Sunday, July 27, 2008

Positives vs Negatives, July 27th Update

The positives:
1) Oil breaks down over $23/barrel in two weeks.
http://www.wtrg.com/daily/crudeoilprice.html
Joe Terranova stated to Dylan Ratigan on CNBC Friday at 3:37 ET: "IF oil breaks $120/barrel, it will only do so for a blink". Do you agree? We called him out in our weekend "Psychology in the Upcoming Week's Economic & Earnings Data", and we will continue to do so to any talking head for your benefit.
2) Election year: Government officials have stepped up efforts to try and fill the "foundational crack" in banking. This is real:
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080726&id=8923334
POTC feels the bottom in bank stocks on a risk reward is much closer than after Abu Dabi's investment in Citigroup (C) in November of 2007 (was it really that long ago?) http://www.citigroup.com/citigroup/press/2007/071126j.htm
Please consider BAC and JPM for your retirement portfolio. We’re confident these two stocks will triple by 2011: cheers to a comfortable retirement!
3) GDP fails to signal recession. GDP for Q2 this Thursday at 8:30 ET. It will be a very bullish day, all things being equal, i.e. stable or falling oil, no geo-political events, no terror events, no gulf hurricanes.
4) The bond market sell off continues, albeit slower than in the past two weeks. Please monitor this smart money next week (we definitely will if you don't have time!):
http://finance.yahoo.com/q/ta?t=5d&s=%5ETNX&l=on&z=l&q=l&c=&c=%5EGSPC
5) Weak U.S. Dollar is finally being touted on the cable networks. Have you noticed the buzz of late? We hope you noticed and remember that POTC was 3 months ahead of the herd on this: (See our previous mentions of the coming Euro-ization of America).
http://news.moneycentral.msn.com/ticker/article.aspx?symbol=US:BUD&feed=ACBJ&date=20080718&id=8912496
6) Extreme pessimism in the Michigan Consumer sentiment may have bottomed with oil breaking down over $23/barrel in two weeks. (Our theory of this being a contrarian indicator proved correct last week, agree?) Last Friday's number came in a little better than expected, and the market, in rare fashion, did not falter, on a Friday following a 280+ Dow fall and ahead of an always uncertain geo-political weekend; a very comforting development for longs.
http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/mich.htm

The negatives:
1) Rising Unemployment continues to plague longs; (Thursday's 406K derailed the market, and we were not amazed, as some new money got scared. We took advantage and bought the pullback. August 1st is the first Friday of the month, the day that wields the greatest hammer to the market, up or down. We do not anticipate the negative sentiment of rising unemployment changing. But, we are prepared to buy the pullback, as the "Four NEW Scenarios for Optimism" outline. Is it possible that Thursday's 280+ Dow drop discounted this upcoming data? Well yes, but most likely we will get a down day ahead of an August weekend. The only way the market would rise come Friday would be for oil trading under $120/barrel, and with Iranian tensions on the front nuclear burner, the chances are slim. But we feel the risks are greater for oil bulls like Joe Terranova, as the reasons for oil going higher are obvious, long live the contrarians!
2) Geo-political event risks now weigh as oil finally breaks down. Saturday morning brought more bad psychology regarding Iran's nuclear program:
http://www.tehrantimes.com/index_View.asp?code=165793
Troubling… Now the $64,000 question is whether Israel will take military action. What do you think? Please answer our poll question regarding this topic. We appreciate all feedback in whatever form.

Although the positives are the same as last week, 6-2, up one from 5-3 two weeks ago, and negative readings of 4-6 and 3-7 in the weeks prior, they are different nonetheless in terms of their psychology.

Our targets of 1,190 and 2,150 on the S&P and NASDAQ have been removed. The recent government actions should more than stabilize investor psychology around financials and financials are the back bone of the S&P. The government actions offer fundamental reasons for a sustainable floor/bottom. Please refer to the "Four NEW Scenarios for Optimism", as it offers forward-looking scenarios why the U.S. stock market will rise.

Our conviction in the bear rally continues to evolve, although Friday's often bloody Unemployment hammer lies in our paths. Perhaps Thursday's GDP rally will offer a great swing/exit point, and Friday's pullback will present another buy in opportunity...

We hope you enjoyed these insights. Please do not forget to vote in our Israel/Iran poll. May good fortune be with you throughout the week, and we remind you that without family, friends, and good health, nothing else matters. Please rest assured the Psychology of the Call team is busy 24/7 building out The Investment Island Where Independent Thinkers Evolve. Sincere thanks for sharing the Island ~

Enjoy Monday and the entire week: http://www.youtube.com/watch?v=8paEm4lec5U

10 comments:

StockWatcher said...

Did you notie the big drop in SEPR on high volume near the close? Does that mean someone knows the stock is going to drop after the earnings tomorrow?

The Call Team said...

SEPR is both an earnings and a pipeline story. If SEPR were to drop, it would only be temporary. The stock also has a long term double bottom and the most discernable long term head and shoulder pattern we have ever found. The late drop was due to negative option activity, albeit on light volume. SEPR has a European conference in August and U.S. conference in December. Their epilepsy drug candidate could drive the shares to $30, and that's without any FDA approval risk. We will update the SEPR story over the next several weeks, but in the meantime SEPR is a very compelling story and you don't need to wait for FDA approval, as shares will rise on positive news surrounding the Phase studies.

No need to worry, we appreciate the question.

StockWatcher said...

Thanks for the response.
The shares are down 2 bucks in pre-market after the company guided lower revenue.

The Call Team said...

The risk reward favors longs. SEPR will rebound, as they have no need to raise capital. Their tepid guidance is not a bad development, as stock option grants are now much more favorable to company execs, and motivational factors always increase with monetary incentives. Yet we do have a failure target/mental stop at $17. SEPR's drug to combat epileptic seizures is reason enough to find shares very attractive under $20.
Don't let today's temporary blip shake you out. The key to these shares are the results that will be announced at medical conferences in August and December.

StockWatcher said...

GRMN is down in pre-market. I had bought the Aug 40 puts you had recommended. How long would you consider holding onto those puts? Sell them today or wait until till Friday for the general market to go down and take GRMN with it? Thanks.

Anonymous said...

What do you mean failure target/mental stop at $17? Will you stop going long if the stock goes under $17? If yes... why, it appears that you are so bullish on this stock that literally anything under $20 is simply another opportunity. BTW... your site is awesome.

The Call Team said...

Definitely hold your GRMN puts, the shares will drop after the conference call and the realization that margin erosion is the beginning of the end. Cramer got it right when he called Garmin's business "commoditized". Congrats on your trade, cover as GRMN touches $35 is our best educated guess.

Anonymous said...

Excellent call on GRMN, I didn't believe until after, live & learn.

The Call Team said...

If SEPR closes under $17, we will not sell and not add to the position. We provide failure targets/mental stops as a means to cut losses, as a disciplined defensive strategy must be incorporated for long term success. We believe SEPR is down in sympathy to WYE, ELN, and ONXX, and we are not selling our
position in this panic. Thank you for the compliment and we welcome you to the Island Where Forward Thinkers Evolve.

StockWatcher said...

Buying SEPR Jan 09 $20 calls are quite cheap and maybe a better way to play SEPR.