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  Monday, 1 Dec 2008 | 4:18 PM ET

"Volatility Trade" Biggest Factor In Sell-Off?

Posted By: Bob Pisani

With volatility this high, it's little wonder that last week's 20 percent rally in the S&P 500 is being met with aggressive selling today.

We have noted that while the "volatility trade" is still the best way to play the market, other factors also influenced stocks today: the bond blow-off (which has all the elements of a bubble) and the big drop in commodity prices are adding to the volatility.

To summarize:

1) Retail sales were generally stronger than expected, but retailers sold off because so many had big runups of over 20 percent last week. Citi cut its rating on Limited on valuation because it had moved up 31 percent last week.

2) Commodities were down big:

Palladium down 9.9%
Silver down 8.6%
Gasoline down 8.2%
Gold down 5.9%

And as a result all the big commodity names in steel, agriculture, metals and oil service were down, many double digits. Crude and energy commodities were weak after OPEC ministers couldn't reach an agreement on a production cut.

    • Paulson: US Weighs Other Uses for Bailout Fund

3) Coal names were down double-digits, as poor economic news from China and weaker commodity prices weighed on the group.

4) Waiting for turnaround plans from the auto companies; tomorrow will be a good day for it. November auto sales will be horrendous; 10.2 million estimate seasonally adjusted sales vs. 16 m last year.

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  Monday, 1 Dec 2008 | 3:04 PM ET

Volatility Key To "Snap Back Rally"

Posted By: Bob Pisani

Two weeks ago, a lot of traders were talking about a Bear Market Rally. Many felt that the S&P could rally 20 percent before the end of the year. Know what? They got their wish. It just happened so fast (5 days!) that no one had a chance to catch their breath.

Today is a reality check. The economic news (Black Friday sales better than expected, NBER declares we have been in a recession since December 2007) is not as important as the volatility.

With expectations of volatility remaining at historically high levels, it is easy to have "snap-back rallies" and "give-back days" of 5 percent or more, just like the one we are now experiencing.

Another important point: there are very few people doing any kind of long-term investing right now. Day trading strategies are all that really matter. When you have a 20 percent move in the market, you need to find a way to monetize that gain. Today is it.

    • Bernanke Asserts Rate Cuts Alone Won't Cure Economy

It's not just all trading on volatility, of course: the bond blowoff (which has all the elements of a bubble) and the big drop in commodity prices (Palladium down 10 percent, Silver down 8.5 percent, Gasoline down 7.8 percent, Gold down 5.1 percent) are adding to the volatility, creating double-digit declines in coal and energy declines.

  • Recession's Here—Time to Buy?
  • Stocks on Sale for the Holidays
  • Retail Gets Worse Before It Gets Better
  • Luxury-Tech Stocks at Knock-Off Prices
  • Check the Dow 30 Stocks Here
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      Monday, 1 Dec 2008 | 12:12 PM ET

    The Good News And Bad News From Black Friday

    Posted By: Bob Pisani

    The good news:

    --Sales exceeded low expectations

    --Average expenditure per shopper was higher than expected: $372.57 (up 7.2%)

    Now the bad news:

    --The numbers may not be as strong as they appear; Thanksgiving is later this year, and the shopping season is 5 days shorter.

    --Sales appear to have come at the expense of margins;

    --Gift card sales were down 10 percent.

    This may be why the National Retail Federation, despite the strong sales, is sticking with its expectation that sales will rise 2.2 percent this holiday season.

    Not surprisingly, retail stocks are selling off along with the rest of the market--in fact retail stocks have given up about one-third of the gains made in the past week and a half. Why?

  • Holiday Sales Still Weak
  • Online Sales Up 1%
  • Online Retailers Gear Up
  • Amazon, Ebay Upbeat
  • Consumers Remain Cautious
  • Just look at Limited : it rose 31 percent in the last week and a half! Little wonder that Citigroup cut its rating on it today due to valuation!

      • US Retail Stocks Fall on Holiday Shopping Worries

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      Monday, 1 Dec 2008 | 9:14 AM ET

    Forget Seasonal Trends And Santa Claus Effect

    Posted By: Bob Pisani

    As December begins, the stock market remains perched precariously between horrible economic news and continued announcements of more loan facilities and an expanding Fed balance sheet.

