Prism Morning Call 09-08-09
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CURRENT MARKET SENTIMENT Five pounds heavier and a sense of optimism, investors will be looking for a better sense of clarity this week from Godot, since neither a positive U.S. consumer sentiment (expected 67.5) nor a slower fall of wholesale inventory will do the job. A squeezola led the Dow to finish at the high of 9441 level. The nature of the recovery is the question at stake. Will it be a W or U pattern? if Goldman believes the latter, there is no reason for the papa bull to be crying high valuation and overbought territory, thus the Dow may be revisiting the 9600 or better. If the former a la Krugman is the case, selling on the news will be the response. Wait for an hour for market direction.
ECONOMIC NUMBERS AND DATA Time (ET)
Indicator
Date
3:00 PM
Consumer Credit
Sep 08
Actual
Expectation
Range
Prior
$-4.0B
$-7.0 B to $-2.5 B
$-10.3B
TECHNICAL Indices
S2
S1
Pivot
R1
R2
INDU (DOW)
9231
9326
9402
9479
9526
SPUZ (S&P)
991
1002
1011
1020
1026
DOW STOCK TO WATCH Strong UTX
Weak MMM
HPQ
DD
CAT
BA
MCD
AXP
MARKET HIGHLIGHTS 09/08/2009
PRISM CALL Today is the first day back in the office for many on Wall Street, following the extended holiday. Goldman Sachs raised up the valuations on all metals, which may be responsible for the big up opening. What has been working all month is shorting the rallies and I will continue to do so. We are looking for the big gap up this morning followed by an initial pullback, probably to 1019-1020 on the futures. The market will probably then squeeze up, breaking higher to take out the stops, topping in the 1027-1030 area, before pulling back down and settling around 1017-1019. If the market can’t hold its gains and sells below 1015, room exists on the downside to go to Fridays lows. On the upside, the market can touch 9600.
Page |1 RISK DISCLAIMER: There is a very high degree of risk involved in trading equities. Trading is not for every investor and only risk capital should be used. Past results are not indicative of future returns. Prism Trading School, LLC (“Prism”) and all individuals affiliated with Prism assume no responsibilities for your trading and investment results. The indicators, strategies, articles and all other features are for educational purposes only and should not be construed as investment advice. Any person who chooses to use this information as a basis for their trading assumes all the liability and risk for themselves and hereby and absolutely agrees to indemnify and hold harmless Prism, its principals, agents and employees. All of the material contained herein is believed to be correct, however, Prism will not be held responsible for accidental oversights, typos or incorrect information from sources that generate fundamental and technical information. Prism does not warrant the completeness or accuracy of such information, and does not warrant any results from the use of the information. Your use of Prism materials is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade and make your own independent decisions regarding any securities mentioned herein. Prism affiliates may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
UPGRADES / DOWNGRADES Stock Upgraded Altera (ALTR) Lam Research (LRCX) Metlife (MET) Costco (COST) PMC Sierra (PMCS) QLogic (QLGC) Lexmark (LXK) Intercontine ntal Hotels (IHG) Stock Downgraded Repsol (REP) Lincoln National (LNC) Novellus (NVLS) Texas Instruments (TXN) IBM (IBM) Dell (DELL) American International (AIG)
Current Price
Price Adjustment
Morgan Stanley Morgan Stanley
19.60
Overweight
31.54
Overweight
BofA/Merrill
36.61
Buy
Morgan Stanley Morgan Stanley Morgan Stanley Morgan Stanley Credit Suisse
55.47
Overweight
9.03
Overweight
16.36
Overweight
18.80
Equal Weight
12.16
Outperform
House
Current Price
Price Adjustment
Barclays
24.31
Underweight
BofA/Merrill
23.80
Neutral
Morgan Stanley Morgan Stanley
19.63
Equal Weight
24.86
Equal Weight
Morgan Stanley Morgan Stanley Credit Suisse
117.46
Equal Weight
