Closing Update for Friday, Sept. 18: Bull Run Hangs On, Barely

4:29 PM, Sep 18, 2009 --

• DJIA up 35.37 (0.36%) to 9,819.29.
• S&P 500 up 2.78 (0.26%) to 1,068.20.
• Nasdaq up 6.11 (0.29%) to 2,132.86.

GLOBAL SENTIMENT

• Hang Seng down 0.67%
• Nikkei down 0.70%
• FTSE up 0.17%

UPSIDE MOVERS

(+) PG upgraded to Buy at Citi.

(+) SNDK upgraded to Buy at Merrill.

(+) TOL part of homebuilder sector upgrade; CEO continues to sell shares.

(+) KBH gains amid upgrade.

(+) HEAT turns up, prices shares.

(+) SXCI prices increased share offering.

(+) UFI raises outlook.

(+) ARRY inks distribution deal.

(+) ARNA erases premarket losses finishes up

(+) GLS finishes higher; to become subsidiary of AerCap (AER) in $1.75 bln stock deal.

DOWNSIDE MOVERS

(-) PALM (-3.67%) continues evening decline though to lesser degree; earnings and guidance beat but company also announces stock sale.

(-) SCHW (-2.76%) downgraded to Sell at Goldman Sachs.

(-) GENZ (-1.29%) downgraded to Hold at Deutsche Bank.

(-) MTSC: Slips on downgrade; valuation cited

(-) AMR sees Drop in Q3 sales, traffic

MARKET DIRECTION

Stocks held onto fractional gains as the regular session closed, after some weekend profit-taking failed to overtake investor optimism, allowing the major indexes to notch fresh 2009 highs. Wall Street is looking ahead to next week's Federal Reserve monetary policy meeting.

During the regular session, analyst upgrades and higher guidance from some companies kept investors buoyant about the prospect of an economic recovery. There was no major economic news.

Palm (PALM) closed down near 3% after the company topped estimates with a smaller-than-expected loss but said it would issue more stock. Palm reported Q1 non-GAAP revs of $360.7 mln, down from $366.8 mln in the year ago quarter. Non-GAAP loss was $0.10 per share, vs. a year ago loss of $0.12 per share. The Street view was revenue of $291 mln and a loss of $0.25 per share. IMAX (IMAX) dropped after shares get cut to "neutral" from "buy" at Merriman Curhan Ford.

Among stocks getting a lift from analysts, JP Morgan boosted its view on the homebuilder sector to positive from negative. "While fundamentals will likely not demonstrate an uninterrupted solid rate of improvement over the next six to 12 months, we believe that not only is housing solidly past its trough, but over the next 24 months will continue to recover and drive further upside to the current rally in the home-builder stocks," the analyst said in a note, according to MarketWatch. The analyst upgraded Toll Brothers (TOL) and KB Home (KBH) to "overweight" from "neutral." M.D.C. Holdings (MDC) is dropped to ""underweight" vs "overweight."

Citi raises its rating on Procter & Gamble (PG) to "buy" vs "hold," saying the move is more a call on the shares than on company fundamentals, according to a report on MarketWatch. Citi also raised its price target from $54 a share to $66. It closed up 3.22%

SanDisk (SNDK) gained after BofA/Merrill reportedly raised its rating on the stock to "buy" from "underperform." Callaway Golf (ELY)was upgraded to "outperfrom" from "neutral" at Wedbush Morgan.

e*Trade (ETFC) jumped after Goldman Sachs raised its rating on the shares to "buy" due to impressive trading data for the month. On the flipside, Schwab (SCHW) is down after Goldman cut its rating to "sell" because Goldman expects SCHW's asset management and net interest income revenue to remain under pressure for another year.

Starbucks (SBUX) is firmer on an upgrade to "overweight" from "neutral" at Piper Jaffray. Piper believes mid-teens EPS growth is possible.

