Yesterday was pretty rough for markets as markets sold off and many stocks finished at their lows for the day. We see this morning that markets here in the U.S. are up according to the futures markets. Foreign markets are mixed this morning so we are getting no indication of the general market direction from overseas right now, but it does look like Spain is going to go down the same path as Greece and accept bailout money while raising taxes and cutting some expenses to "balance the budget." Those will simply be numbers on paper and we would expect lower growth for the Spanish economy. Looks like rougher seas ahead for them, and things are already not good there so it will be interesting to see just how much pressure this puts on the entire EU economy.
We have a good bit of economic news coming out today ahead of the jobs numbers tomorrow. Up today we have the MBA Mortgage Index, the Trade Balance (Consensus -$48.9 billion), Wholesale Inventories (Consensus 0.3%), Crude Inventories and the FOMC Minutes.
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Looking at Asian markets we see markets are mixed:
All Ordinaries - down 0.07%
Shanghai Composite - up 0.51%
Nikkei 225 - down 0.08%
NZSE 50 - up 0.41%
Seoul Composite - down 0.17%
In Europe markets are mixed:
CAC 40 - down 0.48%
DAX - up 0.28%
FTSE 100 - down 0.17%
OSE - down 0.32%
Advanced Micro Devices (AMD) saw its shares fall $0.63 (11.21%) to close at $4.99/share yesterday after cutting its outlook on Monday. Volume rose to about four times its three month average volume as investors traded 75.5 million shares. This has always been a number two in the industry with little hope of overtaking Intel, and based on history it is hard to see the company ever being able to break this pattern. When we have invested in the space we have always allocated capital towards Intel rather than AMD, and we would recommend that to investors today as well.
Intel (INTC) saw its shares fall $0.61 (2.33%) yesterday to close at $25.56/share on volume of 47.2 million shares. It seems that many chip companies pulled back on orders at the end of the last quarter so we could be seeing either the beginning of a slowdown industry-wide or a hiccup in the supply chains, but based on our experience it sure looks like one of those instances where the easy money has been made and now it is about execution. Intel is one of the best companies when it comes to execution, especially during downturns, so we would look to add shares at the $25 or $23/share levels. If it were our money we would allocated a half position at each of those entry points hoping to get shares at both levels but happy to get any at either level. Currently the shares yield 3.2% so investors also have that to fall back on.
Looking to Sirius XM (SIRI) we see that the shares closed within our range again today, so one would hope that we are building a base in order to move higher from here in the future. Shares closed at $2.045 after trading down by $0.03 (1.45%) yesterday. Volume was once again strong with 43.5 million shares traded. For those who have not been following lately, we think that shares will trade in the $2-2.10/share range to build a base to move higher, the key will be to hold the lower end of that range and the rest should take care of itself. The company does have earnings at the end of the month which based on subscriber numbers this year should be good, the conference call will be interesting to listen to.
We always like to see stocks up on down days. It indicates strength and where investors like to trade, regardless of market conditions, so it is a great place to usually find momentum. With that said we were quite pleased to see Arena Pharmaceuticals (ARNA) green in yesterday's market. Shares were up $0.35 (3.05%) to close at $11.81/share on volume of $35.02/share. We were asked about our price targets the other day, and it is our belief that shares close out the year somewhere between $15-20/share and we could be higher depending on what type of competition their diet drug gets moving forward. Should the FDA not approve the next one up for review that would obviously increase our estimate, but we think that it will be approved and carry significant warnings on the label. We will adjust accordingly moving forward, but that is our view at this point.
The entire sector was hit yesterday, however Beazer Homes (BZH) was hit hardest after announcing that they would be doing a secondary offering with units to raise capital. Shares closed at $2.98/share, slightly above the low for the day, as shares fell $0.40 (11.83%) on volume of 12.9 million shares. The homebuilding industry has been recovering across the country, but the big boys still have some cleaning of the balance sheets to do and this is part of that. We would not be surprised to see more of this in the future around the industry, and the way that the other homebuilders fell as a group it appears that the market thinks that this is a possibility as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.