Trader Talk

Published: Wednesday, 20 May 2009 | 9:32 AM ET

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Bank of America up 5 percent pre-open on successful capital raise; financials again reassert leadership.

Word of Bank of America's successful offering ($13.5 billion in common stock, at an average price of $10.77 since last Friday) began circulating late yesterday, and even though sellers took banks down at the close, the fact remains that the capital raising game has been a success for the banks, and for investors as well.

Traders have noted that it has given fund managers a way to get in on an underinvested area. Prices have not seen a big drop, despite the dilution, because demand has been high.

If the S&P 500 can get above 929 (the May 8th closing high), we may have another squeeze up.

Elsewhere:

1) The last of the large retailers are reporting, and the story is now familiar: generally beating on the bottom line, but with a few exceptions sales growth is negative and likely to remain so for at least another quarter or two.

a) Target rises 4.5 percent pre-open after reporting better-than-expected Q1 earnings. Margins in the quarter for the discount retailer were helped by effective cost management. Sales were also stronger in food and commodity products. However, no near-term outlook was provided.

b) BJ Wholesale, the third largest warehouse club, beat earnings consensus by a small margin; remember they raised earnings forecast earlier this month; full year guidance is a tad higher at $2.44-$2.54, vs. prior guidance of $2.42-$2.52.

Comparable club sales down 1.5 percent, which is not bad compared to other retailers.

c) Ann Taylor had a smaller loss than the consensus expected (loss of $0.04 vs. loss of $0.13) but revenues were much lighter than expected--$426.7 million vs. $454 million expected, and no wonder: total comparable store sales were down 30.7 percent (ouch!).

The company said they expected topline growth to improve only modestly in the second half of the year.

2) Regions Financial also announced a $1.25 billion capital raise, $1 billion in a public offering of comon shares and $250 million of new mandatory convertible preferreds.

3) Deere is down 2 percent in pre-market trading, as it continued to experience weak demand for its agricultural and construction/forestry equipment. Q2 sales dropped 17 percent and the company slashed its full-year outlook for the second time in 6 months.

More disconcerting is that Deere warns of even "more risk to the downside" for earnings ahead, as its sales decline could accelerate to a 26-percent drop in the third quarter.

4) IPO: Software maker SolarWinds (SWI) priced 12.1 million shares at $12.50 per share, well above the price talk of $9.50-$11.50.

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It's only the sixth IPO this year; and while pricing above the talk is good news, look what happened last week when satellite image company DigitalGlobe went public on the NYSE at $19, also well above the initial price talk. It closed at $21.50 that first day, but has been down every day since then, closing yesterday at $18.25, below it's initial price.

OpenTable should be pricing tonight.

5) Mortgage applications to purchase homes fell 4.4 percent for the week, according to the MBA, while refininancing applications rose 4.5 percent.

6) Bullishness increasing: we have noted before the increasing level of bullishness; today Investors Intelligence reported that 33.7 percent of the financial newsletter writers they surveyed were bearish, the lowest level of bearishness since January 2008.

7) Analog Devices shares surge 10 percent after its Q2 earnings more than doubled analyst estimates. The semiconductor designer and manufacturer's results were helped by expenses that were "significantly lower than originally planned" amid increased sales to telecom customers.

Earnings guidance for the current quarter is also very strong, as order levels have continued to stabilize. The company's expects Q3 earnings of 17 cents-19 cents vs. the Street's forecast of 11 cents. 

MORNING MENTIONS

BAC

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TGT

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BJ

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ANN

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RF

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DE

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DGI

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ADI

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