Morning Rage 4.25.2012

Of course, that huge gain is leading NASDAQ futures higher – up 2% at the moment. S&P and DJIA futures are experiencing more modest gains, up 0.7% and 0.3%, respectively. Markets are likely to hold this pattern ahead of the Federal Reserve announcement and press conference later today. 

In other futures markets, Crude Oil is seeing a bullish day ahead of weekly inventories at 10:30 a.m. ET. Crude futures are currently up 0.9%. Natural Gas is also higher, trading at $2.000 and up 1.3% on the session. 

Treasury futures are slightly lower. The 30-year bond futures dropped 0.3% and the 10-year note futures are down 0.2%. The US$ is modestly lower as well. EUR/USD is holding above figure 1.32, while other European currencies gained as well. USD/JPY is unchanged at 81.25.

Here’s a run-down of companies that reported since yesterday’s close, where EPS was in relation to expectations, and where the stocks are trading premarket:
– Boeing (BA): $1.11 vs. $0.95; up 2.5%

– Caterpillar (CAT): $2.37 vs. $2.15; down 1.1%

– Credit Suisse (CS): $0.03 vs. -$0.18; down 3.3%

– Panara Bread (PNRA): $1.40 vs. $1.35; up 3.2%

– Baidu (BIDU): $0.85 vs. $0.85; down 6% 

Meadows on the Markets 4.24.2012

Baidu (BIDU), however, had the opposite reaction following its earnings report today. The company warned that second quarter revenue will be below analysts’ expectations, sending the stock immediately into the dog house. Shares fell 10% after-hours, following a drop of 2.7% during today’s session.

Aflac (AFL) also reported earnings today, beating expectations and leading shares to rise nearly 5%. That stock was up 1.5% today. 

In total, we should expect NASDAQ futures to move higher, as AAPL is heavily weighted in that index. Further, the rising tide will likely life all boats, leading to gains in DJIA and S&P futures by morning. From there, the typical correlations should play – EUR/USD higher, Crude Oil up, and Gold higher as well. But, I suppose Europe could always play its part to cut into this momentum.

Trade of the Day (AAPL) 4.24.2012

Break-even:  I breakeven on this trade if AAPL closes at $499.05 by May 18, 2012.

Unprofitable: I lose money on this trade if AAPL closes under $499.05 or above $93.26 by May 18, 2012.  The most I can lose on this trade is the Price of the Spreadcan be worth $5 minus the Price I sold it for $.95 or a total of $4.05.

UPDATE 4.26.2012  With AAPL rallying hard in the last couple of days, This Put Spread has gone from $.95 to $.07, but I am leaving it on as I think there is no way that AAPL sells off $100 in 3 weeks.  Another winner at KOTM

UPDATE 4.27.2012  I closed this position out at $.06, because I am not willing to risk $4.94 to make $.06.  On to the next trade.

Read more about unprofitable by

Value Trap Companies Destined to Die : Part 1

This one seems a little bit obvious as everyone likes to pile on the Groupon stinks bandwagon but it is warranted.
Here you have a company that gives out coupons through email. Nothing proprietary here. No competitive advantage other than that most people have heard of the Groupon name. There is nothing special or unique about Groupon. Margins will decline as other copy the Groupon business model. The barriers to entry are virtually non-existent. Anyone can set up a website and send email deals to customers. Large companies already have their own email lists so why use a middleman.  I see Groupon having close to a 100% chance that it is not in business in two years. I would also give it close to a 0% chance that it is acquired by someone else as it really has no assets.

Research in Motion
This is another popular stock that is pilloried in the press almost daily. And for good reason. Their phones are way behind the times. Their management seems clueless.
The only reason anyone owns their phones still is because of the corporate email servers that use the Blackberry because of security purposes. Even that is changing. Many companies are switching to the Droid and even Apple platforms. Their employees don’t want Blackberry phones and are in a sense forcing the change. The strongest argument made to own Research in Motion is because of their cash balance and patent portfolio. First of all, if your product stinks you will be losing money before long and the cash will dwindle. Secondly, patent portfolio is just a trendy idea right now. Just because of the AOL deal, many investors now think there will be a bunch of M&A activity targeting companies with patents. But really, if their products are not wanted by consumers, what are the patents really worth anyway? I see Research in Motion having an 80% chance that it is out of business in the next two to three years. There is that small probability that it gets taken out by somebody a la Palm but I would bet that it would be considered a take under from the current price.

This one might be considered a little more controversial as Netflix does have a decent sized subscriber based and what appears to be a viable business.
The problem is that it is essentially just a middle man. It is an accumulator of content available for a monthly subscription. Their business model is nothing proprietary but does consist of small barriers to entry, mainly the large sums one has to pay for the content. This is also the downfall of Netflix. Their recent massive missteps have caused their subscriber growth to slow and even decline in some recent quarters. This does not mix well with the high costs they now have to pay for content. It is becoming more obvious over time that in the entertainment industry content is king. It is the content providers that are really in control over pricing. After charging minimal amounts to Netflix in the beginning, they now see the growth Netflix has had and want their share of the pie. Since Netflix doesn’t own any content, they have little control over the cost of content. This negatively affects their margins. As we’ve seen from past management mistakes, the price increases forced on customers have not gone over well at all. So as their costs rise dramatically while their revenues can’t match that growth, you have a recipe for disaster. I’d only give Netflix a 50% chance of staying in business. Their poor business model suggests that the percentage should be higher. However with a decent sized subscriber base it could be bought by a content owner as a method of distributing its content through a wider medium than it already has.

