April 6, 2009: Morning Call

April 6, 2009: Morning Call

Fair Value: SP500 – 839.76; NDX: 1317.17; DOW: 7973.08

Technical Levels:

SPX: 676, 719, 765 support/ 845, 898 resistance

Events:

04:30: Euro-zone Sentix Investor Confidence (stronger: -35.3 vs. –40.7)
05:00: Euro-zone PPI (Feb): -0.50% MoM; -1.5% YoY
05:00: Euro-zone Retail Sales (Feb): -0.30% MoM; -2.5% YoY (weaker: -0.6% MoM; -4.0% YoY)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 6 points below fair value at 7:45 am ET. The futures have pulled back after Mike Mayo throws cold water on the recent rally in the bank stocks. European markets are up 0.50% well off the highs of the session. Technology and basic material stocks are the leading sectors in Europe. Asian markets closed higher despite North Korea’s launch of a long-range rocket yesterday (Japan up 1.24%, Hong Kong up 3.11%, Australia up 0.56%, India up 1.8%). Exporters gained in Japan as dollar/yen moved through 100. Carmakers extended their rally on a report the country is considering green-car subsidies.

Research Calls/Market Moving News:

CLSA's Mike Mayo bearish on banking industry: The former Deutsche analyst has initiated coverage on 11 traditional banks (not including brokers MS and GS), with either underperform or sell ratings. Mayo is not buying the recent rally and says the recent 'fixes' in the banking industry are window dressing. The sector is rated underweight. Mayo says new government actions might not help as much as expected and loan losses will be greater than those levels from the Great Depression. “While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class. New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”

AAPL (115.99): Apple estimates raised at Barclays Capital: Firm believes new products including new iPhones in June and an ultraportable later this year should boost shares. Q2'09 and FY'09 estimates are raised. Shares remain a top pick. Rating is overweight with a target of $143.

IBM (102.22): IBM downgraded to hold from buy at Canaccord Adams: Target remains $110. Firm cites valuation.

CSCO (18.16): Cisco Systems downgraded to neutral from Conviction Buy at Goldman Sachs: Target remains $18. The firm cites valuation

JAVA (8.49): Sun Microsystem shares are down 25% on news that the takeover talks with IBM have collapsed.

RIMM (59.29); AAPL (115.99): Barron's Technology Trader is positive on RIM and Apple: Research in Motion (RIMM) is showing considerable success during these troubled times because of several factors. The recent push into the consumer market has met with considerable success. And the announcement of a rebound in margins means Street concerns over the expense of moving into the consumer market may be unfounded. There may be a case for owning both RIMM and Apple (AAPL). RIMM isn't expansive even after the recent rally. And the strong RIMM results means that smartphone demand is flourishing, which is good for Apple. Apple may also get a boost from weaker material prices, including weak memory chip prices. The BlackBerry App World is a step in the right direction but still has far to go.

Cowen reduces estimates for the Solar group, says ASPs still falling: The firm reduces estimates across the group and says Street estimate reductions for Q1 could put some pressure on shares though they don't believe this will be much of a surprise. Shares best positioned for US stimulus and utility projects are FSLR, SPWRA, and ENER.

Secretary Geithner says government may remove top bank executives or board members if needed reports the WSJ: Speaking on 'Face the Nation', Secretary Geithner said the federal government might remove top bank executives or board members if exceptional assistance is required to keep the banks operating in the future. He said future money would come with conditions attached to make sure banks undertake the kind of restructuring necessary for them to emerge stronger. If that means a management change, the government will force that. Geithner pointed to the treatment of executives at Fannie, Freddie and AIG.