Betty L. - Freshman Equities Trader - Weekly Desk Notes

July-6-2010

 

Global Market Recap and Futures Update

• S&P futures up 10 handles
• No real news out
• Tokyo up, gold is quiet
• Mysterious reversal- led first by Asia, then Europe
• ISM Non Manufacturing number at 10am today- tier 2 number
• Not really seeing companies coming out stating business is being hurt by European crisis
• Markets rallying on no news suggests investors are thinking the selling off Is getting ridiculous
• Recap: Non Farm Payrolls were right on the money while Pvt Payrolls were disappointing
• Should be a quiet day today and week
• Market direction will come from company earnings (starting next week)
• Market is cheap
• Recession ended sometime last year- far from seeing high level of inflation
• Municipalities and states are in trouble
• Examine facts of t he market
• Consumer Confidence number is main concern due to poor job numbers
• In line earnings will be positive sign

 

Upgrades/Downgrades

• Upgrades: WLT, PGR, FDO, HAL, PTEN, RBS, GS, BP, BBT
• Downgrades: DB
• Initiations: PPC to hold

 

DM in the AM

• Expect analysts to revise down for U.S. company earnings
• Gbl recover in car industry seen in first part of the yr is losing steam in mkts from US to China
• Even in China, sales growth for autos is slowing month on month
• Risk of default for U.S. local govts is growing

 

Trading Day

• 29 handle reversal
• Fair basis/value: Equivalent difference between futures and the cash (adding in time value/future value of money to the futures)

 

July-7-2010

 

Global Market Recap and Futures Update

• Highs in S&P futures were made at reopening yesterday late afternoon
• Trend in dollar/yen is down, on 6 month lows
• 86.41 would be a 15 year low in dollar/yen
• Nikkei made its high on 12/29/1989; lows in March of 2009
• Will take decades before we ever make
• CCMP Index- Nasdaq Composite
• Nasdaq Composite made its high on 3/10/2000
• MBA Mortgage Applications number out this morning- not important
• Index performance yesterday: Dow > S&P > Nasdaq
• Crude oil is stuck in a range
• Gold is near monthly lows
• Market is range bound with volatility- good for day trading
• Length of time of pullback- coming up on 3 months in duration
• March 2002 to July 2002 pullback, leading to short and sharp rally
• Sept. 5 - Nov. 20, 2008 pullback was steeper

 

Upgrades/Downgrades

• Upgrades: JNPR, EMC, CVBK, JEF (due to good M&A activity)
• Downgrades: CTRP (Chinese airlines are changing commission rate policies; e.g., cancelling their policies so CTRP would get no commission), EW, TEX
• Initiations: PNC, CBS, CV, TRV
• IMAX reiterate to buy

 

DM in the AM

• Worldwide
• China’s home prices are set to fall as much as 20% in a healthy correction
• China plans to impose coal/oil/gas extraction tax in western provinces- part of trend to move some of profits of companies with a near monopoly like PetroChina to poorer parts of the country
• Bank of a well connected Russian tycoon and member of parliament defaulted on Eurobond on Tuesday in country’s first pvt bank default on an external bond in more than decade
• German manufacturing orders fell 0.5% in May vs exp of 0.5% rise
• Merkel’s Cabinet approved 4 yr pkgo f budget cuts + rev increases worth 81.6B EUR
• US
• Doug Kass, a well known short seller, believes markets have made their lows for the yr
• Geithner said he’s confident US economy would continue growing although added that recoveries are never steady
• Steel companies are shuttering capacity amid slumping demand and prices; steel price weakened in June after months of holding firm
• US Airways rpt’d June RASM, beat est.
• Lockheed offered voluntary buyout pkgs to employees with jobs at director/VP levels in effort to cut costs as US defense spending slows
• IB numbers globally are exp. to see steep contraction
• Administration’s proposal of $90B tax on big banks
• Delinquencies and cure rates on mortgages rose; delinquency rose 9.2% domestically
• Deal talk at this yr’s Sun Valley Media conference- more than in past because there is nearly $500B of PE cash ready to be invested
• SNE looking to expand their existing 3D partnerships
• Apple banned apps for their iTunes store

 

Trading Day

• Dispersion: opposite of correlation to index; measure the volatility of different types of strategies; returns with wide dispersions are seen as more risky
• High dispersion = > low correlation
• Low dispersion => high correlation

 

July-9-2010

 

Morning Recap

• Sizing into positions if you are particularly uncertain
• Short term trend trading vs. holding long term economic outlook

 

Upgrades/Downgrades

• Upgrades: V, WMGI, COST
• Downgrades: INTC, BBY
• Initiations: LUX to buy
• VVUS:
• PFE bought WYE, developer of Fen-phen
• VVUS’s Qnexa and ARNA’s lorcaserin contain ingredients that were present in Fen-phen
• Concern with Fen-phen’s heart side effect was due to fenfluramine and dexeflufamine, ingredients that were banned from the market in 1997
• FDA will review Qnexa as any other drug

