Market Commentary

Here are some thoughts about the current market conditions.

We have been in need of a correction after this bullish uptrend since August 06. Did we expect that kind of drop? No. Are investors on nerve right now? Yes. Will selling continue? I think so. Is it time to start looking for a short off a bounce? That's what I think. Are defensive stocks safe? Depends on how long you hold them and if you believe in dollar cost averaging. Here's some sobering realities.

In October 1987. GE saw its stock close at 50.75 on Friday, October 16, 1987. On the following Monday, known as Black Monday, it dipped to as low as 38.75. Even a safe, defensive stock like JNJ had more than 18 percent of its value disappear during that awful day.

I love it. Please investing world let the hedge funds have their year. More panic, more money for the contrarians and less for the herd.

Still in cash position right now looking for shorting opps.

OK BYE BYE BIDU

The lower outlook seemed to be enough for traders today to take profits and take a hike. The stock was down over $13 earlier today but closed down just under $9 to 106.18.

No Bye Bye Yet On BIDU?

Will this after market reaction turnaround at tomorrow's trading? So far BIDU up over $4.00 at 117.20ish.

In a Reuters report the company tempered revenue growth for the next quarter saying it was likely to decelerate sharply. Even so investors are excited for now it seems about the 4oo percent increase in 4th quarter net profits.

Maybe no bye bye yet....

NFI or NEW? You Choose

I have been tracking the subprime lenders too long now. By that I mean I should have been putting/shorting these troubled companies a long time ago. Oh well, such is life as the saying goes always a day late and a dollar short.

Well maybe not this time. As of 2/9/07, Morningstar just posted a fair value valuation on NFI and NEW of "BANKRUPTCY". Yes that's not a typo.

Here's two reports to chew on that probably will be a negative going forward for these two bad boys. NFI Judge certifies class in suit against NovaStar bizjournals.com (Fri, Feb 9)

And, Subprime Lenders Face Challenging Market at Forbes.com (Fri, Feb 9)

So what will I do about it. Unfortunately, the bad news is being baked in to the stock price but I think there's more bite than bark to the downside. I'll wait for a rally of sorts if any and then look for an entry in either one. Even with extremely high IV, there is now lack of sharkbait.

I might take a bite at the NEW Mar 12.50 Puts currently trading around $0.65 with over double the option volume to open interest or the Mar 10 Puts with over 6 times OV to OI (already released earnings 2/8/07). Or the NFI Mar 12.50 Puts at 1.10 or Mar 10 Puts at .50 (next earnings 3/5/07).

Remember this is a deeply speculative play because any hint of good news could propel this stock higher.

Stay tuned...

Bye Bye BIDU?

Is it time for BIDU to be the next sell on the news victim? Apparently, Cramer expects profit takers to emerge after the company reports earnings this Wednesday and since he's the mighty "oracle" we should all listen, right? Well actually in this case yes.

This is setting up to be a potential call credit spread play with the FEB 115/120 Call net credit trading around 2.20. Not the best r/r but should see some nice premium degradation from the IV decline that probably will result and maybe some underlying help.

Current IV levels on these calls are 90% which is above 52 wk highs (see IV chart below).

We'll see what happens....

Oh My OMTR

Anyone heard of Omniture? Sounds like a furniture store for trendy people from Germany who wear black clothes and say "touch my monkey", doesn't?

Well apparently not. This web analytics company has been busting out of a sideways slump since last October after it went public last July and has not looked back. Looks like we need a pullback for a possible long entry.

Earnings just came out and looks like the uphill trend might be slightly altered. We'll see how traders react tomorrow.

Keep an eye on this one going forward for a possible rising bull or sleeping bear.

NTY Status

Isn't amazing how I sometimes feel as though I have the non-midas touch? Right after I post about NTY they come out today and announce lower than expected sales for January and all of a sudden there is nothing but negative sentiment in the air for NTY.

Could that be a trend wrecker or a long entry opportunity?

We'll have to wait and see if the profit takers plow in. NTY closed down $3.32.

MA Earnings Expectations Too Lofty?

Mastercard reports Q4 earnings tomorrow before the open. It's expected to earn 17cents/share on revs of $827M.

The Street.com's article discusses how expectations may be too high and that the stock now trades at a premium multiple. I'd have to agree. But I'll wait for the news and see if there is any IV declination and sufficient net credit going into next week to play.

We'll keep on eye on how the news is met.

Well I'll Be An ALB

What is up with ALB? The chart, that's what's up. This beast has done nothing but gone up. Why? Well if the latest news is any indication it's because it keeps siding with shareholders by both announcing a 2-1 stock split and a 17% dividend payout increase.

Additionally, it engages in the development, manufacture, and marketing of specialty chemicals for consumer electronics, petroleum and petrochemical processing, transportation and industrial products, pharmaceuticals, agricultural products, and construction and packaging materials.

