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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • So Many Mixed Messages By: Charles Payne 0 comments
    Jul 14, 2010 2:17 PM
    The market is struggling, and that's a good thing and a far cry from just succumbing at the slightest pull lower. Climbing off the canvass is an admirable trait. One could argue stocks should have been straight up after that blowout quarter by Intel (INTC) but the economic data was disappointing. There is also uneasiness about the inability to put a finger on the state of the economy. We are all awaiting a tidal wave of inflation from the mindless spending in Washington and quantitative easing by the Fed, and yet deflation lingers thick in the air. It doesn't help when the Fed itself is bickering and confused. Then there are economic data releases increasingly lending credence to the notion that deflation is a bigger problem than originally thought. This morning, it's import and export prices for the month of June.

    I guess we can be happy about the major spike down in import prices but there was also a dip in export prices, too. I'm not sure what the Fed is going to say at 2:00 PM when the minutes from the last gathering are released but someone is going to be concerned about deflation. I happen to want to see more dissention among Fed officials as it's time they stop using the cover of the crowd to avoid what is not even a tough decision anymore. At some point, the Fed has to put rates where their victory laps are; just like the Administration, these guys are taking credit for a house aflame saying it could be worse. On that note, the crazy stuff coming out of Vice President Biden's mouth today is loco. And these make believe jobs created are a slap in the face to every unemployed person in the nation.
     
     
    Agriculture export prices decreased, and that isn't a great sign, but it was the decline in non-fuel prices that raised real red flags.
     
     
    Earnings Positivity Permeating Market
    By: Brian Sozzi, Equity Research Analyst

    As early as Monday, the talk on the Street was that second quarter earnings did not matter a great deal. The results by and large would reflect backward looking economic conditions rather than the hiccup we have received in certain economic releases. Combined with the persistent discussion of whether we are moving in the direction of a double-dip (note this phrase is approaching "subprime mortgage contagion" in terms of amount used on television) sentiment pre-earnings was indeed negative. However, the market, as so often is the case, sniffed out that the global situation in the second quarter, and the commentary by management teams for the second half of the year, was not as bad as prevailing sentiment. The S&P 500 has rebounded from a 10-month low on July 2, bringing its year to date decline to 1.8%. Up until July 2, the benchmark index fell 16%, in what was broadly coined a correction from the uptrend that began last year. At the moment, second quarter earnings are telling us a few things:

    * Low inflation will be an offsetting mechanism to constrained pricing power (Yum Brands/California Pizza Kitchen)
    * The dreaded double-dip in the U.S. may not be in the cards (Intel/Alcoa)
    * Conditions in Europe, while not exactly ideal, have basically sidestepped doom and gloom forecasts (Intel/Alcoa)

    Now, the current market sentiment could reverse course at the blink of an eye as the remainder of corporations report earnings in coming weeks. I would say that if two bellwether companies have had positive things to reference with regard to global demand, it's safe that the trends will be spotted elsewhere. This expectation is what the market is currently readjusting too, one from doom and gloom to one in which companies are continuing to navigate the external environment well.

    Put on Some Portfolio Pounds with Lululemon

    While hitting it hard at the gym so to speak, I would be lying if I said I did not notice the multitude of posters to sign up for classes such as zumba, hot yoga, and even mixed martial arts. I watched curiously at a hot yoga class the other day and aside from the steam on the doors, my analytical brain observed one key tidbit...many of the women were wearing trendy, technically oriented yoga gear. Unlike men who roll up in the gym in a lame looking tank top, an old pair of sneakers, and the ever cool shaker bottle I sense that women put much more thought behind what they wear to the gym (everyone has different reasons, I am sure). This all got my wheels turning, how is the best way to tap into the market for gym inspired women's apparel, especially those pieces worn to attend hour plus classes? The answer was as obvious to me as eating an apple after an intense workout, Lululemon (LULU).

    Please visit www.wstreet.com to read remainder of piece.

    Electric Vehicles: Buzz Is Heating Up
    By: David Silver, Research Analyst

    Investors have been enthralled with the electric vehicle for a while now, but the fervor has recently increased following the Tesla (TSLA) IPO and release dates of the first "affordable" electric vehicles (EV) approach. The Nissan (OTCPK:NSANY) Leaf will be the first to hit the showrooms, set for release this December. There are already 16,000 people lined up to take delivery of the car that can be plugged into a common outlet. There are plenty of reviews out there, Car and Driver, J.D. Power and Associates, and all have come back with some glowing reviews for the vehicles that bring technology and environmental protection together.

    However, EV owners will be met with a big infrastructure dilemma; where to charge the car? The Tesla Roadster takes approximately 32 hours to fully charge from a 110 volt socket (the normal socket in your house), but when plugged into a 220 volt outlet, the charge time is diminished to approximately 4 hours. The new Leaf is a more affordable option, but the charge time still gets up there. There is a fast-charging option, but the standards haven't been set yet, so it is not included on all Leafs. Using a 220 volt plug, the Leaf takes approximately 16 hours to charge, however, using this fast-charge option (which uses very high voltages, between 300 and 500 volts of DC power) which can charge the car battery approximately 80% and last only a half hour. Once the standard for level 3 charging is set, it will make the EV market that much more attractive.