 

June-28-2010

 

Upgrades/Downgrades

• Upgrades: AMLN, RIMM, ANF (inventory overhang, slow international growth; analysts picking ARO and AEO over ANF), MHS, HAL, LYG
• Downgrades: PFE, AMZN, HBC, BCS
• Initiations: AONE, HEV, ENS to neutral (advanced battery space)

 

DM in the AM

• Tesla
• IPO (TSLA) tomorrow
• Raised shares offering from 11.1M to 13.3M
• Range to be 14-16
• QTWW
• G20
• Deficits was most contentious item on agenda
• Leaders will pledge to cut their deficits in half by 2013
• Pledge to bring down their debt to GDP ratios beginning 2016
• Obama- pitching need for continued stimulus measures, which is at odds with British PM Cameron’s pitch strict austerity measures (spending cuts and tax increases in UK)
• Britain’s relative debt level is higher than U.S.
• Attempting to implement systems to dismantle a failing, large institution
• Euro countries favor a levy on banks that would be aggregated in emergency fund and used in case a dismantling necessary
• Financial Reform
• West VA’s governor will appoint successor for Byrd, but may not happen before July 4 signing=delay in reform vote
• Small banks caught break from Congress w/ regard to cap req’s
• HFWA and CYCY disciplined in lending during bubble
• Healthcare
• Big Pharma out of favor
• Concern that lackluster drug pipelines at lrg pharm companies will not offset blockbuster drugs coming off patent in next few years (PFE’s Lipitor in 2011, BMY’s and SNY’s Plavix in 2011, MRK’s Singulair in 2012)
• 9 major drug companies (PFE, MRK, LLY, BMY, NVS, RHHBY, AZN, SNY, GSK) now trade for an avg. 9X 2010 earnings vs 18x for SP500
• Steps to improve its prospects: cutting costs, parterning with small comps, expanding into OTC drugs, focusing on vaccines that have fewer patent issues, trying to develop biologics
• Barron’s like European drug companies because they have stronger presence in developing world, which is where real growth is coming from
• Bears say no blockbuster drugs coming down the pike so companies face neg. growth as patents expire
• “Easy” diseases have been treated (like cholesterol)
• Most bullish on MRK due to their pipeline; next is SNY due to its exposure to emerging mkts
• AZN is least fave w/ 9B sales coming off patent in next few yrs and noting exciting to replace them
• BA
• Workers in St. Louis have accepted a contract and avoided a strike that would have gone into effect today
• Main contention was a clause that would place workers hired after Jan 2012 into defined contribution (DC) pension plan rather than defined benefit (DB)
• Move to DC from DB coming more common among larger companies
• That clause remains in place, but a compromise was made that extends healthcare coverage to chronically ill patients who miss 6 mo. of work

 

Trading Day

• Laying out bids- bigger towards top of the number
• Long shadows above suggests sellers are coming in
• Why lower risk trades not working: a) not sizing properly b) not waiting for confirmation (of trend)
• Come up with own thesis of where you think the market will go
• Don’t forget about bottom line: making money, PnL
• Reminder of your role at firm

 

June-29-2010

 

Global Market Recap and Futures Update

• Conference Board released revised in error leading economic index, which is bringing down the markets- 4.5% sell off in China’s equity markets last night
• Oct 2007 peak in SHCOMP Index
• Dragging down the rest of the world
• Euro down nearly a full penny
• Currency trends last years; treasury note trends can last years as well
• 10Y notes have been on a downtrend for about 30 years
• Crude oil down 1.70 after being down modestly yesterday
• Consumer Confidence number today:
• 1990- illustrates that Consumer Confidence is a leading indicator
• All time high in SPX and DJIA in Oct 2007- Consumer Confidence came nowhere near the elevated levels during Q1 2000
• Good Consumer Confidence number will be good tailwind into earnings season
• UMich Sentiment number was strong, which might be an indicator that Consumer Confidence number will be strong as well

 

Upgrades/Downgrades

• Upgrades: RYL, LEN, USB, RF, BLK, WDR, DIS, NWS
• Downgrades: ETH, TWX, VIAB, VOD
• Initiations: ATHN to neutral, ATLS to buy, CBS to neutral
• GS note on entertainment:
• Prove surprisingly resilient in the face of technologies that have hurt adjacent sectors
• Devices like DVRS and iPads facilitate watching more TV and movies on a delayed or portable basis (increased DVR and portable viewing)
• Ability of cable and telecom companies to bundle data and voice svcs with video allow them to pay more for TV and cable networks
• Like the sector, especially large companies with global opportunities
• Buried deep within financial reform bill is a bank on movie futures trading

 