Comments

[vman650:]

Until my next door neighbor can get a job
Until my other next door neighbor can get surgery on his shoulder
I will see the Dow upticks as being phony
I think it is great that the bankers are getting wealthy
I think it is great that commissions on wall street are up
I think it is great that nasdaq is up every day
I think it is great that Cramer is having an orgasm on TV
I think it is great that Kudlow is in hog heaven
Isn't this the same Kudlow who said "WHAT RECESSION" and then the market crashed from 1400 to 660
I think it is great that CEO's are making millions again
So let it go up every day and never down
It only makes me more suspicious
I hear the race track CNBC touts say it is up because everyone though it would be down today
I wait to hear the sound of factories humming
I wait until the dollar store is filled with made in the USA
I wait until Kudlow reveals his trading position before yelling BUY BUY BUY
AND I AM NOT ALONE

Sep 18 06:15 PM

[David Zanoni:]

Vman, I'm not sure what area of the country you are from, perhaps Detroit from your sentiment. I know things are difficult for many people throughout the country, but things are improving. It will be a slow recovery job wise, but that's the reality of the situation. I don't think the dollar stores will be filled with Made in the USA - we're more service oriented than manufacturing now. The businesses that will pick up in the US are: healthcare, home repair, retail, banking, and technology.


On Sep 18 06:15 PM vman650 wrote:

> Until my next door neighbor can get a job
> Until my other next door neighbor can get surgery on his shoulder
>
> I will see the Dow upticks as being phony
> I think it is great that the bankers are getting wealthy
> I think it is great that commissions on wall street are up
> I think it is great that nasdaq is up every day
> I think it is great that Cramer is having an orgasm on TV
> I think it is great that Kudlow is in hog heaven
> Isn't this the same Kudlow who said "WHAT RECESSION" and then the
> market crashed from 1400 to 660
> I think it is great that CEO's are making millions again
> So let it go up every day and never down
> It only makes me more suspicious
> I hear the race track CNBC touts say it is up because everyone though
> it would be down today
> I wait to hear the sound of factories humming
> I wait until the dollar store is filled with made in the USA
> I wait until Kudlow reveals his trading position before yelling BUY
> BUY BUY
> AND I AM NOT ALONE

Sep 18 06:32 PM

[vman650:]

David
"The businesses that will pick up in the US are: healthcare, home repair, retail, banking, and technology."
How are we going to pay the Chinese back? Will we give them Healthcare or will we fix their houses? Maybe Walmart can open in China and Starbucks can sell them a cup of Java. Perhaps they will open a savings account at Citi or buy an ipod from apple. Oh wait, I think they make Ipods so scratch that one. In the words of the late Dave Thomas
WHERE IS THE BEEF?

Sep 18 06:50 PM

[Charlie J:]

I own an e-commerce retailer that is nationally one of the mainstays in our space. Business has not picked up. It is still substantially down.

On Sep 18 06:32 PM David Zanoni wrote:

> The businesses
> that will pick up in the US are: healthcare, home repair, retail,
> banking, and technology.

Sep 18 08:43 PM

[Hmm?!:]

"mortgage Liquidity Du jour" by Credit Suisse

Look at the ARM reset graph at the back of the document. You can usually just pull down the document from the internet. It should show everyone there is another round of foreclosures to go.

Sep 19 12:51 AM

[Joe Shareho...:]

Health Care, really? I just don't see how health care will improve from where it is now. As this recession gets worse, health care will be rationed as health care providers will have to be careful who to accept. Either that or they'll be working for free/reduced levels depending on how the new bill shakes out. Health care quality will be diluted if Congress passes anything even similar to what is being proposed right now.


On Sep 18 06:32 PM David Zanoni wrote:

> Vman, I'm not sure what area of the country you are from, perhaps
> Detroit from your sentiment. I know things are difficult for many
> people throughout the country, but things are improving. It will
> be a slow recovery job wise, but that's the reality of the situation.
> I don't think the dollar stores will be filled with Made in the USA
> - we're more service oriented than manufacturing now. The businesses
> that will pick up in the US are: healthcare, home repair, retail,
> banking, and technology.

Sep 19 01:57 AM

[mattjh:]

In the words of Andy Dufresne- "You can get busy living, or get busy dying."

Sep 19 08:56 AM

[OceanTiger:]

According to Japanese candle pattern, it is a Evening Doji Star, next week the market will have a correction. Hold value stocks like HPQ, ABT... Trade4Rich.com

Sep 19 09:25 AM

[Pauly B:]

It will be interesting what the FED will say (if they do) about the falling dollar next week. This could have significant impact going forward.

The market now is mainly about the weakness of the US dollar and if the world will continue to buy our dollars and fund our debt. Any movements in the bond markets could really put a hold on this bull run.

Sep 19 04:56 PM

[gatekeeper:]

I wonder how much time the sideliners have left to get involved and make some money in equities markets before the next downward business cycle swing ... which will have little or nothing to do with the business cycle out of which we're now crawling.

I hope a long time, of course, but I'm just curious how long they'll sit it out.

