Brokerage Stocks caught in the Subprime Mess?

Bear Stearns hedge fund woes could be spreading. At least equity investors in brokerage type issues think so. Check the chart of KCE above. Are investors assuming where there is smoke there is fire? The 68 level is first support, after that, this ETF may trade down to the 64 level if things get ugly.

Semi Dis-connect?

I've been pointing out the strength in the semiconductor shares of late, but a headline a few hours ago caught my attention. Novellus Systems (NVLS), a $3.5 billion cap semi equipment firm, lowered guidance for their 2nd quarter today. In addition, comments from an analyst at Goldman Sachs and at CIBC were particularly interesting:

Goldman Sachs analyst James Covello, who has a "Sell" rating on the stock, thinks things could get worse. He predicts a fall in orders for production equipment used to make DRAM, or dynamic random access memory semiconductors, could have "a significant negative impact on company fundamentals over the coming quarters." Covello does not, however, think that Novellus' problems are unique to the company. "(We) would expect the excess capacity situation in the DRAM industry to drive significant order reductions to all of the front-end semiconductor production equipment suppliers for the remainder of the calendar year," Covello wrote in a client note.

CIBC analyst Gary Hsueh thinks Novellus' warning offers little hope of a rebound this year.
"Ordinarily in a cyclical soft spot, results closer to the low end of guidance would not merit a pre-announcement. However, commentary on weakening equipment demand and the need to take pre-emptive actions on cost clearly imply that there is no hope of an order rebound for Novellus in the second half of the year," Hsueh wrote in a client note.

Therefore, the take away is for caution. In addition, additional fireworks could be in store for next week, as i've read reports that have guys standing in lines for iPhones, which they will immediately dismantle Friday night to see whose chips and other components are inside. What you do with that information I'm not quite sure, but it could make for some wild trade on Monday.

Finally, as i type and glance at the ticker tape, LSI Logic (LSI) is cutting 13% of their work force and cutting views on its 2nd quarter as well. Here's the story. Yes, caution is warranted right now in semi land!

BTW - Micron (MU) reports after the close today. Stay tuned!

Fade the Fear

One lesson learned throughout the 4 year bull market is this: fade the fear, buy the pullbacks, and ride those positions to new highs. We've noted the elevating VIX readings of late, closely resembling levels hit during the mini melt-down in late February and early March. The market just hasn't flinched, as if it wants to go higher; and once the tension dissipates, she might catapult ahead. Therefore, maintain composure (that's right, i said composure as opposed to exposure) and wait patiently to see if the market can bounce in the face of the rising bearishness. It has in the past and perhaps it will again.

Up 100+, then a Topsy Turn to Negative

The DJIA was all over the board today. The news du jour continues to be the Bear Stearns hedge funds that are taking hits with some exotic and complex debt strategies that contain subprime mortgages. According to a recent Bear Stearns balance sheet, BSC has approx $12.1 billion of stockholder equity, and today the report was that Bear was putting $3.5billion of their own capital into one of the ailing funds. That's a big chunk of shareholder equity going into one fund. The market can turn toxic very quickly when things get bad, but it also creates opportunities for others, and maybe BSC didn't want to give away assets that they think are worth more than they appear according to today's discounted market price. I've heard talking heads say the toxic hedge funds hold paper worth anywhere from 10 cents to 50 cents on the dollar. Of course, something might be worth 10 cents today, only to be priced at 20 cents tomorrow.

How to Play Semis: IGW, PSI, SMH, USD, XSD

Semis are on a tear today. We've been watching closely and have updated our target list with the leveraged semi play available through ProShares ETFs; symbol = USD. Again, stocks tend to lead the economy by 6 to 12 months, so we don't want to get too cute analyzing why semis are moving powerfully ahead, the fact is that they just are. The fundamental reasons will be clear after the fact.

Just Another Manic Wednesday

I chuckle when i see quotes like these on the financial websites. It reminds me to stand back from the day to day noise to stay focused on the big picture.