Can you say "diversified" product mix? It's like its own ETF. It is also a member of the S&P 400 Midcap index which is no slouch either. The problem is we need a pullback before getting excited about any entry soon.

Let's keep an eye on this one.

Do You Feel Lucky LVS Punk?

How lucky can you get when your latest earnings report reflects a luckier than normal revenue from high roller tables at the Venetian?

Maybe not so lucky when your stock drops over $5 after the report. Will this slide continue as well as the normal IV slide?

I'm betting that it will. I'm looking at the FEB 95/100 Call Spread with a net credit of 2.80 if I can get it. That makes a 1.1/1 r/r ratio which is not the best but if the underlying continues on profit taking mode will give me some extra help.

Keep rolling the dice high rollers and soon you'll take some money away from LVS and so will profit takers.

Get Your Daily NTY Supplements Now

That's right folks. Step right up. Get your nutritional supplements and while you're at it, get some of its maker's stock or options. Besides, a company with that kind of cheap-looking logo must be making money.

Check out the chart and tell me if we are too late to the game. The plan is to wait for a pullback and get into some calls. There is no real compelling r/r on the put credit spread action here. So I'll stick to directional calls for now.

I'm keeping an eye on the Mar 50 or 55 Calls currently trading around $5.00 and $2.00 respectively with low IV and earnings out of the way.

This stock is part of the S&P Small Cap 600 with profit takers not taking profits yet. I hope to get some discount on the premiums if it pullbacks sufficiently.

The simple 20 moving avg is still rising and way below current prices. I'd prefer to get an entry if it finds support around 51 or its 20 SMA. I'd also like to see some consolidation which may occur given the market sideways action lately.

Stay tuned.

RACKED Again?

Rack dropped another 19% after its earnings report today and looks like a possible IV drop play setting up for a credit spread play.

The only question is will buyers step in here or will weakness continue? I'm considering selling the 15/17.5 calls for a net credit of $1.50 for a 1.5 reward/risk ratio with IV levels at around 59/55% respectively.

If we get some rebounding I might also add the 17.50/15 put spread for a hedge play against the upside.

Will reverse psychology prevail against discount buyers on poor old RACK? Stay tuned...

AMZN Credit Spread Play

Thanks to Adam at Daily Option Report for the idea. AMZN just came out with earnings and the stock has dropped on the news as has IV.

I'm looking at selling the FEB 30/27.50 call spread for a net credit of $1.80 giving a risk reward of 2.5. If we get some continued weakness in the underlying and the IV which are currently at 30/27% respectively we should see premium degradation.

Anyone else game for this credit spread play?

GOOG Q4 Revenue Not Enough

Oh well, the EPS of $3.29 beat consensus estimates of $2.91 but the revenue growth rate was 67% to 3.21B which beat consensus estimates of 3.14B but did not surprise. In other words, the revenue estimate had to beat the high of 3.27B in order for the stock to react positively.

GOOG after hours is trading around $486.

Nice try GOOG but not this time. IV will plummet and so will Call premiums. The longs will lose and the shorters will will tomorrow I'm sure.

Since no one made a bet I assume that most did not want to venture into this trap. Wise indeed.

Is GOOG's Growth Slowing?

I wanted to ask all you "swingers" who care about Google (Nasdaq:GOOG) if you agree with this article about GOOG's slowing growth. According to the numbers from GOOG Finance there is no disputing the evidence. The growth rate has slowed.

But my question to you is will this afternoon's earnings report show an uptick on YOY growth?

All place your bets now. Will growth prospects be the catalyst to a sharp drop or decline in GOOG's after hours stock trading today?

Or will the Fed's announcement today overshadow GOOG's earnings report? It's a tough time for decisions right now. Hmmmm....maybe no decision would be the best decision.

I wish all you long GOOG players good luck including myself.

GOOG Q4 Earnings Game

Since playing GOOG around earnings time can be equated to playing the roulette table at a casino, I thought it might be fitting to show you what theflyonthewallblog has found lately.

Henry Blodget, yes that Merrill Lynch internet analyst who used to hype up the internet fliers during the late 90's IPO bubble and who was barred from working in the securities industry ever since, has been asking for reader's Q4 earnings estimates on GOOG.

Here's his game:

Please submit your estimates of:
1) Google's Q4 NET REVENUE (excluding affiliate payouts), EPS estimate,
2) The price at which Google's stock will open the morning after the earnings announcement, and
3) BONUS: Your logic about both of the above. The more detail the better.

Please submit your bets to the comments section of this post by the market-close on Tuesday, January 30th. As usual, the winner will get his/her name (real or alias) in lights in a follow-up post--and will also presumably cash in on an overnight stock trade (although that part is up to you).

Note that the sweepstakes tests your ability to not only project fundamental performance, but to have a good enough handle on the market consensus that you can anticipate how the market will react to it.

For reference, below is the Street's printed revenue consensus, which is almost certainly low-balled. If Google hits this number, the stock will almost certainly tank. So the questions are, how much does the market think Google will beat this number by, and how much will it really beat it by? And what will happen to the stock in the morning?