    The loudest talk isn't about stocks, it's about the record low yields for U.S. Treasuries, and indeed around the world.

    Commodities hit hard this morning, with metals and energy down 3 to 7 percent as the dollar rally continues. Energy stocks like Nabors , Halliburton , Cameron are down on light volume.

    Elsewhere:

    1) J&J goes big for the body sculpting market. They're buying Mentor , which makes breast implants and liposuction equipment, for $1.07 b in cash, $31.00 per share, a gain of over 80 percent from the Friday close.

    2) Oppenheimer's Meredith Whitney is no more optimistic on banks than she was a year ago. She believes declining liquidity for consumers could have a "disastrous" effect on consumer spending, so her primary concern is preserving liquidity. She makes several recommendations to expand availability of consumer credit.

    3) A home builder upgraded? Yes, Credit Suisse upgrades Toll Brothers to (to Neutral from Underperform). They believe there will be fewer asset value impairments and housing affordability is improving. The hope is that the new TALF program will help reduce borrowing costs.

    4) Jeff Sprague, analyst at Citi who covers GE (our parent), notes this morning that GE announced it will be holding a webcast on 12/2 to review GE Capital, and that this may be the opportunity for GE to lower their 2009 earnings expectations.

    5) You all know that December is supposed to be a great month for stocks, right? #2 biggest month, in fact, with gains averaging 1.7 percent since 1950, according to the Stock Trader's Almanac.

      • Trillions in Credit Line Cuts Ahead: Whitney
      • GM's Board Reviews Plan To Restructure Auto Maker

    Guess what: #1 month for stock gains is November, with gains also averaging 1.7 percent. But the S&P was down 7.5 percent last month, the worst November since 2000.

    In other words, forget about seasonal trends, Santa Claus effect, etc. No one is paying attention to that stuff this time around.

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      Friday, 28 Nov 2008 | 9:35 AM ET

    Electronic Firms Show Downturn In Consumer Spending

    Posted By: Bob Pisani

    Bob Pisani has the day off. This post is from CNBC producer Robert Hum:

    Coming off the heels of the Dow’s best 4-day winning streak since 1932, stock futures point to a slightly lower open today as European markets are off about 1% today. With only a half-day of trading today, volume in U.S. equity markets is expected to be light following the Thanksgiving holiday.

    All eyes will be on the retailers today, as stores hope that consumers will line up for Black Friday bargains despite the current economic gloom. The weaker economic conditions continue to bring down corporate Q4 and full-year forecasts.

    Panasonic drastically slashed its full-year profit outlook, which was hurt by the economic crisis and a stronger yen. The company expects 2008 profits to come in at 30 billion yen, compared to 310 billion yen it had expected earlier. This is the second time in two months that the company has lowered its full-year guidance. Last month it had projected it would earn 560 billion yen on the year. Electronic companies like Panasonic and Sony have been hit hard by slowing consumer demand for electronics. Additionally, since a high percentage of their goods are exported out of Japan, the strengthening of the yen over the past few months has put pressure on their bottom line, as profits are repatriated from dollars to yen. In the past 3 months alone, the yen has strengthened 15% vs. the U.S. dollar.

    STMicroelectronics lowered its Q4 revenue guidance to $2.2 billion-$2.35 billion, below expectations of $2.6 billion. Just last week, the company’s CEO reaffirmed the company’s revenue outlook, but today’s revised guidance now reflects growing weakness in December demand from the wireless, automotive and technology industries.

    In other news:

    Chesapeake Energy is down 15% pre-open following the company’s announcement that it may raise capital via a $2 billion stock offering.

    Investor Carl Icahn boosted his Yahoo! stake by 6.8 million shares to 75.6 million shares. His additional shares, which were purchased at an average price of $9.88, bring his Yahoo! stake up to nearly 5.5%.

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      Wednesday, 26 Nov 2008 | 4:10 PM ET

    We've Had The Rally, What About That Bottom? Please...