AP Stocks Plummet on Surging Bond Yields Wednesday June 20, 4:52 pm ET By Madlen Read,
Stocks Fall As Soaring Bond Yields Rekindle Interest Rate Fears
NEW YORK (AP) -- A surge in Treasury yields rattled Wall Street Wednesday, forcing stocks to give up early gains and drive down the Dow Jones industrial average more than 140 points.
The 10-year Treasury note's yield soared to 5.15 percent late Wednesday from 5.09 percent late Tuesday, reigniting worries among stock investors that high rates could thwart corporate deal-making and further injure the limping housing market....

TRUE BLUE; EWA

A visitor to this blog reminded me about the red hot Australian market today, esp in light of the 1.4% move in the EWA's today. We were comparing the weather here in the Lone Star State with that in Scotland (his location) as well as far flung Sydney, Australia, and none other than the world famous Bondi Beach! It's a crowded beach, and you must take care of rips, rocks, sharks, and of course, locals! Another way to play the panoramic Australian market is to buy Wisdom Tree Pac ex Japan Hi Yield - symbol DNH - which is primarily Australia at 88% weight. Add the wonderful Kiwi exposure of 6% and you are 94% combined Australia and New Zealand with DNH. These are stone cold winning ETFs right now!

Large Cap Core ETF

GE spiked higher today by about 4%, moving robustly forward and setting multi year highs! If the assumption is that GE is a tell tale signal that large cap might be a good play, I checked another ETF that might be worth owning. It's Morningstar's large cap core = JKD. Top 5 names are GE, MSFT, PG, AIG and JNJ. Hit a new high today as well. Check out the chart above.

Industrial Giant - GE, long overdue to break out?

Was checking the portfolio mix in the one of the fidelity sector funds today - FSCGX - Industrial Equipment. Lo and behold, GE is one boffo holding, taking more than 20% of the funds assets. After checking the chart of GE, there could be some possible fireworks breaking out on these shares. Keep a close eye on this one.

Semiconductors - is it real?

PSI is pennies from a 52 week high. What's the deal here? Fundamentals and earnings have been lukewarm at best...BUT, is this the case of stocks moving ahead of fundamentals?! Might be! Remember, equities in today's dollars should reflect what will become in 6 to 12 months. Stocks move ahead of fact. Check out PSI.

Oportunidad que compra!

The Mexican iShare is off and running again after a temporary decline. The chart above indicates a nice entry point. If your portfolio is chock full of things out East (Singapore, China, South Korea, Australia), it might make sense to bring some exposure closer to home. EWW - the Mexico iShare is the way to do it. Of course, we like Brazil (EWZ) and Canada (EWC) in the Western Hemisphere as well.

Energy Services - Room to Run

The OSX pulled right back into its mid Bollinger Band..we've been here before, and if history is our guide, we need to hit it again and seek another new high.

Millions of Shareholders Know the Secret!

Let's have some fun today. Bond yields soaring, sabre rattling from Iran, gasoline prices through the roof, even a gallon of milk costs so much more and Dean Foods can't even make good money in the milk business. The world is falling apart! However, thanks to Oprah Winfrey, we have the concept of "The Secret" - a best selling DVD produced by an Aussie that has answers to our most perplexing troubles and saves us from all the perils of the world. I'm not even sure if it's a book or a movie, or based on the 1920 book titled The Science of Getting Rich? Anyway - Click here to understand more. We can simply think positive thoughts and all our troubles disappear. Even better, all we need to do is visualize wonderful materialistic things and we will receive them. Mansions, exotic cars, expensive jewelry..whatever it is you desire, it will be so, according to this DVD.

Therefore, i picked a large well known mega cap stock, named Wal-Mart - she's a $200 billion beaut! It once traded at $60, and now a tad under $50, but there are millions of investors and millions of employees who have ties to this company. So why not visualize a return to $60 and SHAZAM, it will be so! Piece of cake! That would be a nice 20% pop in no time. What a secret to behold, i can't wait to see this play out.

Wow, Amazon.com has some fascinating reviews and commentary regarding the Secret phenomenon. Click here and scroll down to read some. Good luck.

"Pickle wa Irenaide (Kudasai)."