I regret that we can't use EPS for this game, but the random ways that analysts choose to calculate Google's EPS make the number nearly meaningless. We could use operating margin, but then we'd still be arguing about whether stock-comp should be included (it should), and so on. And who has time for that...

So submit those revenue bets and let the sweepstakes begin!
Street consensus Google Q4 NET REVENUE estimate (per Yahoo Finance): $2.19 Billion (Yahoo Finance 2.05B-2.31B Low/High), with a range of $2.05 to $2.31 (Yahoo Finance avg estimate is 2.90 with 2.65-3.11 Low/High).

Here are the bets so far (in this order Rev, EPS, Open Price)
2.32B, 2.49, 512
2.30B, 3.00, 530
2.29B, 2.05, 438
2.50B, 3.10, 550

Alright "swingers", let's play this game as well except the closest will receive a gift certificate via email from OJ (you'll have to submit your email address when I post your comment name).

Here's my bet: 2.6B Rev, 3.15 EPS, 550 (I know you all think I'm crazy but it's anyone's game, right?)

Good Luck!!!

New OJ Poll Question

New question same volatile friend (not for the weak of heart or stomach); GOOG. You all know where I stand on this since the OJ Portfolio contains call options on GOOG. Heck, I may even buy some short term OTM Feb calls for a speculative play.

BTW, here's an earnings preview to chew on (Click HERE).

So get on out and vote on GOOG's upcoming earnings report.

OJ Poll Results

It looks like those of you who were YES voters on the YHOO and MSFT post earnings price increases were correct.

If that's any indication at all it could signal a mild bullish environment (very scientific poll you know).

Stay tuned for the next OJ Poll about our very volatile friend.

MSFT Update

It appears that after hours traders liked MSFT's Q2 earnings with the stock up about $0.80 at 31.25 as of this post. The earnings came in at $0.26/share, a penny above the highest estimate of $0.25 and 3 cents above the consensus estimate of $0.25.

Revenue came in at 12.5B coming in above 12.1 consensus estimates and the company guided slightly higher on their outlook with 45 to 46 cents on 13.7 to 14b in revenue for Q3. Analysts were already expecting 46 cents and 14b in revenue.

After today's shelling on the markets overall, I'm not too optimistic about a rally on this so-so, lackluster news but I could be wrong like I was with today's expected rally on EBAY's report after hours yesterday.

Oh well, it will be interesting how IV levels on our short put spread play do and how well the stock trades tomorrow as well.

Until then, goodnight and good luck as a famous news reporter used to say. At least I didn't say good night gracie.

MSFT Earnings Play

I thought that I might point out that MSFT's Feb ATM call/put IV levels of 27.50%-29% are at almost 52 week highs (see IV chart below).

So I'm thinking of playing this earnings after the close today by selling the FEB 32.50 Puts for about 1.80-1.85 and buying the FEB 30 Puts for .40-.45 for a net credit of 1.40-1.45 if possible.

That is still anticipating a bullish directional move which of course takes on its own risk. The reward to risk ratio is not great but it's not too bad with about 1.3-1.4/1. Again, I'm anticipating some premium decline as IV drops and the underlying to move higher after the anticipated earnings event.

If I wanted to hedge the directional play, I could also sell the FEB 30 Calls and buy the FEB 32.50 Calls for a net credit of 1.05-1.10 which would offset some of the short put spread premium increases. However, I'll stick with the one sided short put spread (aka bull put vertical spread).

The analyst consensus for MSFT's Q4 earnings is .23 with a low of .14 and a high of .25. The revenue estimate consensus is 12.07 B with a low of 11.72B and a high of 12.43B.

But what will be of course the most sought after information will be the forward revenue guidance based on estimated VISTA sales on the retail side after the Jan 31 product launch.

The next question also for all tech and market investors is will this outlook from MSFT's management provide the catalyst for the Nasdaq and the major indices to new highs again and more importantly, be a platform for a new uptrend level (technically speaking) or,

will it be a lackluster reaction much like today's reaction to EBAY and QCOM's earnings?

In my opinion that seems to be a lot of pressure for one company's performance to take on for the upside.

Warning: The following comments have no scientific, objective or empirical grounds other than a more of a sort of behavioral, subjective, and instinctual/sentimental perspective. In other words, just a few thoughts from the "gut".

But in a market environment where the bulls don't seem to be completely ready to take full profits and the bears are not quite sure whether to increase their short positions, I'd lean in favor of the bulls. It's a difficult task to pick both tops and bottoms; trust me, i've tried many times with few successes and more failures,

I think that given that the uptrend is still intact with the S&P and the DOW, the bears are a little more nervous than the bulls since selling lately has been met with heavy discount buying.

Alright, enough of my babbling. Let's hear some of your babble on this earnings play whether it might just be a non-event or a major event that many institutions are keeping a close eye on.