    Posted By: Bob Pisani

    Traders were slobbering all day about an imminent asset allocation program (out of cash, into stocks), part of the collective wish for that most elusive of 2008 creatures...a Bear Market Rally. And we did indeed end on the highs for the day.

    Traders are insisting we are primed for a nice move of, oh, 20 percent or so from the bottom. Never mind the reasons (I detailed a few in my last note ).

    Uh, sorry guys, you missed it. The S&P 500 has rallied 20 percent since the bottom on Friday. The last time we were up four days in a row...was April.

    Is that it? I'm not sure. Is this the bottom? Please. What we know for sure is that bottoms have been confidently declared this year in January, March, July, September, October, and now November. See a pattern?

    Better to be skeptical, particularly since companies like Tiffany passed on the opportunity to even provide preliminary earnings guidance for 2009.

    On lower mortgage rates. Good news! But we need more. We have:

    1) lower mortgage rates (they need to go lower)

    2) lower home prices (need to go lower too)

    Now several analysts note we need:

    1) consumer confidence improvement

    2) help with down payment

    Can you smell another government program?

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      Wednesday, 26 Nov 2008 | 3:08 PM ET

    Getting Primed For Bear Market Rally

    Posted By: Bob Pisani

    Asset allocation into stocks: that's what traders want for Thanksgiving...and a few days after.

    The Dow is up 7 percent this week, 16 percent from Friday's lows, and up today on some of the worst economic news we have seen in this dismal year...and you can just smell it: the market is getting primed for a Bear Market Rally.

    Boy, are traders ready for this one. Everyone--even the bears--think a rally of up to 20 percent is likely before the end of the year.

    Everyone thinks, we deserve a rally. We are ridiculously oversold. Hell, there's good fundamental reasons we should rally: gas is half the price it was a few months ago....mortgage rates are coming down....the government is backstopping everything.

    Problem is, almost no one believes this is the bottom. Because 2009 is a black hole. That's why bears are laughing at this Bear Market Rally talk.

    Bears agree on the rally, but not on the follow-up. Here's what they say:

    1) there will be a rally

    2) you will get sucked in

    3) you will get crushed

    4) in 2009, you will work in a taco stand.

    I was out last night with one of my best hedge fund sources. He says to me, "Are all your sources as clueless as mine have become?"

    Uh, on 2009, the answer is mostly yes, they are clueless. My friend is in the camp--which is currently in vogue--that 2010 earnings will be LOWER than 2009 earnings. Most of these guys are at $60 earnings for the S&P 500 next year, and 2010 could come in at $50 to $60.

    This camp believes there is no hurry to buy stocks, because the market will again move down early next year, and may not bottom until October 2009.

    Meantime, note the absurd percentage moves in big names since Friday's bottom: Citi up 135 percent...GM up 183 percent...Home Depot up 34 percent...JP Morgan up 54 percent...Alcoa up 42 percent....GE (our parent) up 26 percent.

    You can go your whole career and not see percentage moves like that in a year, let alone half a week.

      • How Will Bernanke Fit Into Obama's Economic Plans?
      • Volcker to Head New Panel To Jump-Start US Economy

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      Wednesday, 26 Nov 2008 | 12:07 PM ET

    Chrysler Spreading Word of Its Turnaround Plan?

    Posted By: Bob Pisani

    Midday, the Dow has moved over 200 points from its high to its how, despite:

    1) Horrendous economic news (durable goods, new home sales coming in at the lowest levels since 1991),

    2) Poor earnings commentary from Deere and Tiffany (Tiffany flat-out declined to provide 2009 earnings estimates).

    There are a couple offsetting factors:

    a) Home builders are putting in a second strong day...why, if new home sales were so poor? Because though sales were poor, construction has been dropping even more, so the inventory of unsold homes is down dramatically...if fact it is at the lowest levels since June 2004.

    b) Two big financials have successfully floated large bond offerings. Morgan Stanley has followed Goldman Sachs by pricing $5.25 billion in 2- and 3-year bonds, as has JP Morgan , which also priced $5.5 billion in bonds. Both offerings are backed with the explicit guarantee of the U.S. government under the Temporary Liquidity Guarantee program.

    c) Autos and auto parts makers are trading up on word from Chrysler that they are readying detailed proposals for a "viable" turnaround plan to be presented to Congress next week.

