Trader Talk

China Weaker, Bullishness Remains High

The Shanghai Index dropped 3.1 percent (Hong Kong down 2.6 percent) as China yesterday raised bank reserve requirements, which amounted to a tightening of monetary policy.

Energy commodities are weaker, despite a weak dollar.


1) Bullishness remains high: most investor sentiment indicators remain highly skewed toward bulls. Investors Intelligence survey of newsletter writers said bullish sentiment sat 53.5 percent rose to its highest level since December 2007, while bearish sentiment at 15.9 percent fell just shy of its lowest level since April 1987 (only 15.9 percent bearish! Amazing!)

This, despite the fact that many active traders have been screaming for a correction since...well, since the summer. And it hasn't happened. Yesterday's weakness (the first down day this year) already has some squawking, but Lowry, the oldest technical analysis service, "Over the past couple of months, however, false alarms about the significance of pullbacks have been commonplace, so it is probably too early to declare a correction is in place."

2) Kraft Foods is getting a pre-open boost of 2 percent after Italian confectioner Ferrero announced it will no longer pursue a bid for Cadbury . This comes after Swiss giant Nestle revealed last week that it too was pulling out of the race for Cadbury, which has rejected Kraft's hostile $17 billion offer.

Meanwhile, in a likely attempt to help entice Cadbury shareholders to support its bid, Kraft also raised full-year guidance from $1.97 to "at least $2.00" (vs. consensus of $2.00) - citing "strong operating gains."

2) Capital One fell 1 percent in pre-market trading after Ladenburg Thalmann downgraded the financial firm to "neutral" citing "near-term credit deterioration" as it expects a "sizeable increase in net charge-offs" in the first quarter. The downgrade is partly a valuation call as well, as the analyst notes Capital One's "strong recent price performance" too.

3) Citing "a modestly higher debt valuation adjustment" and disappointing trading results, KBW has widened its Q4 loss estimate for Morgan Stanley from a loss of $0.77 to a loss of $0.93.

4) Watson Pharmaceuticals said it would post higher than expected results for 2009. The generic drug giant said that revenues of more than $2.7 billion were expected, up 9 percent from 2008. Adjusted earnings for 2009 are expected to exceed the company's prior guidance, however that guidance ($2.57) are in line with analyst expectations.

5) A profit warning from French banking giant Societe Generale has again raised concerns about risky assets. The bank took a $2 billion hit due to a deteriorating portfolio of mortgage-backed securities derivatives and credit default swaps. SG does not trade in the U.S.

6) Mortgage applications kicked off the new year on a strong note thanks to refinancing activity. The Mortgage Bankers Association reported a 14 percent jump in mortgage applications last week as the 30-year fixed rate backed off 4-month highs, falling slightly (down 0.05) to 5.13 percent.

Refinancing applications were particularly strong, surging nearly 22 percent last week. However, mortgage applications for purchasing homes only edged up 0.8 percent. 



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