A hangover of sorts courtesy of Congressional “Bear TARPs”, mixed data and some “well-adjusted” bulls wanting to schnitzel dominates Wednesday’s first half. As of 10:50 ET the “Cubes” (QQQQ) and “SPYder” (SPY) are off .75% to 2.75% on more of the same ol’ and still hard-to-handle conditions.
“This Bull’s For You?” After chugging some fund-related bull in late Thursday action courtesy of Budweiser’s (BUD) $45B index disappearing act, investors have more than a few of the all-too-typical reasons for headline-friendly “Profit-Taking.” Spearheading, investors continue to tune into Congressional testimony related to how TARP funds will ultimately be allocated and “clarity” still M.I.A.
The debate on ‘da Hill continues for a second session as to whether the “Big Three” auto industry (GM, F, DAI) should be on the list of financial casualties worthy of a handout. For their part, executives pleading their case say the funds will be a loan and not helping the group would be a grave mistake with larger “systematic risk” for the economy the not-too-pleasant consequence. On a related critical care health alert, Toyota Motors (TM) said it will stop production for two days next month at its stateside facilities in an effort to stop some of its financial bleeding.
On the officially-sanctioned economic side of Wednesday’s price deliberations, reports are mixed but easy enough to ply as not being enough of a prop / support for bulls. In a sign of economic weakness precipitating further waning demand and a deflationary environment, consumer prices fell by a record 1% and two-tenths beyond estimates of 0.8%.
Core prices, which exclude food and energy, also came in weaker-than-expected with a decline of 0.1% versus consensus views of a 0.1% increase. Net-net though, while little things like gas prices have taken a 50% hit in recent months, bigger things such as paychecks and job stability, remain a much larger concern than any pseudo “tax cuts” for Americans.
Separately, housing starts for October did best estimates by a narrow margin. A seasonally adjusted 791K versus estimates of 780K was announced. However, the figure did fall by 4.5% from the upwardly-revised September data and was a full 38% below the year-ago reading. Further, building permits which indicate future intentions came in 12% lower than last month’s levels and 40.1% below the prior year.
“Disbelief or discounting?” It seems that way in more than one way. For the apparently more cautious bulls roaming the solar landscape, LDK Solar’s (LDK) better-than-expected results have been under pressure despite a near 75% collapse in its share price since the tail end of August. The company beat by six cents with profits of $0.77 per share on a 241% jump in revenues.
In a sector that’s been under intense scrutiny as government subsidies dry up and build out plans become increasingly questionable due to both economic concerns and aggressively lower energy prices—management at LDK Solar beefed up guidance above analyst views.
LDK Solar now sees FY09 revenues of $2.9B - $3.1B vs. consensus estimates of $2.57B and gross margins of 26% - 31%. The news though appears to be falling prey to either extreme discounting or outright disbelief as shares trade down 12% to 13.10 and near yearly lows.
Ironically enough, in what remains a truly mad money market and maybe a proxy of just how investors are operating these days—Trina Solar (TSL) also issued its results this morning. Unlike peer LDK Solar, the company missed by four cents (currency charge) with profits of $1.17, but also guided its FY09 sales below views with a range of $800M - $850M versus estimates of $865M. Nonetheless, while shares aren’t exactly sizzling higher from a similar technical fizzle like LDK; they do remain ever slightly higher at 7.28 and far removed from prior trends aimed at keeping the dream alive.
And finally, financials (XLF, BAC, and C) remain a drag on the majors in Wednesday’s session. There’s some news out of Citi buying in their SIV risk [$17.4B] and liquidating a once well-to-do hedge fund. In truth though, investor sentiment remains the key driver for the group as uncertainty regarding TARP and the state of the financial markets continue to weigh in.
From a trading standpoint, the action remains very Fill in the Blank for bulls and bears alike. Just ask a clan member of the Ursa Major sect about Tuesday’s late buying spree from the lower right quadrant of the trading screen. Related, while this market strategist attempts to remain optimistic, the wear and tear on the existing self-described “Mama Bottom” in the S&P500 does become increasingly prone to failure and forging a bearish move out of one of those dastardly “Descending Tyangles” more easily realized in hindsight.
Chris Tyler
Staff Writer & Options Strategist
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