Tuesday, June 23, 2009

June 23, 2009: Morning Call

June 23, 2009: Morning Call

Fair Value: SP500 – 889.20; NDX: 1426.18; DOW: 8285.01

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance

Events:

Pre-market EPS: KR (.60/23.35B)
04:00: Euro-zone PMI Manufacturing (June): 42.1 (actual: 42.4)
04:00: Euro-zone PMI Services (June): 45.6 (actual: 44.5)
05:00: OECD May Economic Outlook
08:00: PHM presents at Wachovia Conference
09:15: GOOG presents at Euromoney Renewable Energy Finance Forum
10:00: Richmond Fed Manufacturing Index
10:00: Existing Home Sales (May): 4.82 million; Home Price Index: -0.4% MoM
10:00: Existing Home Sales (May): 3.0% MoM
10:45: DHI presents at Wachovia Conference
11:00: BAC, MS, UBS present at Euromoney Renewable Energy Finance Forum
11:45: MET presents at Wachovia Conference
13:00: TOL presents at Wachovia Conference
13:00: Treasury auctions 40 billion of 2 year notes.
15:10: Treasury officials discuss TARP at NYSSA Conference
15:15: GS and JPM present at Euromoney Renewable Energy Finance Forum
17:00: ORCL earnings call
Post-market EPS: DRI (.86/1.98B); ORCL (.44/6.48B); SONC (.20/179.4M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value while the NASDAQ futures are trading 6 points above fair value at 7:45 am ET. Asian markets closed sharply lower led by energy and commodity sectors. Emerging markets (EEM) have lost 10% from the recent peak. Shippers lost ground on a dip in the Baltic Dry Index. China pared declines on speculation the central bank will reduce the amount lenders have to hold in reserve. China Minsheng Banking Corp (600016.CH) rose on reports it will raise CNY20B through an IPO in Hong Kong. South Korea fell as decliners outnumbered advancers almost 7-to-1 though some LCD issues managed to buck the trend and eke out gains. European markets are flat to modestly higher (up 0.30%); markets in Russia are down 1.0% after dropping almost 8% in Monday’s session. Advancers on the FTSE 100 lead declines 13-7. Anglo American (AAL.LN) trades lower after rejects combination with Xstrata (XTA.LN). The shares pared declines on rumors that Chinalco (ACH) may step in with a bid. Anglo American upgraded to buy at BoA Merrill. BHP Billiton (BLT.LN) upgraded to buy at Citi. Credit Suisse downgrades Gazprom (GAZP.RU). Swiss Life (SLHN.VX) downgraded to sell at UBS.

In my May 20 morning call, I noted that the “S&P would likely settle into a trading range between 875-950 for the next few months or until incoming information alters the consensus view of a modest recovery in the 2H09 and 2010.” I continue to believe that the range will hold and opportunistic traders should buy the bottom of the range near the 875-880-area and short the top end of the end range near 940-950. Downside risks have increased, though, because the focus has shifted from modest second half growth toward the outlook for sustainable global growth in 2010. The incessant (and ridiculous) talk of “green shoots” appears to have justifiably subsided because the economy should recover given the massive fiscal and monetary intervention by the US Government and Federal Reserve. The key question is sustainability? What will happen in 2010 when the US government and the Federal Reserve will need to begin scaling back the massive monetary and fiscal stimulus? What will happen if there is no political will to withdraw the fiscal and monetary stimulus?

Research Calls/Market Moving News:

GS (137.01): FBR raises their price target on GS and reiterates their outperform rating: “We are raising our EPS estimates and price target (to $160 from $140) while reiterating Outperform on Goldman Sachs (GS) shares, given what has been a better-than-expected market share pickup from disruptions at competitors. With the better-than-expected share gains, we believe Goldman Sachs is likely to return toward a more normalized +15% ROE sooner than we had originally anticipated, resulting in our improved 2010 outlook. We note that our 2010 estimate still implies a sub-15% ROE, and we believe the potential remains for upside surprises to our numbers should the overall economy show some signs of growth. Our revised price target implies a 12.2x EPS multiple on our new 2010 EPS estimate, which increased from $11.30 to $13.10. On top of our longer-term expectations, we expect the second-quarter's results to benefit from a favorable trading and capital market environment in the second quarter, although perhaps not to the degree implied by consensus estimates, given the expenses associated with TARP repayment, further commercial real estate write-downs, and credit valuation adjustments.”

US airline passenger revenue fell 26% y/y in May – WSJ: The paper cites data from the ATA. The May figure marked the seventh consecutive monthly decline. The number of passengers fell 9.5%, while the average price fell 17.6%. Cargo traffic fell for a ninth straight month, down 22% y/y. The ATA noted that the H1N1 influenza outbreak exacerbated an already weak demand environment (I would note that the rail, air, and freight data has not been good of late. Certainly, not supportive of the green shoot con job).

AAPL (137.37): WSJ notes COO Tim Cook's value to Apple has never been higher: People familiar with the situation say Motorola (MOT) and Dell (DELL) have both tried to hire Cook within the past two years. To build a bigger moat around him, a person familiar with Apple's thinking says the company's board may invite Cook to join.

AAPL (137.37): Apple employees confirm to CNBC that Monday was Steve Jobs's first day back at work: There were rumors around earlier that Jobs had been back at work today, following the reports over the weekend that he had received a liver transplant a couple of months ago.

FDX (50.05): FedEx upgraded to overweight from neutral at JPMorgan: Target increased to $66 from $60. The firm believes the bad news is priced into the valuation and also notes the company's operating leverage

COP (40.43): ConocoPhillips upgraded to outperform from market perform at Bernstein: Target is $54.

UBS reduces estimates for the US Airline group: The firm has reduced estimates for the group given continued weakness in demand and higher fuel prices. UBS believes comps will remain tough into Q4 and says revenue in June, July, and August remained about as weak as May.

1 comment:

Brad Zurich said...

The markets are range bound at the month and that could be the scenario for a couple weeks until there is a break down or up.

Its the ideal time for day traders to be active in the trading sessions, buy on dips and short on rise. I have made €1000 a week on average each for the last 3 months ever since the markets started the huge upswing and I have pocketed a net of €10,000 in the past 3 months. Just remain invested and take ur call on a day to day basis.

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