Week in Review
DJIA -35.71 (-0.27%) to 13,135.01; S&P 500 -5.87 (-0.41%) to 1,413.58; NASDAQ -20.83 (-0.70%) to 2,971.33;
Friday’s action was red across the board and it was never in doubt. The downside was lead by the tech and inside tech the leader down was Apple Computers (AAPL) and names inside the AAPL universe. We had a small amount of economic data today but nothing that would have been able to or did change the course. The bias was clearly to go home today flat or short but not long as we saw the selling pick up after 2pm as traders have to now position for the beginning of the week.
Best Buy (BBY) was thrust back into the headlines today as the board voted to provide Richard Schulze, the companies founder and largest shareholder, more time t put together a proposal and line up financing for a takeover. As much as the market loved the speculation an offer would come by week end, they didn’t like the push back essentially sending BBY back to Wednesday’s prices. I lamented the fact that I had been watching for BBY to make a new divergent low which never came about due to the gap but with Friday’s action that trade comes back into the fold and I will be watching it closer especially as some trepidation takes hold on whether the takeover will happen.
Adobe Systems Inc. (ADBE) rose over 5% today on Q4 earnings that beat consensus by 5 cents. What was somewhat interesting was ABDE’s forecast for Q1 was well below expectations for Revenue and EPS. I think Wall Street must be giving them a pass since ADBE is moving to a cloud subscription service and reported 132,000 subscriptions. I do think overall this was a great move by ADBE. They needed to find a way to streamline the business and make revenues more steady and predictable and this new cloud subscription service could/should do just that. If your not familiar with ABDE’s products they would sell you Photoshop or illustrator which you can download on your computer with a license. There are also “suites” like the Web premium which comes with a package of different products used for web publishing etc. The problem becomes, when do I upgrade? How long will I wait? I use CS4 and had no desire to upgrade to 5 or 6 based on my usage even with any gains but for a monthly charge to always have the most recently instead of forking over the $1000 or more at once for the suite is interesting. Also not being locked to one computer for use and the ability to utilize apps and have work backed-up provides a much more comprehensive and mobile strategy fr the user. For ADBE they get a more steady consistent stream of revenue. So after applauding the change for a paragraph I will conclude saying while ADBE can pop to $40, I am not interested in the name and want to see more how this revenue will shake out. Based on current expectations I think the name is getting too over-valued for my money.
Week in Review:
Monday’s market was a tight trading day with not too much action. McDonald’s (MCD) was a stock of the day today and closed up 1.4% on global same store sales coming in at up 2.4% and being lead by the United States. Hewlett-Packard’s (HPQ) move today was on speculation that Carl Icahn is building a stake in the beaten down tech company. We noted there was a potential for an early investor or trade to take a shot but the best stop was the lows at $11.35 and if that was too far then waiting for a dip to enter might be better. The name really didn’t stop and has continued to rally off very beaten levels. It is very possible that the bottom is in but that also doesn’t mean rallies to new highs and there will be many opportunities.
Tuesday was a great day for the markets closing up over 9 points in the S&P 500 index. News was abound and in big names. American International Group (AIG) rallied over 5% on news that the US Treasury announced they will be selling the remaining position of stock. Morgan Stanley (MS) was also in the news on reports indicating the company may file for regulatory approval in order to begin a share buyback program. Delta Air Lines (DAL) is paying $360 million for almost half of Virgin Atlantic. Lastly, Dollar General (DG) closed down over 7% after reporting earnings which beat estimates but guidance disappointed.
Wednesday was Fed day and I won’t reiterate my comments about the Fed decision here (they were long) but you can go see them under Wednesday’s Daily Wrap. The market spiked on the Fed news and then turned decisively making the highs for the week. Reports out of China noting that they will spend an additional $1B to subsidize the country’s solar power companies sent smaller solar stocks spiking like: Yingly Green Energy (YGE), Trina Solar (TSL), JA Solar (JASO) and LDK Solar (LDK) which were all up somewhere between 20-30%. Dupont (DD), while closing off the highs, closed up over 1% on an upbeat earnings report which saw Q4 estimates toward the higher end of analyst expectations. DD also noted that they plan to perform a $1B stock buyback which will be completed in 2013 as long as they receive the expected proceeds from the Performance Coatings divestiture. While off highs in the mid 50’s, DD still doesn’t interest me until we see lower prices and maybe a dividend yield into the 4’s. Gilead Sciences (GILD) announced the they will be purchasing YM Biosciences (YMI) for $2.95 per share in cash which represents a near 81% increase from Tuesday close. Lastly, somewhat surprising was comments from Walmart (WMT) regarding the fiscal cliff affecting holiday spending.
Thursday essentially gave back all the gains initially realized the day before fed day and continued the downward move started after the initial spike on Fed news Wednesday. Best Buy (BBY) which was up over 15% on reports that the founder and currently the largest shareholder, Richard Schulze, will be bringing a buyout proposal by the end of this week which we now know from above didn’t happen and an extension was approved sending BBY right back to where it started. Sprint (S) who offered to acquire the remaining 49% stake of Clearwire (CLWR) it doesn’t already own. The price proposed was $2.90 and CLWR closed Thursday at $3.16 which implies the market thinks S will have to come to the table with more. Then on Friday we saw CLWR close even higher to $3.37 as Mount Kellett Capital Management LP, a CLWR investor with roughly 7% of the shares, sent a share to the CLWR board openly opposing S’s offer and calling it “highly coercive proposal.”
As always you can visit the Event’s Calendar for the release of economic data, scheduled meetings and other news that could move the market. Also in that section are Dividends and Splits.
Also, you can see any analyst comments for the day or view the archive from the Upgrades/Downgrades section.
Major averages 5 day results:
Dow Jones Industrial:
S&P 500:
Nasdaq:
After the market reach (and actually intraday exceeded) our target of the $1434 horizontal resistance level, we have been retracing. So far while the movements have been swift, they have not really broken any key resistance to make me think this pullback is anything more than a consolidation. While it would have been more bullish in my opinion to have held the $1420 level in the index, it wasn’t necessary. I have the highlighted region between the 38% fib from the shorter term move (11/16 lows to 12/12 highs) and the 50% move from the larger term move (9/14/12 highs to 11/16/12 lows) which covers a 6 point range between $1402 and $1408. The 15 minute SPY chart shows the potential for a short term bottom to come into play for a trade soon and possibly a small gap down Monday will provide the catalyst for a snap back rally. Ultimately with no MACD divergence on anything longer than the 30 minute SPY chart, I think that rally, if seen, might be an ultimate sell with a final push lower into our highlighted confluence. This would provide the markets the platform to then rally the remainder of the year and/or into 2013.