    So we have seen how long it takes to charge an EV, but where to charge it would be my next question. You could pull into any fast food restaurant and plug in while you go in and get a burger, but the charge will not last long. There are thoughts to put charging stations across the nation to utilize the fast charge option or at least to utilize a 220V plug, but the roll out of this plan will be extremely expensive, and even with the expectation of government subsidies, the planning stages have been slow to develop.

    Another hurdle to the acceptance of EVs is the EPA. Yup, the Environmental Protection Agency is causing a problem with how far these vehicles can actually travel. The EPA is considering changing the standards for determining how far an EV will be able to travel on one battery charge, and it should. Right now, you see the "highway" and "city" driving figures on the stickers for new cars, but the tests used for EVs are a little different. It determines the amount of miles driven on one charge to be under optimal conditions, and honestly, when is the last time someone drove under optimal conditions? The expectations are that the new tests will cause the "useful life" of EVs to decline by as much as 30%. Instead of being to drive almost 250 miles on a Roadster, the range would only be 175 miles. There was an interesting blog on Tesla's website about the actual distance that could be traveled on one battery charge. The blog noted the car would be able to get more than 300 miles per charge; however, it would have to go 30 miles per hour for 10 hours straight (no starting, stopping, speeding up, or slowing down). Averaging about 60 miles per hour, the Roadster will have a range of approximately 200 miles. The following chart is a chart of the range at different speeds.
     
     
    So when it all comes down to it, the questions still remain for electric vehicles. The only way to really make EV a viable option is to make electricity cheaper, easier, and more available than gasoline. As of right now, EVs still have a long way to go... but look at the bright side, we will use less gasoline getting there.

    Inventories Tick Higher
    By: Carlos Guillen, Research Analyst

    According to the U.S. Census Bureau, inventories from manufacturers, retailers, and wholesalers totaled $1.36 trillion in May, up 0.1% from month to month, but down 1.5% year over year. While inventories increased slightly, total sales decreased 0.9% to $1.09 trillion. The combined effects of a slight inventory increase and a decrease in sales led the inventory-to-sales ratio to increase to 1.24, up from 1.23 in April. The May 2009 ratio was 1.41.
     
     
    As it can be seen in the chart above, this ratio increased slightly in May, after declining sharply from the peak of 1.48 back in Jan 2009. While there is still a possibility of further declines in this ratio, as the trend is certainly down, I believe sharp down movements are unlikely and inventories are now back to pre-recession level, in other words the inventory correction in over.
     
    It is important to note that changes in inventories had made significant contributions to GDP in the last two quarters. In fact, the contribution to GDP in the fourth quarter of 2009 from "change in private inventories" was 3.79 percentage points of the 5.9% total annualized GDP growth, and in the first quarter of 2010 the contribution was 1.88 percentage points of the 2.7% annualized growth in GDP.

    Clearly, the contribution to GDP growth coming from inventories is decreasing and will likely be minimal in the second quarter results. While investments have been contributing significantly to GDP growth, this contribution will be less significant in the coming quarters. What this means is that the other components of GDP have to pick up the slack, particularly consumption and net exports. However, given the high levels of unemployment and a weakening Euro, this will likely not be the case. This does not mean that GDP will decline; rather it just means that growth will be very low.

    The Other Leg of Oil
    By: Conley Turner, Research Analyst

    The price of crude oil appears to have developed another leg of support as oil traders and investors take their cue from the strength in the broader equity markets. Recent weekly data about an intermittent drawdown on inventory levels has provided buoyancy for prices. In its most recent release, the Energy Information Administration stated that commercial crude inventories declined by 5.1 million barrels to 353.1 million barrels in the previous week. In addition, the value of the U.S. dollar index declined versus a basket of other international currencies, including the euro. A weaker greenback has an inverse relationship with oil and other commodity prices as it makes them cheaper for the holders of other currencies.
     
     
    After several weeks of overarching concern by market participants that the economic recovery in the U.S. and many of the developed nations was faltering, oil prices declined accordingly. The decline was exacerbated by the Greek debt crisis and its resulting impact on the rest of the European Union. Furthermore, speculation that China's economic growth may be slowing also proved to be a downside catalyst for the commodity. Nonetheless, in recent days, benign data from the government has been the impetus for a turnaround.

    With the onset of corporate earnings season, the upbeat reports are providing investors with renewed optimism about the economy's prospects. To this end, the expectation of improved earnings results have set the stage for an upbeat broader market performance. The expectation at this point is that the improvement in corporate earnings is a reflection of a strengthening economy. This, in turn, is expected to translate into an increase in activity which means an increase in oil demand.


    Disclosure: none
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