Technical Ideas: GS, IBM, QQQQ, DELL, CMG

Goldman Sachs Group Inc. (GS) – shareholders of this name have averted the credit crisis relative to its financial counterparts. Shares have developed a pretty distinct channel from the low 160’s to the mid 180’s with a possible breakout looming.

International Business Machines Corp. (IBM) – earnings strength and consistency has been the name of the game for Big Blue. Recently IBM had a beat and raise quarter – blowing away the consensus of $1.81 by earning $1.98 a share and upping its full year forecast to $8.75 a share, up from $8.50. The stock is just itching to break above solid technical resistance of $130 on the next Dow rally.

Powershares QQQ (QQQQ) – volatile trading within a very narrow spread over the past few weeks. The big percentage weight guns of Google, Apple and Microsoft have been in a slumber, but tech on the whole is looking better. Briefly above difficult $46 support in this afternoon’s trading and then fell apart late, but should challenge and break above that soon enough.

Dell Inc. (DELL) – shares of the computer maker are trying to break out above the $24-$25 resistance level. Plenty of buyback has put a floor on the common and today’s Cowen analyst upgrade to “outperform” with a huge bump in estimates is a perfect catalyst to get this moving higher.

Chipotle Mexican Grill Inc. (CMG) – short term resistance looks to be $70 and though the fast food chain did note an accelerating dropoff in sales, the company only missed second quarter earnings by a cent and still managed to reiterate its long-term growth outlook of 25% with a slew of new restaurant openings. Valuation has been shredded and with 4.78 million shares short and the daily average volume coming in at less than a million, there is a good probability of a short covering rally.

Wednesday Options Screener: EMC, CHK, MOT

EMC Corp. (EMC) - call volume is going bizzerk and volatility is way up. The August $15 calls have traded 99,115 contracts, three times open interest of 35,424 and have nearly quadrupled intra-day to $.73. The 4.85% heavy volume move in the underlying coincides with a 6.5% move in VMware stock which has been searching for a bottom.

Chesapeake Energy Corp. (CHK) – trying to make a run. This oil and natural gas stock with sound fundamentals has been looking to bounce after pricing a 25 million share public offering recently at $57.25. There is some decent activity in the September calls with a strike price of $50 where 9,549 contracts have traded, almost triple the open interest of 3,312.

Motorola Inc. (MOT) – recently off its 52-week low of $6.62 and trying to put a bottom in at $7. The beleaguered cell phone company reports results for the second quarter tomorrow. The consensus analyst estimate calls for a loss of $.03 per share on $7.69 billion in revenue. There is some speculative nibbling that Motorola has seen the worst with volume in the August calls with a $8 strike of 13,820 contracts ahead of earnings.

Tuesday Equity Ideas: ERES, SIRI, MER

eResearch Technology Inc. (ERES) – the cardiac services provider got the steam taken out of it on Jul. 16 on an analyst downgrade from Leerink Swann. The rating and price target was cut because of concerns that the FDA could approve automated trial studies that could pressure pricing. Management will need to address this during the second quarter conference call on Aug. 4, but with that news and the recent stock decline aside, the outlook can’t be too bad. According to a filing with the Securities and Exchange Commission, the company leased new office space of approximately 59,400 square feet compared to the current offices of 40,000 square feet.

Sirius Satellite Radio Inc. (SIRI) – this is a bottom fishing stock at $1.60. Though there is an equity offering of $375 million in common stock on the table, the FCC approved the merger deal with XM Satellite, second quarter results were decent and a Citi analyst is out with a note this morning talking up the synergies of the deal.

Merrill Lynch & Co. Inc. (MER) – selling $8.5 billion in common stock with Temasek holdings, Singapore’s sovereign wealth fund, buying $3.4 billion worth of new stock. Surprisingly, Merrill is holding up awfully well on the announcement, perhaps because it’s already down from last Thursday’s high of $34.10, and Oppenheimer Meredith Whitney made what could be construed as a positive comment – that Merrill shares are getting close to fair value. This is your financial contrarian trade.