DM in the AM

• Worldwide
• Conference Board revised its leading economic index for China to show the smallest gain in five months in April- largest sell off in Chinese equities in more than a month
• First calculation contained error for floor space on which construction began
• Conference Board’s index- captures outlook over upcoming 6 months
• CB’s coincident index- measure of current econ. activity
• Coincident index was unchg’d from release earlier this month
• Chinese banks fell the most in five weeks on concern that Agricultural Bank of China Ltd’s IPO may divert investor funds
• BOJ could start facing limitations on its debt buying by 2013
• Eurozone June Consumer Confidence stronger than exp.
• French FM sees no reason for country’s credit score to deteriorate
• BIS annual report out yday has been receiving much press o/n
• BIS report implores large CBs to raise rates
• Railroads- positive outlook
• MU
• Reported 0.40 vs. 0.43, expected
• EPS of 0.40 includes higher initial Numonyx op exp.; excluding these, EPS is 0.44
• DIS to update >20 retail stores this year in the U.S. and Europe while the rest will be redone in the next 5-7 hrs
• ATT finished upgrading their wireless svc in NYC by giving more room on the airwaves in its 3G network

 

Shine Power Alley

• Top Winners: BP, RMBS, SMSC
• Top Losers: FSLR, BCS, LVS, GOOG, BIDU
• CTRP down 8%, BIDU, SINA, SOHU, SNDA, EJ
• Concerns around European banks having to repay 442B EUR in emergency loans to ECB Thursday

 

Trading

• Consumer Confidence: 52.9 vs. 62.8 exp.
• May revised down to 62.7
• Cover shorts when we believe bottoms have been put in and strong support holding below
• Mixed Congress makes for a good market
• Free basing: forming a base level of support
• When you can’t bear the pain anymore and it forces you to sell your longs, other investors are doing the same thing.  This point in time will probably be the best time to buy.
• Market Profile: Graphs how volume builds at various prices over time; organizes time and price data
• If VIX had spiked super high like back in 2008, would have signaled end of sell off
• Next time we gap down ~20 handles, look for slight turn up, base a little bit, and then move holds => then we will rally = reversal day

 

June-30-2010

 

Global Market Recap and Futures Update

• Spike in futures overnight at 5:15a- ECB will lend 132B EUR, less than people were expecting, suggesting that European economy slightly better than expected
• Consumer Confidence- we are in an uptrend
• Tier 2, borderline tier 1 numbers this morning
• 8:15 ADP Employment Chg- pvt payrolls only, hence no effect from govt and consensus workers
• ADP has solid predictive value
• 9:45a Chicago PMI
• End of month will bring asset allocation (fund mgrs must follow requirement that x% exposure to equities vs. y% exposure to FI)
• Gold markets yesterday- only up 3 dollars
• Asset allocation may provide good tailwind for the markets
• First of the month type buying tomorrow might provide additional boost to market
• Euro up a penny this morning
• Dollar/yen on a 3 month low, threatening 6 month low
• CLA (crude oil) down small; stuck in a range for past 9-10 months- crude oil inventories
• Predict that we can be at 1080 by EOD tomorrow
• Earnings only have to be in line in order to be deemed good- priced to perfection concept no longer in play

 

Upgrades/Downgrades

• Upgrades: USB, BTU, AZN
• Downgrades: HCBK
• Initiations: SHFL to buy; UPS to outperform; FDX to neutral; ZMH to positive; WAT to hold; LIFE to buy; TMO to buy
• CELG to acquisition:
• Acquire Abraxis for 2.9B in cash and stock
• $8 per share and 0.2617 shares of CELG
• Valuation of ABII at 71.93, a 17% premium to its closing price yesterday
• ABII main drug is Abraxane, a breast cancer treatment that is being tested for skin, lung, and pancreatic cancer
• If Abraxane approved, deal value could go up to 3.55B
• Abraxane sales totaled 85.9M in 1Q2010
• Deal exp. to close in Q4
• Shows slowing of innovation in large cap pharm and biotech space
• Smaller comps are innovating

 

DM in the AM

• Worldwide
• BOA analyst in HK said he sees flaws in leading indicator index for China that was revised yday
• Analysts at MS, BNP, and Nomura saying Chinese mkt at 18x earnings, its lowest PE in a decade, will rally
• German unemployment fell for 12^th month in June
• According to Ldn Telegraph, “Warnings signals of a double dip recession flash brightly across the world”
• Economic Cycle Research Institute, ECRI, is cautioning against reading too much into the recent move
• Qatar Inv. Authority (QIA – Qatar’s sov wealth fund) considering buying a stake in NBG (5-7%)
• ECB funding to Gk bks stood at 89.4B EUR at end of May, 80% higher than at SOY
• US
• Meeting late on Tues: removed 19B tax inserted at last minute
• Winded w TARP early (this will free up 11B)
• NY state thinks HF mgrs from CT and NJ should pay state of NY millions more in taxes; lawmakers over weekend embraced a proposal by Mr. Paterson to begin taxing nonresident fund mgrs’ carried interest
• House plays to try again today to approval legislation extending unemployment benefits after a measure to do so was blocked yday because of its costs