Sep 19 05:41 PM

[David White:]

There is unquestionably still a lot of money on the sidelines. There are also mutual funds which are not full invested. Plus there are many retail investors still holding back. They may all be looking to invest more money.

In contrast to that, we have an equities market that is both over bought and over priced. It has continued to go up in spite of this. It has continued to go despite Bernanke and the rest of the Fed saying that growth will be very slow for the next two years at least. Prominent economists have said the same or worse. Yet still the market continues upward.

One of the main factors in this rise seems to have been the fall of the USD. I think the rational is that multi-national US companies will fare better with a lower USD. Plus if US companies are not really changing in value, the Europeans and the Japanese are logically willing to pay more in USD terms (the same in Euro and Yen terms) for the same companies. That is, they go up in USD terms, even if they are just treading water. This has been a big driver of commodity price increases also.

Next week the Fed gives its rates assessment on Wed. Few people really expect the Fed to raise rates. However, the Fed could decide to cut back or kill a few stimulatory programs. It could give out hints about when it is likely to raise rates (Fed Funds and Discount). All of this has some USD speculators covering their bets. The USD was up on Friday. I expect it will be up or at worst flat into Wednesday as more speculators cover their bets.

Given a likely rising USD early in the week, I believe it is likely the equities markets will take this time to retrace. It could even start a big retracement. Who knows? The equities markets are over bought and over priced. They are trading at a premium to fair value. Fair value is supposed to be in the $85 to $88 range for the SPY (Art Cashin and others). The closing price for the SPY on Friday was $106.72. This is a 20%-25% premium to fair value. With low to no growth on the horizon, this is an unsustainable premium. The likely upsurge in the USD early next week may trigger at least a short retracement toward more realistic values.

Prechter has been predicting a more long term up surge in the USD based mostly on the only 3% positive sentiment for the USD. If Prechter's prediction actually comes true soon, we may see a precipitous fall in the equities markets at that time.

I will likely be playing a down turn for at least early next week. Some of the stocks I will be watching for a down turn are: SPY, HOG, WHR (over bought), COF, WY, heavily indebted airlines, hotels, and casinos. The airlines, hotels, and casinos have to worry about the coming Swine Flu season effects on top of everything else. If you have any great short plays, I would like to hear about them.

Sep 19 08:24 PM

[David White:]

I should probably also have mentioned that the USD carry trade may be a factor in the rise of the markets. Many people are borrowing the USD at low interest rates to invest in other vehicles which will produce higher rates of return. If the USD starts to go up, that rise may cause an unwinding of the carry trade to some extent. Other investments will not give such good returns if the borrowers are losing money by the USD rising. The unwinding of the carry trade will tend to take money out of the markets. This will cause equities to go down.

Sep 19 08:29 PM

[Old Trader:]

David White,

I think that "sideline money" thing is something of a canard, based on the latest issue of Lipper FundsFlows Insight Reports. I just wrote a instablog on it, and submitted it for publication, but I don't know if the editors will pick it up. Bottom line, though, all is not as it seems.

Sep 19 11:02 PM

[Dan in mpls:]

Dear vman650 (first post) I fear you will miss the big bull market of 2015 (just a guess as to when this will really end, mind you, if you hold out investing until you see "made in America" tags at the dollar store. For the nation to recover to that extent, the minimum wage has to be lowered by probably 3 bucks an hour to where it should be in most of the nation - the Federal Government might stay involved in setting it IF they have a 5 tier system that makes distinctions between Manhattan Island and, say Alma, Wisconsin where I'm doing business (three of them). My goal is to bring a lost town back to life and to own a lot of real estate once I do. I love what I'm doing here but it sure would be nice to have help. I can't afford to hire help to keep the shop doors open when daily sales can run $45.00. Yes, you read it. Most of the shops in town are in the exact same boat as I am except that they are trying to live on their businesses. I am matching senior volunteer employees to desperate shop keepers as the government has dictated that very small businesses are better off closing than paying a wage they can afford to pay given their level of profitability which is just above zero. It's a lose -lose proposition.
The minimum wage issue is going to be huge to our nations recovery as we will not see much merchandise in the dollar store at Union wages or even a "livable" wage as dictated by the government. The new manufacturing in America is going to be done employees starting at the minimum wage. There are millions of unemployed people who would surely have jobs if that wage matched the employers ability to make a profit at the end of a day, not what Washington decided was "fair". A lower wage would also help much of the nation adjust to the new lower standard of living that is totally and completely inevitable at the end of this national insanity.

Sep 20 03:15 PM