM ET

Back Tomorrow With Posts

Posted By: Bob Pisani

I'm not on the market floor today and won't be blogging. I will be back tomorrow so I'll see you then.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 1 Apr 2008 | 4:10 PM ET

Q2: Good Market Start But We Need Less Selling In Rallies

Posted By: Bob Pisani

The second quarter has begun, a big rally on big volume held to the close.

Let's review where we are, and where we might be going. At the close of the first quarter, the typical trader position was long commodities and bonds, short stocks. This trade has been on for so long that traders are beginning to wonder, when does "The Great Unwind" begin?

Today's rally:

--Started as short covering in financials in Europe
--Continued with a rally in the dollar
--Saw bonds & commodities weaken
--Saw new money enter for the start of the quarter

Is this it? It looks like the potential start of "The Great Unwind," but there have been so many dashed hopes that there is a great deal of skepticism yet.

What we need now: continuing unwinding. We need to see:

--Dollar rally modestly and stabilize
--Commodities drop more.
--More air out of bonds
--S&P 500 should move above its most recent high of 1381 at the end of February
--S&P Financials should move decisively above the recent highs of 359 (trading today around 356), which will break the pattern of lower lows and lower highs that began in October.
--Volume picks up on up days, drops on down days
--Selling into rallies stops

Those who desperately want to believe that "The Great Unwind" is about to begin point to gold: 14 percent off its highs. Bottom line: this is a good start, but we need to stop selling into rallies. Nothing else will convince.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 1 Apr 2008 | 11:43 AM ET

Has Dollar Reached Bottom? Not Clear Yet

Posted By: Bob Pisani

What's up with the dollar rally? In Europe, youhavetwo big European banks announcing writedowns ; in Japan, you have the worst business sentiment survey in four years, so initially it was more Euro-Yen weakness than dollar strength.

But after 10 am ET, the dollar rallied on the slightly better than expected ISM news . Is this the bottom in the dollar? Not clear; but bad news globally would counter the continued Fed rate cuts.

As a result, commodities are down big. Gold, silver, palladium down 4-5 percent. Gold in a correction: gold is at a 6 week low, down 14 percent from its recent intraday highs. Who cares about six week lows?

Hey, when was the last time gold was in any kind of downtrend? 2006, and that lasted for all of a month. What happened? In addition to the dollar strength, yesterday was the futures expiration day...today you have to get out or take delivery. Looks like a lot of people (speculators) opted to get out. Same with platinum, palladium, and silver.

Looks like they took the money, and put some of it in the stock market. Financials, specifically.


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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