 

Trading

• Chicago PMI number in line at 59.1

 

July-1-2010

 

Global Market Recap and Futures Update

• S&P Futures down 2.5 handles from value
• Euro is up a full penny this morning
• Dollar/yen is sliding
• Shift: buying the dollar, suggesting US economy is in worse shape than Europe’s, that we are following Europe’s footsteps
• Yen is on 6 month low
• 8:30a: Jobless Claims number- last jobless claims before tomorrow’s payroll number, but not included in tomorrow’s data set
• 10a: ISM Manufacturing number- most important number intraday of the month
• Pending Home Sales will be dwarfed by ISM Manf. number
• Extension of tax credit will not affect Pending Home Sales this time around
• Interesting to see whether 1^st of the month buying action will take place today
• Now market is screaming that we are in a double dip recession- no longer whispers
• All about economic numbers today
• China down, equity markets down, Europe barely hanging on

 

Upgrades/Downgrades

• Upgrades: LULU, SWHC, LOW, HD, UPS, FDX, AFL, DELL, THC
• Downgrades: AMED, HES, LGF, HE
• Raise PT: AAPL to 390

 

DM in the AM

• Worldwide
• Manufacturing growth from China to Euro region slowed in June, suggesting gbl export-led recovery is losing strength
• Labor unrest continues in China- Foxconn had to lower guidance in part b/c of higher wages and other costs due to labor unrest
• At least 9 Chinese provinces and cities raised min wages by as much as a third today
• ECB published 6 day tender results
• Germany- Merkel’s candidate for President, Christian Wulff, voted into office; one silver lining is that Wulff won 3^rd round vote by a slim 3-vote majority whereas a plurality would have suggested that Merkel’s control of parliament in serious jeopardy
• Some German banks expected to seek cap from rescue fund
• UK interest rate hike not necessary despite inflation risks
• Eurozone PMI fell in June to a 4 month low- only Greek industry is clearly contracting while other economies are expanding
• US
• Death Cross: 50d MA crossing under 200d MA
• Small biz borrowing levels fall to lowest amt in 7 mo. during May
• Monster’s job availability index jumps sharply
• Financial reform passes the House Wednesday night as was expected; will be taken up by Senate the week of July 12; seems likely measure will pass into law
• Barney Frank said he would revive proposal to tax banks and other lg financial firms that had been stripped from a landmark overhaul of regulations
• Extension of unemployment benefits: Senate failed cloture vote; however, 2 Republicans voted for extensions, meaning passage seems assure when Congress return week of July 12

 

Trading Day

• Pending Home Sales and ISM numbers terrible
• Nat Gas storage, bullish
• Sometime just trade based on pure price action (what tape shows)
• 3M E-minis printed for the first time in a while

 

July-2-2010

 

Global Market Recap and Futures Update

• Change in Non Farm Payroll: trending higher besides the downtick last month
• Change in Pvt Payrolls is the focus
• Low tick for Unemployment Rate was 3.8- April 2000
• Only includes those who are actively looking for work
• Prior to number release we will go in half edged (currently we are unhedged)
• Chances of market rallying: if pvt payrolls is 110K+, then market will rip
• If pvt payrolls is 80-110K, then we will see sell off in algos (parse out the number)
• If pvt payrolls is in low double digits, then market will sell off
• Four numbers to look at: 1) Pvt Payrolls 2) Non Farm Payrolls 3) Revised Numbers 4) Unemployment Rate
• Unemployment Rate (Household survey) was released by itself, it would be hugely important; but since it is released concurrently, importance is not as high
• Factory Orders at 10a
• Only 150K E Mini volume right now
• Everyone is waiting for these economic numbers this morning; markets are flat
• Companies guiding in line will allow investors to realize markets are cheap

 

Futures Update

• Employment rate at 9.5% vs. estimate of 9.8%
• Rally then quick sell off
• Pvt Payrolls at 83K vs. 110K expected
• Whispers were in the 50s (were baked into the market) so not that bad
• Net/net improvement over past 2 months
• A lot of pessimism was baked into this number, which helps explain the huge sell off we’ve been seeing
• More clarity might exist in the markets now, which will give a directional push
• Returns down 1% on avg for HFs
• Largest improvement in leisure and hospitality (summer); bit of an improvement in construction; mixed across the board
• www.bls.gov/web/empsit/cesbd.htm
• Predict that we will grind higher over next couple of weeks into earnings season

 

Upgrades/Downgrades

• Upgrades: ARNA, BJ, FO
• Wednesday: Midnight showing beat previous Twilight’s midnight showing
• Last Airbender will be released
• ARNA one of 3 comps developing weight loss drug
• ARNA’s drug has the best patent
• First company to form partnership with company- 50M upfront (low for class of drugs w/ $1B potential)
• 160M additional contingent upon drug approval and success