Yamana Call Buying Goes Against the Crowd

There was some notable options activity in Yamana Gold Inc. (AUY) early this morning. A rush of call buying an hour into the trading session brought the price of the $12 calls up from $1.45 to two bucks a pop in a hurry and had total volume for that strike approaching 12,592. Open interest is just 174 contracts and the daily average for total call option volume is just 5,705 according to Schaeffer’s. This appears to be a contrarian trade as interestingly enough, Jim Cramer has been bearish on the stock. He sold off Yamana shares in his charitable trust in the first week of July in favor of Freeport-McMoRan (FCX). The stock is off about 24% since, with the selling probably compounded by others rotating out of the name, and is now in the process of testing its late March/early May low.

Monday Equity Ideas: WFR, SOLF, JAVA

MEMC Electronic Materials Inc. (WFR) – Could get interesting on a break above Thursday’s intra-day high of $46.95. Because this has had quite a few earnings misses in the past, the stock got drilled by 20% on 28 million shares that day when the silicon wafer company missed expectations and guided lower, but it probably should be looked upon as capitulation. Stock trades for just 10.6x earnings now and is more than cheap. Lots of one-time problems contributed to the negative second quarter report – a failure of a heat-exchanger at the company’s Italian facility in June reduced polysilicon output, and a fire at the company’s Pasadena facility. Earnings guidance for the full year of between $4 and $4.30 on revenue of approx. $2.25 to $2.35 billion fell short of the analyst consensus, but still represents 20%+ growth. Board of directors authorizing a $500 million increase in its share repurchase program should put a floor on the common.

Solarfun Power Holdings (SOLF) – probably has found a technical bottom at $12.50. There is a high percentage of shorts making this a quick mover with 6.22 of the 43.58 million share float sold short. And remember the last pre-earnings run up this solar name had? The recent weakness sets this one up for a possibly equally intense bounce into its mid-August quarterly report.

Sun Microsystems Inc. (JAVA) - yep, this is a real contrarian call. Has gotten closer and closer to trading at book value, but finally saw a relief rally, coming off a multi-year low of $8.63 after pre-announcing fourth quarter results that were better than feared. If it holds onto double digit stock price support, could see a continuation of a run to the 50-day moving average at $11.31.

Friday Equity Ideas: SWKS, MSFT, SKF, USO, PBI, QCOM

Skyworks Solutions Inc. (SWKS) - has fallen about 21.5% since hitting a pre-earnings high of $10.91 despite beating estimates and raising guidance to $.20 per share on revenue of $225 million. Stock hurt by a DA Davidson downgrade on Tuesday. There exists solid technical support at $9.

Microsoft Corp. (MSFT) – the lead up to the earnings release caused this to fall about 9% following its fourth quarter report. While first quarter guidance was not great, $.47-$.48 per share, a penny or two short of estimates, on revenue of $14.7-$14.9 billion, shy of the $15.06 billion consensus, the full year outlook was not that bad at all; $2.12 to $2.18 on $67.3-$68.1 billion in revenue. It’s hard to ignore Mr. Softie with the stock trading at 11.5x earnings, especially with executive Kevin Johnson’s departure, a sign that a Yahoo deal is becoming less and less likely. Decline seems unwarranted, major support lies at $25.

UltraShort Financials ProShares (SKF) – good way to trade the overbought financial stocks (didn’t think we would ever say that). The ETF corresponds to twice the inverse of the daily performance of the daily performance of the Dow Jones U.S. Financials index. Just recently bounced off its 200 day moving average of $110.65 and is approaching its 50 day moving average at $133.61. Hit a high of $211.75 on July 15.

United States Oil Fund (USO) – this exchange traded fund has support around the century mark and could see a relief rally on an uptick in the price of crude oil.

Pitney Bowes Inc. (PBI) – seems to be pricing in a not so good report come Aug 4 judging by the trading action. Hit a new 52-week low of $31.20 and has failed to see much of any rally along with the broader market indices. Trades barely at 11x earnings with a 4.3% dividend yield and if the trading action is wrong, this postage name is stamped for some decent upside.

Qualcomm (QCOM) – intra-day chart says on a break of $54 the rally from the patent litigation settlement with Nokia fizzles.

Financial Sector ETF (XLF) Call Buying All the Rage

Heading into the close, the Financial Sector ETF (XLF) is higher by 10.4% to $18.96 after hitting a 52-week low yesterday of $16.77 and traders are seeking to capitalize on a probable extension of the short term swing in by racing to pick up July calls, anticipating a further move by end of this week – remember there are still earnings reports due out from Merrill Lynch, JP Morgan and Citigroup Thursday and Friday. It’s worth pointing out that the weights are pretty hefty for JPM and C - 7.5 % and 5.86% respectively. The action is quite speculative in that it’s mostly all premium - the option at the $19 strike trades for half a buck and the $20 strike for a dime where the ETF needs to pop another 5% for that particular option strike just to get in the money. Volume is significant with 101,585 contracts traded at the $19 strike, almost equal to open interest.

