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November 30, 2005
Online Retailers, Calpine is Out, Wal-mart Spends and Cuts, ETFs Surge, Inverted Hammers, Disk Drive Stocks and a Strong Economy.
Good Day! After a big advance, stocks moved into mild corrective mode. The biggest gainers over the last few weeks were the biggest losers as traders took profits. So far, this decline is viewed as a correction within a larger uptrend. A few days of slight selling pressure is not enough to reverse four weeks of strong buying pressure.
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From Paul R. La Monica at CNNMoney: "Online retail bargains? Bah, humbug! 'Tis not the season to buy e-commerce stocks since strong holiday sales are already priced in" This list includes EBAY, AMZN, OSTK, REDE, NILE, PRVD.
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Calpine (CPN) will be removed from the S&P 500. This company has been in dire straits for over two years. What took so long?
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From the Wall Street Journal:
The world's biggest retailer lured droves of shoppers last weekend with an advertising campaign that started two weeks earlier than usual and door-buster discounts on hot items. Television cameras captured mosh pits of customers diving at the doors of the Bentonville, Ark., chain throughout the country the Friday after Thanksgiving. The draw: Lower prices than the competition, marking a reversal from the year-earlier holiday season, when Wal-Mart sought to preserve profit margins but in turn forfeited sales. The risk is that Wal-Mart's decision to rejoin the holiday cost-cutting campaign may harm its profitability. "Wal-Mart's much more aggressive stance got attention, but it remains to be seen how much it cost them on margin," Goldman Sachs analyst Adrianne Shapira wrote in a note to the company's clients on Monday.
Two things come out of this piece. First, Wal-mart’s margins will come under pressure from increased advertising and lower prices. Second, Wal-Mart is so big that this will likely affect other retailers. Shoppers may opt for the Wal-Mart nightmare to save a few bucks. Or, other retailers (BBY) will have to lower prices to stay close to Wal-Mart. It is going to be one competitive Christmas season and the January sales should offer some great bargains.
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JEN RYAN of DOW JONES NEWSWIRES reports: "ETFs Are Buzzing As Mutual Funds Lose Investments. Lately investors have been pouring more money into domestic and international exchange-traded funds than into the corresponding mutual funds." Just to back up Ms. Ryan, the table above shows the most active ETFs. Note that QQQQ averages over 90 million shares per day!.
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Western Digital (WDC) raised their guidance. The company sites strength in the electronics and computers. In addition, Seagate (STX) also got an upgrade and things are looking up for the disk drive group. Imation (IMN) is the strongest of the group and poised for a 52-week high.
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James Altucher of TheStreet.com notes that trading the inverted hammer can yield profitable results. This bullish candlestick pattern requires confirmation and my guess is that this holds the key to success.
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The economy is looking up as consumer confidence rose 1.7 points to 98.9, New Home Sales surged 13% and Durable Goods Orders advanced 3.4%. Strength in the economy translated into bond weakness as TLT fell sharply. Notice the rising wedge consolidation. Further weakness below 89.5 would be bearish for bonds.
On CBSMarketWatch, Drew Matus, an economist for Lehman Bros, notes: "Nothing in this data suggests to us that the economy is on the verge of slowing sharply in the near future. This means that we also continue to expect more tightening from the Fed."
Posted by Arthur B. Hill at November 30, 2005 09:06 AM