 

DM in the AM

• Worldwide
• China, world’s third largest economy, raised its estimate for growth in 2009 to 9.1% from 8.7% as output by industrial and svcs increased at faster rate
• GS cut growth forecast for China this year to 10.1% from 11.4% as govt restrictions on lending and RE slow expansion in world’s fastest growing economy
• German central bankers saying regulators can’t force banks to comply w/ demands for full transparency; some banks would be legally permitted to keep test results confidential; up to 20 banks may be forced to raise cap in response to deficits uncovered as result of stress tests
• Germany’s lower house of parliament approved a watered down bill banking naked short selling Friday
• Jobless claims in Spain fell 2.1% m/m = third consecutive monthly decline
• Expiration of 12 month ECB tends represents a tightening of monetary policy in Europe, which has contributed to massive bounce in Euro; hence, not due to fear of US double dip
• BOJ may increase economic growth forecast
• US
• J.Paulson saying we’re in middle of sustained recovery in US; Cali has been leading indicator of housing market, and it turned positive seven months ago
• Non financial companies saying legislation might now require them to set aside additional cash, or margin, when they enter into types of dervis contracts
• Agency mtge mkt booming as investors flock to safety of securities that have implicit backing of Treasury; mtge rates have plunged as a result
• Lowest mtge rate since 1971, but low rates aren’t driving an uptick in refinancing

 

Trading Day

• Don’t let risk be tied to your pain 

 

June-21-2010

 

Futures Update and Global Market Recap

• July 21, 2005- first allowance of Yuan to rise
• Re-pegged to dollar in 2008
• Implications:
• China has faith in its own economy and global economy
• Improving relationships with Obama administration
• Negatives: Our nation’s biggest importer => products are more expensive
• Chinese labor/imports will become more expensive in part of production process
• Trade balance is hugely negative- higher prices from imports will far outweigh our exports to China
• Traders view China’s news as a positive, view market as cheap, and are looking for excuse to buy when in reality the news is mixed
• Market indicators are on their lows since back in April:
• First less than 10 handle range on Friday
• Avg 5 Day Range is below 14
• Markets on monthly highs:
• Crude oil
• Gold, still making all time highs
• Europe, up 1.5%
• Asia
• Dollar rallying vs. Yen

 

Futures Update

• Verify whether GTC prices still make sense
• Trade balance = difference between exports and imports
• Futures have been coming in slightly due to Euro on its lows- back to where they were before European open
• Expected as Yuan news is mixed
• S&P futures still up 10 handles from fair value
• Secret is to generate uncorrelated sources of alpha

 

Upgrades/Downgrades

• Upgrades: LII, VMC, TC, PANL (television derive), KFRC, RHI (HR and Employment), QNST (IPO’d this yr)
• Downgrades:ASCA,OPEN, LAZ (M&A slowed again; 40% revs from EU; prefer EVR)

 

DM in the AM

• Banks
• GS cut Q2 EPS estimates at MS, JPM, C, BAC
• Expect Q2 trading results down about 20% q/q
• See rebound in 2H10 since banks cited speed of mkt decline as main driver of challenges
• China
• Announced Saturday that Chinese central bank is to return to a managed floating exchange rate
• Yuan gain 21% against the dollar the last time this happened (2005)
• Became re pegged (fixed currency) during financial crisis
• Purpose is to provide stability in tumultuous gbl financial environment
• Increased imports into China
• Favors Chinese exporters (they can continue to sell cheap goods) at the expense of Chinese citizens and companies who would like to buy goods from other countries
• JPM- in talks to buy Brazilian HF and PE group
• Steel
• X, NUE, STLD, AKS are at attractive levels after recent mkt correction appears to have run its course
• China consumes ~35% of world’s steel and has 60% of the world’s steel producing capacity
• Chinese production rose 20% in April
• Risk for US companies that are bringing capacity back on line this yr
• NUE is least risky due in part to its 3.5% dividend yield
• X is highly leveraged to steel prices so if prices go up they should outperform, and vice versa
• BP
• Russia provides almost 25% of BP’s oil
• Cost of trying to stop the spill has rise to $2B so far
• APC, BP’s 25% partner in the well has refused to pay any share of the clean up costs; they would be responsible for 25% of the costs unless BP found guilty of gross negligence
• Weekend Box Office
• Toy Story 3 = biggest opening for Pixar at $109M
• Second biggest opening for an animated movie

 

Power Alley

• Does not prefer today’s type of mtk- looking for standouts on long and short sides
• Gold and silver are up again
• Watching names with higher short interest
• MA and DFS down small pre market (while most are up)

 