Calendar of Events: Volatile, Busy Week Has Just Begun

Mark your calendars. Here's a brief look at some of the most crucial news, economic items and earnings events - most notably financials and tech, that we’ll see over the next couple of days that will likely dictate market action in a big way;

7-15 INTC earnings
7-16 CPI, Crude Inventories, FOMC Minutes, WFC and EBAY earnings (and on a leser note, AMR and DAL for the airline sector)
7-17 Housing starts, Initial claims, MSFT, GOOG, GILD, MER and JPM earnings
7-18 C, SLB earnings

Microsoft Call Option Activity Heavy Ahead of Earnings

Microsoft Corp. (MSFT) option activity is heavy. The action is concentrated in the calls - the $25, $26 and out of the money $27.50 strike where in total about 92,000 contracts have traded. Call volume for the July options (which expire this Friday) has outpaced put volume easily by more than a 2 to 1 margin. The activity is curious because the stock has gained ground all day long, now up $.98, or 3.9%, to $26.13 despite an overall weak market and it is especially eyebrow raising because the software giant – which notably now trades for just 13x earnings, reports earnings on Thursday after the bell.

Fannie, Freddie Heaviest Trading Volume Since WorldCom

Here is some interesting data. In the market sessions following news of the accounting scandal that rocked WorldCom, the telecom services stock saw 3.3 billion shares trade. According to MarketWatch, “more than 1.5 billion shares of WorldCom were traded on Monday, when the stock reopened after the June 25, 2002 fraud disclosure. Turnover exceeded 820 million shares on Tuesday, and then 1 billion more than that on Wednesday.” If memory serves correct, Fannie Mae and Freddie Mac individually would be the stocks with the heaviest volume on a major exchange over a three day span since that time, though the turnover combined is only about half as much of the WorldCom volume (remember it was just a penny stock). Fannie Mae traded 134 million Thursday, 409 million Friday and is on pace for 225 million shares today and Freddie Mac with 200 million traded on Thursday, 397 million Friday and on pace for 250 million shares today would represent a joint total of 1.62 billion shares.

Monday Equity Ideas: AAPL, IFX, PFWD, FNM

Apple Inc. (AAPL) – trading up $2.12, or 1.2% higher to $174.70, but notably well off its morning gap up high of $179.30. The company announced that it sold its one millionth iPhone 3G on Sunday, just three days after its launch on Friday, July 11. The new iPhone retails in the U.S. for $199 for the 8GB model and $299 for the 16GB model and is also available in 20 other countries. Holding up in a weak market, shares could turn around pretty quickly and head back up toward intra-day highs if the major averages reverse course.

Infineon Tech (IFX) – mentioned as an iPhone beneficiary and got a brief pop of 4% earlier on a Stifel Nicolaus analyst note. Has fallen dramatically recently along with a host of other semiconductor and chip stocks and short interest has more than tripled from 2.2 million shares back at the end of May (dav stands at 2.8 mil) as it has drifted closer to its 52-week low of $6.26. This should be seeing much more of a bounce on the news.

Phase Forward (PFWD) – more of a technical play here. Has developed a tight trading range from $16 to $19, butting its head against the top of the channel in the past few days. On a close above $19, this has some legs to run.

Fannie Mae (FNM) – there is a reason why the 30% gap was sold this morning on Fannie Mae and why this name hasn’t seen its low. Ditto for Freddie Mac. As the WSJ reported, Treasury Secretary Hank Paulson asked Congress for the authority to buy stakes in and lend to the companies, essentially putting a very clear government guarantee behind the debt. But as for stockholders, it’s tough luck. Paulson is insisting that a government rescue does not benefit the company’s shareholders for fears of creating a moral hazard.