The Japan iShares (EWJ) are approaching ten year highs again. The Cabinet Office in Tokyo today reported that first quarter GDP grew 3.3% in Japan, up from a preliminary 2.4% reading, and investors globally barely noticed. Click here to see the Bloomberg story. Could this be a good sign? The Nikkei 225 reached an all time high way back in 1989..that's almost 20 years ago. Investors have been burned time and time again buying the recovery theme in Japan, so it isn't surprising to witness the blase response from investors after hearing the latest economic report. But that's the rub, or the opportunity, as the market apparently is shrugging off this latest bit of good news. Watch EWJ closely to see how it acts once it pierces the 15.20 level. If she blows through resistance, burger fans wont be holding the pickle, they will be asking for the works!

Here We Go Again

If the three day dip was just that, then leading categories which have sold off and bounced in the past will do so again. Which leads us back to metals and mining shares! How do we play it? X M E

How to Play a Downside Blow Out.

SDS - leveraged short S&P 500. If this correction is similar to the late Feb early March move, then we attack the lower bollinger bands and bounce around for 2-3 weeks.

S&P 500 Closes @ 1517.38 today; -0.89%

Another plain vanilla pullback today. Are you getting irritable?? Investors must embrace volatility as it provides opportunities. Look at the chart above, recent pullbacks have brought the market right into the middle of the bollinger bands - and those have been excellent times to buy. Interest rate discussion has been brought to the forefront the past few sessions as the 10 Year U.S. Govt bond has approached the 5% level. The European Central Bank (ECB) also raised interest rates 1/4 point this week. It appears market sentiment has swung from waiting for the fed to lower rates to one that expects the fed to RAISE rates now. We've been here before, as the market has vacillated between seeking a fed cut to a fed hike, back to a fed cut. And stocks have chugged higher nonetheless.

Palm Elevates

Roger McNamee, one of the founders of Elevation Partners is a neat guy. Spent many years running money for T Rowe Price, and later ran private equity in a variety of situations. Elevation is one firm which he founded in 2004, with rock legend Bono of the band U2, and a host of other big money types. Anyway, he was applauding Apple Inc today and was sounding very bullish about the iPhone in an interview on CNBC today. However, his firm took a 25% stake in Palm yesterday and he suggests the smart phone category will continue to expand and owning the brains behind the hardware will prove to be profitable. One of Apple's top lieutenants is joining the board of Palm as well. This stock is one to watch over the next few years.

Think Outside the China Box

The South Korean market has plenty of momentum. Hitch a ride to EWY and gain some diversification outside of China. The investment community is missing the boat, as the drum beat is for China, but there are plenty of other opportunities world wide. Others of interest, Germany, Canada, Malaysia, Brazil, just to name a few.

Stock Buy Backs

According to S&P, companies in the S&P 500 bought back $110 billion of stock in the 1st quarter of 2007. That brought the trailing 4 quarters of buybacks to $442 billion, which is enough to buy the smallest 100 companies in the S&p 500. Re-read that line - in order to make in sink in! Thomson Financial tells us per share earnings growth in the S&P 500 was 8.2% in the first quarter, better than the 3.2% gain expected in early April. These massive buy backs are impacting reported eps, and even analysts have been unable to come to grips with the sheer size of the buyback programs and their impact on reported earnings per share.

Printed Circuit Boards

Today's M&A activity centered on a firm called Flextronics (FLEX) offering to buy Solectron (SLR). Flex is a Singapore based firm while Solectron is HQ'd in Milpitas, CA.

Today's Price Performance Winners % Change Market Cap
SOLECTRON CP [SLR] +15.13% $3.4 B
TTM TECHNOLOGIES I [TTMI] +9.09% $335.0 M
M-WAVE INC [MWAV] +6.54% $6.3 M
CELESTICA SUB VTG [CLS] +6.33% $2.8 B
SANMINA-SCI CORP [SANM] +5.63% $2.5 B


Biggest Cap Names % Change Market Cap
FLEXTRONICS INTL [FLEX] -1.37% $7.1 B
JABIL CIRCUIT INC [JBL] -1.59% $4.7 B
SOLECTRON CP [SLR] +15.13% $3.1 B
SANMINA-SCI CORP [SANM] +5.63% $1.9 B
BENCHMARK ELECTRONIC [BHE] +3.83% $1.6 B