Tuesday, October 14, 2008

October 14, 2008: Morning Call

October 14, 2008: Morning Call

Fair Value: SP500 – 1006.85; NDX: 1439.95; DOW – 9406

Technical Levels:

SPX: 848-850 support/ 1098-1100, 1142, 1250 resistance

NASDAQ: 1640 support /1890 resistance


Pre-market EPS: JNJ (1.12/15.7B); PEP (1.08/11.2B); SVU (.69/10.1B); GWW(1.53/1.8B)
08:05: Bush speaks on Treasury plan
08:30: Paulson speaks on the Treasury plan
10:00: IBD/TIPP Economic Optimism (October): 45.0
14:00: Monthly Budget Statement (Sep): 62.0B
17:00: ABC Consumer Confidence (w/e Oct 12)
17:30: INTC earnings call
20:30: Fed’s Bullard speaks on the economy
22:00: Fed’s Yellen speaks on the economy
Post-market EPS: DNA (.89/3.3B); INTC (.34/10.2B); CSX (.94/2.9B)

Foreign Market Summary/Key Macro News/Commentary:

S&P futures are trading 40 points above fair value while the NASDAQ futures are trading 50 points above fair value on news that the US Treasury is going to inject 125 billion dollars of capital directly into 9 US banks through preferred shares. Bank stocks are indicated sharply higher while the Credit-default swaps are tumbling as solvency fears ease(GS CDS fall 151 BP to 236 BP; MS CDS fall 666 BP to 416 BP; C CDS fall 41 BP to 181 BP). Asian markets surged overnight with the Japanese market posting the biggest one-day percentage gain ever (up 14.1%). Financials and resource shares were the biggest sector gainers. China’s CSI and India’s Sensex were notably weak with Shanghai dropping 2.6% and India gaining 1.5%. European markets are up 5% on continued momentum after rallying 11.0% on Monday.

US and European markets are up a stunning 20-25% off the lows on Friday morning due to the aggressive and coordinated response to the global banking crisis by government’s around the world. I would be paring back long exposure and moving to a neutral posture today given the stunning gains off the lows and the potential for downside risk ahead of key earnings reports this week (INTC tonight, WFC and JPM tomorrow morning). That said, the path of maximum frustration remains to the upside given that most market participants are falling well short of their benchmarks; performance anxiety could lead to a stronger than expected underlying bid. The price action will remain bipolar so discipline remains critical. 1098-1100 is a key resistance area (March 3 close) and this is an area where I would consider moving to a net-short position.

Impact Research Calls/Market Moving News:

Treasury to buy preferred stock in nine top banks – WSJ: The Journal cites people familiar with the situation. The paper adds that it is unclear how much would be invested in each institution. Of interest, the article notes that not all of the banks involved are happy with the move, but agreed amid pressure from the government. Citigroup (C) and JPMorgan Chase (JPM) were told they would each get $25B; Bank of America (BAC) and Wells Fargo (WFC), $20B each; Goldman Sachs (GS) and Morgan Stanley (MS), $10B each, with Bank of New York Mellon (BK) and State Street (STT) each receiving $2-3B. In addition, Wells Fargo will get $5B for its acquisition of Wachovia (WB), and Bank of America the same for amount for its purchase of Merrill Lynch (MER). Hank Paulsen said the government is not planning to inject capital in foreign banks, and he did not discuss if it would do so for smaller regional banks like National City (NCC).

GOOG (381.02): Google target reduced to $480 from $635 at Deutsche Bank: The firm maintains their buy rating, however, and believes shares already reflect a weakened consumer outlook.

GOOG (381.02): Google target reduced to $485 from $570 at Oppenheimer: The firm expects Q3 results to be modestly below First Call consensus due to continued slowing of US paid clicks, with a firmer dollar impacting international. Oppenheimer continues to believe 2009 Street estimates are too high. Rating remains outperform.

RIMM (63.87): Research In Motion upgraded to hold from underperform at Needham

BX (9.67): Blackstone group CEO Schwarzman says the US plan is a “sea change in terms of liquidity” and will “break the back” of the credit crisis – Reuters

AG (37.61); BUCY (33.93); DOV (34.14): AGCO Corp (AG), Bucyrus (BUCY) downgraded at Goldman Sachs; Dover (DOV) upgraded: AG and BUCY downgraded to neutral from buy. DOV upgraded to buy from neutral.

MMM (59.62): 3M upgraded to neutral from sell at Goldman Sachs

PCLN (65.14): priceline.com upgraded to positive from neutral at Susquehanna

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