The Casino Coattail Trade: Las Vegas Sands, MGM

After hours yesterday, Wynn Resorts was over $80, Las Vegas Sands close to $39 and MGM traded well above $25 a share on the back of preliminary earnings numbers from Wynn that were better than people thought – both results for Vegas and Macau. But with the market selloff, the gap higher quickly faded. In mid-morning trading, WYNN hit a low of $72.17, LVS hit a low of $31.32 and MGM hit a low of $21.91. However, when the leading U.S. indices stormed back later in the day, those casino operators came back; WYNN roared in the afternoon to close at $78.14, LVS made it back above the flat line, and MGM finished up by 6%. But the bounce could be only the beginning, particularly for LVS and MGM as these names have gotten killed and a major short squeeze looms, just as long as the market cooperates. Here’s the data according to Edgar Online; Wynn - more than 12.33 million shares short or 14.4% of float, dav = 2.3 million, LVS 28.74 million shares short or 17.4% of float when the dav is just 4.1 mil and MGM at 12.82 million shares short when the dav = 3.2 million.

Friday Options Screener: WMT, MS, TLT

An abbreviated version. Just the cold, hard numbers.

Wal-Mart (WMT) – some noticeably decent blocks going off in the out of the money Sept. $52.5 put where volume stands at about 10,243, nearly the same as open interest of 11,799. The retailer is down more than a buck and trading under $56 today, but hasn’t been as low as $52.50 since March.

Morgan Stanley (MS) – investment bank seeing ominous activity in the August $30 put. Volume of 12,821 contracts is 1.5x the open interest with small blocks comprising most of the trading.

iShares Lehman 20+ Year Treas Bond (TLT) – good size activity in the Sept. puts with a $90 strike - significantly more than the open interest of 12,350. For those not familiar, this exchange traded fund corresponds generally to the price and yield performance of the long-term sector of the United States Treasury market as defined by the Lehman Brothers 20+ Year U.S. Treasury Index which includes all publicly issued, the United States Treasury securities that have a remaining maturity greater than 20 years.

Evaluating the Dow 30: Where is the Pain Coming From?

The biggest percentage losers in the Dow 30 are the following stocks, notably financials; JP Morgan Chase down 5.85%, Banc of America off 6.04% and American International Group lower by 9.05% with every other stock down roughly 1-3% each and just two or three components in positive territory. So one could say that the Dow’s 1.8% drop is not as bad as it could be. And you would be right because the points the Dow is losing because of those financial companies in particular are not as much as you might think. According to IndexArb, there percentage weights are not that significant – BAC 1.62%, AIG 1.74% and JPM at 2.5%, pretty much falling in the bottom two thirds of the index weighting. With the exception of Chevron, the Dow big hitters (weight of more than 5%) are holding up relatively well in this broad market selloff; IBM – down 1.2% weight = 8.93%, Chevron – down 4.1% weight = 6.98%, ExxonMobil – down 1.3% weight = 6.24%, 3M – hugging the flat line weight = 5% and Caterpillar – green weight = 5%. Those names equal about one third of the total weight, so watch those names closely to see if the Dow will really crack.

Dow Jones Off Two Thousand Points Since May

With this morning’s selloff of 195 points to trade just above 11,000 at 11,033, the Dow Jones Industrial Average is now officially off more than 2,000 points since hitting a mid-May high of 13,136. In percentage terms that would be a decline of about 16%. It’s the largest two thousand point swing since the Dow fell from a high of 13,780 in late November to hit a January low of 11,634. Currently, there is psychological support at 11,000 and more technical support at the 2006 summer lows of approx. 10,700 that unfortunately may come into play. It’s noteworthy to point out that the CBOE Volatility Index has spiked as well this morning, now at 28.55, its highest level since March and nearly above that all important 30 level.

Dow Lifesavers: Alcoa Today, Could GE Play the Role Tomorrow?

Alcoa Inc. (AA) was the largest percentage gainer in the Dow 30 today up 9.7% after better than expected earnings in a day that could have easily gone bad. Notable losers in the Dow included GM, down about 6.2% and AIG which fell 8.2%. Across the board there was plenty of weakness in financials (the likes of Fannie, Freddie and Lehman) and with price of crude oil up about $5 things could have been a lot worse today. Could General Electric Co. (GE) play Alcoa’s role tomorrow and be a Dow lifesaver? The conglomerate reports tomorrow and both market watchers and the company’s shareholders are anxiously anticipating the earnings results and guidance, especially after last quarter’s disappointment.