Trading Day

•  How stocks trade around levels of support/resistance- does it break through easily or have a hard time breaking the level?
• Start trading day out with a thesis
• Check range on names
• Long term thesis on this book; only thing that matters is whether we are right or wrong on firm’s bullishness
• In between, generate as much alpha as possible; can short in principal’s own account
• Buy 140 shares next time AAPL pulls in- by EOD; delta hedging against options
• Names and sectors will begin to attract attention again- search for upside potential
• Never look at PnL YTD- never look at PnL on individual basis
• Haven’t seen a day like this in 2 months- strong R4 day that provides opportunity during pull backs
• Algo trading- run TWAPs, VWAPs- until principals feel day is turning
• Add to members to Twitter- 20 per day
• Post on how to navigate to broadcast
• Mosk can help you trade intraday
• Recognize the market you’re in; learn how to take the chop
• Set stops and put exits orders out
• Steel tariffs in 2002- Yuan relatively weak, kills US steel makers; US steel makers now more competitive
• Outside reversal day
• Yuan becoming floating currency should not have much effect- imports more expensive (price pressure), although steel industry will benefit from this (only main negative)

 

June-22-2010

 

Futures Update and Global Market Recap

• S&P futures down 2.5 handles
• Retraced 1/3 of the whole move from yesterday
• Yesterday was an outside reversal day, which is typically a trend reversal indicator
• Why we don’t necessarily believe yesterday’s outside reversal day is an indicator of a trend reversal:
• We haven’t had a strong trend prior to yesterday
• VWAP curve from yesterday’s is U-shaped where as on May 13 (the last outside reversal day)- more than half of the volume came after 2pm
• MOCs were better to buy yesterday
• This morning we are only 2 handles from fair value whereas on May 14 we had gapped down off the open
• Almost 7% off our lows from late May
• Crude is down about a dollar due to weakness in Euro
• Gold is down 5.50, following equity markets
• Existing Home Sales number today: risk to reward is favorable as a good result will cause markets to rally hard whereas a weak result will only mildly sell off the market by a few handles
• Tomorrow is a Fed day

 

Technical Review

• Yesterday we saw a bearish engulfing pattern in the daily charts for the S&P cash and on Friday we saw a spinning top
• SNDK: Nice upward pattern during a period of volatility although yesterday we saw a bearish engulfing pattern
• BBY: May put on a TWAP today on this name to get out of our position
• PHM: sitting on triple bottom

 

Upgrades/Downgrades

• Upgrades: FTE
• Downgrades: BIG (related to COST and BJ), NBG, RYAAY/ESYJY, PNK, ECLR (e-med record, merging with MDRX)
• MDRX said that latest trend is that hospitals are subsidizing doctors for costs for implementing e-medical records system in their offices
• Lower PT: WDC, STX
• Raise PT: AAPL

 

DM in the AM

• Worldwide
• Adding Australian and Canadian dollars to currency reserves = alternative to deteriorating govt credit quality in Europe, US, and Japan
• US consumers will pay more b/c of yuan rise; but the move is a net plus for world economy because it reduces risk of hard landing in China and protectionist backlash in US
• Germany biz confidence rose to two yr high in June
• Moody’s says Spanish banks are healthier than mkt currently thinks; S&P had more cautious comments Monday morning; Spain will need to narrow its budget deficit
• China wants more flexible currency policy
• Labor strikes in China still
• Japanese PM Kan set out ambitious fiscal goals (tax policy)
• US
• Much of the Durbin amendment will be in final legislation = loss for finan. industry
• Fee regulation is a positive for V and MA because it narrows the scope of network fee regulations and increases scope of expenses the Fed can consider in determining debit interchange
• Materials
• China plans to remove tax rebates on some steel exports from July 15
• Australia incr’d forecasts for its commodity exports next yr, citing higher demand for iron ore, copper, and nickel as more countries recover from financial downturn
• Increased regulations and higher op costs will impact ability of smaller NRG comps to survive in the GOM
• MSG could earn up to 50M if Knicks sign Lebron James this offseason due to higher ratings at the Garden network, bigger rights fees from broadcasters, and increase in ticket prices
• WMT plans to build several dozen stores in Chicago over next 5 yrs
• Earnings this week: KBR, DELL, LEN, RIMM, ORCL, KBH
•  Housing numbers are bad

 

June-23-2010

 

Futures Update and Global Market Recap

• S&P futures up 3.5 handles from fair value
• Quiet overnight session
• Today 10a: New Home Sales; predicted to be huge drop off due to expiration of tax credit
•  FOMC Rate Decision at 2:15p: will definitely be 0-0.25%; so the question is, will “extended period” language be left in
• March 2011 is expected to be first tightening by Fed
• Economy may be more fragile than it was 8 weeks ago, but does not mean recovery not in tact
• Removal of “extended period” language will rally the markets
• Europe and crude oil down small this morning
• Gold up, near all time highs
• Currently unhedged in our net long portfolio
• Will not short S&P futures today before FOMC rate decision announced