Hewlett Packard
This one may sound like a stretch but it has been so horribly mismanaged by its board and management teams that nothing is out of the realm of possibilities.
Desktop PC’s are the dinosaurs of the industry. They are slowly becoming extinct. There will always be a desktop PC industry but the move to a more mobile PC beyond even the laptop is well under way. Hewlett Packard is definitely not a contender in the new markets. Their failed attempt at a tablet and subsequent exit from the market is well documented. They have basically succeeded the market to Apple and Samsung.
One of the main reasons value investors like Hewlett is because of the printer business. They sell the printers for little margin but make large margins on the printer refills. Even this business isn’t what it used to be. The trend is towards paperless and to the cloud. You don’t need to print everything you used to when it can be stored on the cloud for next to nothing. Hewlett Packard really has nothing left that distinguishes them as a competitive company. Oracle has a vendetta against them and with Mark Hurd at Oracle they will eat Hewlett’s lunch if they want to. I would only give Hewlett Packard a 30% chance of being out of business in the next five years, maybe longer. I could see a competitor buying Hewlett for none other than the fact that it is Hewlett Packard. But I could easily see this company slipping onto the trash heap of history as they are under siege from the likes of Apple, IBM, and Oracle. Not who you want coming after you when they smell blood.

Next Targets
My next list will be the retail edition. I have four retail companies that I see struggling to survive.

By Ben Hoben

KOTM Options Education Videos


1.1 Intro Into Options – Options Basics 


1.2 Volatility – Options Basics


1.3 Calls – What they are and when to use them – Options Basics


1.4 Puts – What they are and when to use them – Options Basics


1.5 Options Greeks pt 1 – Delta & Gamma – Options Basics  


1.6 Options Greeks pt 2 – Vega, Theta, Rho – Options Basics 


  2. 1 Ichimoku Cloud – Part 1      

videoIcon1.7 Credit Spreads and Covered Calls

1.8 Trading Options With Stock

videoIcon1.9 Buying Call and Put Spreads

videoIcon1.10 Selling Call and Puts Spreads


Halftime Report for 4.24.2012

 In poor economic news, the S&P/Case-Shiller Home Price Index fell to its lowest level since 2002. Over the past 12 months, prices in the 20 cities measured by the index fell 3.5%, with nine of the markets hitting post-bubble lows. Those markets include Atlanta, Charlotte, Chicago, Las Vegas, and New York. No doubt Chairman Bernanke will be asked about housing in his press conference tomorrow. 

On the positive earnings front, AT&T (T) and 3M (MMM) are higher by 3.7% and 2.4%, respectively, after posting good EPS and overall earnings outlooks. Netflix, which beat estimates but warned on subscribers yesterday, is down 13.7% today. 

The 10-year treasury note is yielding 1.96%, while the 30-year treasury bond yields 3.11%. The US$ is down in trading, losing 40 pips against EUR to the 1.32-figure. USD/JPY is flat on the session.

In 1-day performance, Oats futures are up 4%, and Corn and Soybean futures gained nearly 3%. At the other end of the spectrum, Cotton futures are off 1.6% and Live Cattle futures dropped 1.5%. 

AAPL fireworks after the bell will be fun to watch. Then, tomorrow, you have the Bernanke-show. 

From the Barbers Chair 4.24.2012

Finally, this line of thinking is picking up more and more advocates. One is Megan Greene, an economist out of London. She says it so far better than I could:

Europe “is not a fiscal or debt crisis, but a growth crisis.” There is a “trade off between austerity and growth….Growth heals all economic wounds, and without it austerity becomes completely self-defeating.” Greene concurs that Europe’s current path is “economic suicide.”

Greene points out that austerity was self-defeating in Ireland—the more austerity enacted, the worse their economic situation became. She currently sees this happening in Spain, where more and more austerity is being pushed, and the situation is becoming worse by the day.

I would also point out the case of the UK. Under Mr. Cameron’s rule, austerity is the watchword of the day. Months ago, economists were pointing out that the US and UK provided a blatant contrast in economic policy. Under Bush/Paulson and Obama/Geithner, the US pumped money into the economy. The UK’s Cameron did the opposite—cutting spending and increasing taxes. Now, years later the UK is in a clear recession. The US is still struggling, but so far is avoiding recession and showing many signs of growth. Indeed, if the US is dragged into another recession it will likely be because of Europe, not because of domestic activities. Also, both our banking and auto industries are functioning and generally healthy, which is no small task indeed.

Pushing austerity is like drinking cool aid. It tastes good and feels refreshing. But it is not. It has unhealthy ingredients and provides no way out of a complicated mess. Recession—thy pseudonym is austerity.

Follow me at @USKOTM

Ms. Green’s full article is at

Morning Rage 4.24.2012

In earnings news… this morning, 3M (MMM) reported better-than-expected EPS, sending shares 2.8% higher. AT&T (T) also beat the street, and shares are indicated 1.4% higher in premarket. Coach (COH), which beat analysts EPS expectations, is being sold ahead of the open – falling 2.7%. 

In other news, Fitch upgraded Ford (F) credit rating to investment grade this morning, sending the stock 3% higher in premarket trade. Fitch notes significantly improved financial performance, balance sheet repair, and product portfolio as reasons for the move. 

In futures markets, today’s move is a bit of a return to trend. Equity futures are higher, as is Crude Oil, Gold, Silver, and EUR/USD. Natural Gas is lower as well, falling below the $2-handle.

Later today, the S&P Case Shiller House Price Index will be released at 9 a.m. ET, followed by New Home Sales at 10 a.m. ET. Traders will also be looking at Apple (AAPL) earnings later today as a main event. AAPL is expected to report EPS of $10.07, up from $6.40 a year ago. 

Today may also see some traders begin to jockey for position ahead of the FOMC announcement tomorrow – and Fed Chairman Ben Bernanke’s press conference. That show kicks off at 12:30 p.m. ET tomorrow.