True Religion Analyst Raises Price Target to $31

Right on schedule, an analyst covering shares of jeans maker True Religion Apparel Inc. (TRLG) raised the price target on the stock to $31 a share. Not coincidentally, the news comes a day after the company’s President and CFO presented at the Oppenheimer Consumer Growth Conference. Reuters notes that analyst Karen Short believes that “2Q08 consensus EPS is too low, and we believe FY08 guidance is also too low" and that the stock “is one of the few consumer stocks with a growing top and bottom line.” Though also just recently added to the S&P SmallCap 600, True Religion failed to move up on the positive comments yesterday and instead lost ground – now down about 10.2% over the past few trading session, with the tough market environment to blame. But with 76% of the float short and trading at a forward PE of 13, the stock should be one of the first to pop when the broader indices decide to turn around.

When Will the Dow Jones Industrial Average Bottom?

That is the question that everyone seems to be asking. To try and answer that, let’s take a look at a chart of the Dow Jones Industrial Average and some corresponding price data. Each time the Dow has broken out of its current downtrend and hit an intermediate bottom, we’ve seen a minimum 300-400 + point intra-day capitulatory drop followed by a strong rally the same day to get us back to the flat line followed by a major run up the next trading session. Logic would tell us that is precisely what needs to happen this time around because it's how the market bottomed in January '08 and August '07, but we just haven’t had that type of action yet. We could see it soon enough and you’ll know when it happens right away. And though we might not see an absolute bottom, remember we are in a bear market, it will at least mark a significant tradable low.

January 2008 Winter Low

Date Open High Low Close Volume Adj Close*
23 - Jan-08 11,969.08 12,339.10 11,530.12 12,270.17 3,241,680,000 12,270.17
22 - Jan-08 12,092.72 12,167.42 11,508.74 11,971.19 6,544,690,000 11,971.19

August Summer 2007 Low

Date Open High Low Close Volume Adj Close*
17-Aug-07 12,848.05 13,289.70 12,847.24 13,079.08 3,570,040,000 13,079.08
16-Aug-07 12,859.52 12,996.73 12,455.92 12,845.78 6,509,300,000 12,845.78

Note: Technical chart can be viewed at StockCharts.com, Price data from Yahoo Finance

Huge Crocs Call Volume in the September $7 Strike

Crocs Inc. (CROX) is bouncing up $.61, or 8.9%, to $7.52 following a brutal streak of hitting a new 52-week intra-day low each trading day this month. There is some curious options activity in the once high flying footwear stock. There is a tremendous amount of call buying in the September $7 strike. Options volume of approx. 29,224 contracts compares with open interest of 980. In this case, the accumulation looks to be a cheap way to hedge a short position in the event of a rise in the stock. Remember, Crocs is one of the most heavily short stocks out there with 33.67 million shares short, nearly half of its 77.6 million share float.

Ambac Financial: The Squeeze is On

As previously noted, the bond insurer got the attention of traders last Thursday when it surprisingly announced that its Board of Directors authorized up to $50 million for share repurchases of its common stock. The news was also oddly timed – it came an hour and a half before the closing bell on a pre-holiday shortened trading session. The liquid small cap trade is now abuzz again today. In response to persistent speculation of insolvency, Ambac Financial Group (ABK) released information about collateral requirements and terminations of its investment agreement business related to recent actions by the rating agencies. CEO Callen added the company has “ample liquidity to manage our commitments going forward.” The stock is up $.31, or 22.8%, to $1.71 on volume of 9.1 million shares. Shorts are getting a run for their money as covering is most likely fueling the bounce, particularly those who went short more recently sub $3 and $4 a share. A total of 74.4 million shares, or 26% of the 268.4 million share float is short. That number is double the 31.3 million shares short in mid-May, and up astronomically from 7.1 million shares this time last year, for obvious reasons.

Chipotle Mexican Grill Revisits August 2007 Lows

Chipotle Mexican Grill Inc. (CMG) shares are bouncing off their August 2007 lows in the upper 70’s, but whether that level holds is all up to second quarter earnings that are due out on July 23. Despite rising food costs and the weakening consumer, there hasn’t been much concern from the analyst community, with the exception of Deutsche Bank analyst Jason West, even though the Mexican food restaurant stock has declined roughly 20% since mid-May. The consensus estimates have remained relatively unchanged, but his note on June 12 sums up the bear thesis; outlining challenging traffic trends because of restaurant location in difficult consumer and housing markets, the case for crimped margins and offering this worrisome statistic; each 1% drop in traffic could hurt earnings per share by $.10.