 

Technical Review

• Yesterday was not a damaging day, but a disappointing one
• AAPL held in well yesterday
• Steel, housing, financial sectors continue to be rough
• If unable to penetrate through 1220/1230, we are just in a cyclical trend in a secular bear market
• Don’t believe Fed rate decision will cause any major sell off
• Will be in short the rally mode

 

Upgrades/Downgrades

• Upgrades: DWA, MWW, KNOT
• Reiteration: ADBE to conviction buy
• Initiation: LULU to neutral
• Gaiam Call:
• 40% of total company sales are DVD related
• Fitness DVD mkt for past yr has been up 15-50%
• Partnership with Reebok- Gaiam is manufacturing Reebok goods (initially will add ~12-15M sales); package Reebok accessories with their exercise kits
• Solar business trades under ticker symbol RSOL= home solar kits
• What happens when DVDs become dead medium- Gaiam is transitioning their DVD library to digital format, but unsure what they’ll do with that digital content

 

DM in the AM

• Worldwide
• First time in almost two yrs that a BOE committee member voted to raise rates in UK
• Growth in Europe’s svcs and manufacturing industries slowed in June
• BBG survey- fastest YoY profit growth since 2004 will push European mkts up by 15% by January 2011
• Merkel’s planned deficit cuts won’t hurt Germany’s economic recovery; German economy will expand 1.9% this yr
• German govt bonds rose for second day amid signs of econ. recovery
• French June Biz Confidence fell more than expected
• US
• Volcker Rules could wind up being softened in proposals due today- would allow banks to sponsor HFs and invest their own money; custodian banks and their AM units could be exempt from new rules; banks may be able to invest 2-5% of their capital in HFs or PE funds
• Regarding Lincoln bill: GS and MS least impacted by swaps proposals per BBG; 3 of 5 banks that dominate swaps trading already perform bulk of their transactions outside their depository institutions

 

Trading Day

• Yesterday’s BP court ruling already digested so probably not good short opportunities today
• New Home Sales number terrible
• TWAP: average price over the day
• Extended period language kept in
• Homebuilders- was a short cover rally
• Predict that market will continue to trade in a tight range until event like earnings
• Liquidation action- see it in large and liquid names like MSFT and GE being down big today
• If portfolio ends weaker- we will add to hedge

 

June-24-2010

 

Futures Update and Global Market Recap

• Not seeing high interest in selling despite feeling of dragging economy because volumes are light each time we sell off
• Crude oil down 0.60 on top of 1.50 it was down yesterday
• 10-yr yield on 52-week low: sign that economy is sick
• Month of poor economic number releases
• Today:
• Durable Goods (items used over 1 year)- 3^rdtier
• Jobless claims- very important and expected to come in at 463K
• Fed came out yesterday: they believe economy is softening
• Fed event sold off the market
• Fed has no bullets left and just has to wait in hopes for markets to move higher- little they can do
• Bullish view on poor jobless claims: explained away by temporary census workers
• Bullish view on poor housing sales: explained away by tax credit expiration
• Good earnings season will enable markets to rally
• Earnings season defined as significant majority of companies reporting subsequent to end of quarter
• Pre-announcements have been very quiet
• Trading in a tight range due to lack of clarity in markets
• Alcoa (AA) is first major earnings report- on July 12 (night)

 

Technical Review

•  Liquidity sale
• Technician’s view: when you start to come to technically significant levels, they’re coming down (or up) to those levels to test them
• We could test 1040 again- does not necessarily suggest bearishness according to above view
• Payrolls number- why stay long and bullish when payrolls number will probably disappoint?

 

Futures Update

• Better than expected jobless claims numbers rally the markets by 3.5 handles

 

Upgrades/Downgrades

• Upgrades: WYNN, ROST, TJX, ZUMZ, ARO, JCG, PSUN
• Downgrades: GENZ, LOW, HD, AEO
• Initiations: TEVA to buy; CSCO to buy

 

DM in the AM

• Worldwide
• Japan’s FM will push to raise income taxes on high earners to narrow Japan’s income inequality along with raising revenue
• Kevin Rudd ousted as PM of Australia- driven by his push for 40% mining tax
• Yuan rose toward strongest level since 1993 on spec that central bank will allow the curr to climb before this weekend’s G20 talks
• Chinese stocks, Asia’s worst performer this year, may rise 17% in the second half b/c gov’t won’t step up measures to rein in economic growth
• China’s stocks dropped for second day as commodity producers fell on concern global econ grwth will falter
• China’s record loan grwth and repkging and selling of debt by its banks has raised credit risks “considerably”- might lead to another finan crisis
• Chinese provinces have severe debt probs
• LEN: reported 0.21 vs 0.00 and revs of 814.5M vs 835M
• HAS: PE firm Providence Equity Partners is in prelim discussions to take HAS pvt in LBO
• GOOG: NY judge ruled in favor of GOOG’s YouTube unit yday in Viacom’s copyright infringement lawsuit
• BB had been standard issue smartphone for businesses because RIM made it easy for corporate tech depts. to manage and secure; 29% businesses now support iPhone