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      Wednesday, 26 Nov 2008 | 9:39 AM ET

    Earnings For 2009 Nearly Impossible To Figure

    Posted By: Bob Pisani

    Futures bounced off the lows on a simply awful durable goods number (down 6.2 percent, estimates were for declines of 2.5 percent).

    Mortgage rates are indeed dropping in response to the new Treasury plan to buy mortgage backed securities; many report indicate 30 year fixed rate mortgages dropped about 40 basis points in the last 24 hours, below 6 percent.

    On Monday, BHP Billiton called off the Rio Tinto deal. Today, it looks like another big deal--the $42 billion takeover of BCE (the Bell Canada parent) by a consortium led by Providence Equity Partners and Ontario Teachers' Pension Plan, may not happen because KPMG apparently will not deliver a solvency opinion, which is required to close the merger. In other words, the whole deal has too much leveraged debt.

    Finally, the bottoms-up analysts are starting to cut fourth quarter 2008 and 2009 numbers. Today Oppenheimer cut estimates on industrials, and JP Morgan cut estimates on railroad and trucking stocks.

      • Durable Goods Orders Shrink Dramatically

    Duh. The glacial speed the analysts have been moving has been nothing short of scandalous. Top-down strategists (guys who do estimates of earnings based on macroeconomic factors) have 2009 estimates for the S&P 500 as low as $60, but the bottoms-up analysts (the guys who just cover individual companies or industries), still collectively have earnings estimates for the S&P around $80. $80 vs. $60: somebody is terribly wrong. Guess who. Fortunately, the stock market is not waiting for their opinions.

    How tough is it to figure out 2009 earnings? Just about impossible. Look at Deere . CEO Robert Lane said, "the outlook for the year ahead is highly uncertain and its impact on John Deere's operations is difficult to assess." Deere down 10 percent pre-open; earnings were below expectations. 2009 net income guidance of $1.9 billion is below analyst estimates of $2.3 billion. Agricultural equipment sales are expected to grow 5 percent next year, that is below most expectations.

    Tiffany down 7 percent, reported earnings above expectations, but North American comp store sales were down 16 percent (even the New York flagship saw sales down 5 percent year-over-year). November sales "softened" even further. 2008 full year guidance of $2.30-$2.50 is below expectations of $2.58, but it was widely anticipated they would lower earnings. No guidance for 2009.

      • Lower US Mortgage Rates Lift Application Demand

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      Tuesday, 25 Nov 2008 | 4:30 PM ET

    Home Builders "Stars" Of The Day On Street

    Posted By: Bob Pisani

    The major indices closed with the first 3-day win streak since September 10-12. While commodity stocks and financials led, and tech stocks lagged, the real star of the day was the home builders, several of which increased 20 percent or more.

    That's because the new program announced by the Fed to buy Mortgage-Backed Securities appears to have accomplished its goal: lower mortgage rates.

    I spoke to one large mortgage broker in Philadelphia this afternoon, who said they were now quoting 30-year fixed rate mortgages at 5.5 percent, a drop of a half-point from yesterday's 6.0 percent. That is a big drop.

    This office told me they had closed 100 loans today (a much larger number than any time recently); much of it was refinancings.

    Many consumer stocks like Lowe's , Target , and Whirlpool were up today as Treasury also announced a separate Term Asset-Backed Loan Facility (TALF) that will buy pools of car loans, personal loans, and student loans.

    Finally, Goldman Sachs ended up almost 7 percent as its $5 billion bond offering was a big success. Why? Because it had the explicit backing of the U.S. government!

    Goldman became the first firm to tap the FDIC's Temporary Liquidity Guarantee Program, which guarantees senior unsecured debt. That has enabled Goldman to offer the bonds at 3.25 percent, well below the yield they would have had to offer had there been no explicit government guarantee. JP Morgan and Morgan Stanley will follow up with similar offers.

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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.

     

    • Bob Pisani

      A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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