 

Power Alley

• Best trade yesterday was BTU- was a standout strong name, bot when mkt pulled in

 

Trading Day

• Velocity- comes down and bounces quickly for a few passes, then comes down and stays down- sign of concern
• Request to delay drilling ban denied
• In normal markets, when there is creation of jobs- particular name selling off, then you investigate why it’s trading lower (fundamentally)
• Markets now behaving irrationally so names are selling off without fundamental reasons

 

June-25-2010

 

Futures Update and Global Market Recap

• S&P futures up near highs
• Europe down small- in catch up as we sold off yesterday
• RIMM and ORCL reported last night- ORCL reported solid earnings while RIMM missed (due to competition)
• Companies are not saying anything about negative impacts due to European crisis
• Further confirmation that stocks are still cheap right now
• 8:30a, Final GDP number- largely ignored
• Revised UMich Sentiment: largely ignored
• Largest item on agenda: Russell reconstitution, which is usually market neutral (Russell 2000, small cap, and 1000, large cap), occurs on last Friday in June at 4p
• Names that are going to be added
• R2 to R1: promoted names, R1 to R2: demoted names
• R1 to R1, R2 to R2: rebalancing
• Reconstitution should increase liquidity flow
• Flows have often gone the wrong way for individual names because of the tremendous amt of speculative dollars chasing the rebalance; e.g., R1 to R2- see sell off
• Outlier bids and offers can be filled
• Today expect market will push higher
• We are already long this morning

 

Futures Update

• First quarter GDP at 2.7%
• Took Spooz down about three handles

 

Upgrades/Downgrades

• Upgrades: VOD
• Downgrades: RIMM
• Initiations: JOYG to hold; BUCY to buy; BECN to buy; DRI to outperform; DELL and MU to buy

 

DM in the AM

• Financial Reform
• Agreement on final bill is expected to have enough support to become law
• Volcker Rules: will allow banks to make limited investments in HFs and PE funds (3% of tier 1 cap)
• “Win” for banks: changed from 2% to 3% of tier 1 cap in order to gain support from Scott Brown
• Rule is tough on prop trading and may require some firms to spin off prop desks
• Bans banks from betting against ABS that they underwrite
• Lincoln amendment: allows banks to trade IRS, FX swaps, gold & silver swaps, CDS
• Banks would have to set up separately capitalized affiliates to trade riskier derivs like those related to metals, energy, agricultural comm.
• Levies on lrg banks and HFs to help pay for new govt programs and some of national debt
• New consumer protection bureau will be created
• Leverage limits proposals
• RIMM
• Reported 1.38 vs. 1.34 exp
• Revs of 4.24 vs. 4.35B
• Shipments number disappointing- 11.2M vs. 11.5M
• 31M share repurchase program announcement
• Guided up
• Oil Spill- White House 6 month ban on deepwater drilling- fed judge in New Orleans struck down moratorium

 

Power Alley

• Short on every rally was trade of the day yesterday

 

Trading Day

• Market popped on UMich Sentiment number which was revised slightly higher- should not have rallied that much
• People selling on every rally

 

LJ Hour

• Don’t forget mid-day time for scheduling
• Add data points to projects to keep them current
• Book breakdown: Consumer and Healthcare (Betty); Financials and Other (Annie); Energy and Materials (Zach); Tech, Media, and Telecomm (Jeff)
• SSS first Thursday of month
• Approach Dean: tell me everything I need to know today regarding my sectors; what to look for
• Work hard + be productive
• Think about  hedge

Attachment	Size
Weekly Desk Notes 07.09.2010.pdf	54.69 KB
Weekly Desk Notes 07.02.2010.pdf	83.23 KB
Weekly Desk Notes 06.25.2010.pdf	86.24 KB
Weekly Desk Notes 06.18.2010.pdf	94.01 KB
Weekly Desk Notes 06.11.2010.pdf	103.42 KB
Weekly Desk Notes 06.04.2010.pdf	80.59 KB
Weekly Desk Notes 05.28.2010.pdf	93.38 KB
Weekly Desk Notes 05.21.2010.pdf	82.69 KB
Weekly Desk Notes 05.14.2010.pdf	98.77 KB
Weekly Desk Notes 05.07.2010.pdf	100.82 KB
Weekly Desk Notes 04.30.2010.pdf	109.4 KB
Weekly Desk Notes 04.23.2010.pdf	86.96 KB
Weekly Desk Notes 04.16.2010.pdf	91.19 KB
Weekly Desk Notes 04.09.2010.pdf	83.56 KB