15.69
Equal Weight
40.05
Underperform
House
Target Price
Target Price
Page |2
$15
COMMODITY PRICES Commodity
Price
OIL
69.73
1.71
GOLD
1006
9.10
FOREIGN MARKETS Market
Price
FTSE
4959.26
26.08
0.53
DAX
5490.38
26.87
0.49
NIKKEI
10393.23
72.29
0.7
HANG SENG
21069.81
440.50
2.14
CHINA
2930.475
49.359
1.71
%
Page |3
NEWS ALERT China alarmed by US money printing - Daily Telegraph HSY Hershey weighs Cadbury options - WSJ (38.63 ) World economic recovery might come a quarter early, IMF says – AFP UN wants new global currency to replace dollar - Daily Telegraph ZINC Horsehead Holding announces proposed offering of 6 mln shares of common stock (11.21 ) ALL Allstate tgt raised to $44 from $40 at FBR Capital as they note book value could rise by 12% this quarter (28.85 ) UBSH Union Banc announces $62.5 mln common stock offering NPBC National Penn Bancshares announces common stock offering of approximately $125 mln (5.19 ) OPXA Opexa Therapeutics reports additional 'favorable data' with Tovaxin for multiple sclerosis (1.53 ) SFD Smithfield Foods misses by $0.01, misses on revs (13.04 ) COV Covidien announces DuraSeal Spine Sealant receives FDA approval (39.60 ) European shares gain for 3rd day, led by Cadbury, gold miners; FTSE +0.55%, CAC +0.37%, DAX +0.48% Asia markets close; China up on government policy support for equity trading; Nikkei +0.7%, Shanghai Composite +1.71%, Hang Seng +2.14%, Sensex +93 pts Credit Suisse downgrades American International (AIG 40.05) to Underperform from Neutral and lowers their tgt to $15 from $30, based on near term monetization of value of businesses that suggests little to no value for common equity, a book value analysis that suggests mid-teens stock and near term debt maturities that may increase reliance on federal line. Firm doesn't expect that a 2- to 3-year process will render upside value for common equity holders, and notes the risk of further erosion of franchise value and the intention of the government to be a bridge rather than a permanent stakeholder suggests meaningful asset sales/IPOs need to occur over the coming 12-18 months. Firm estimates angible book value of $15.70 per share after excluding AOCI (unrealized losses), goodwill and the prepaid commitment fee on the Federal Reserve credit facility... BA Boeing, China airlines in talks to delay 787 jet - Reuters (49.15 ) –Update
Page |4
NEWS ALERT OPEC set to hold supply steady, likes oil price – Reuters EOG EOG Resources mentioned positively in Barron's (70.47 ) ESV Ensco Q3 EPS are currently projected to be reduced by ~$0.14-0.18 due to unanticipated incremental downtime and repairs required on two rigs (37.29 +0.80) COMDX CFTC Commitment of Traders long/short commodity positions -Update Update The Commodity Futures Trading Commission (CFTC) released its commitment of traders report weekly data through August 18, which shows non-commercial (speculators, hedge funds) and commercial (Cos who are actually hedging input costs) net trading positions in various commodities... Non-commercial contracts: This week in agriculture contracts, speculators were net long 22,075 corn contracts on the CBOT (vs. net longs of 31,188 last week), net short 37,736 wheat contracts (vs. net shorts of 28,277 last week) and net long 57,516 soybean contracts (vs. net longs of 67,491 last week)... In energy, speculators were net short 169,846 natural gas contracts on the NYMEX (vs. net shorts of 176,818 last week) and net long 28,594 crude oil, light sweet contracts (vs. net longs of 39,532 last week)... In metals, speculators were net long 184,501 gold contracts on the COMEX (vs. net longs of 182,982 last week), speculators were net long 34,429 silver contracts (vs. net long of 29,130 last week) and speculators were net short 3,548 copper contracts on the COMEX (vs. net shorts of 1,244 last week)... Commercial contracts: This week in agriculture contracts, speculators were net long 66,532 corn contracts on the CBOT (vs. net longs of 60,598 last week), net long 57,345 wheat contracts (vs. net longs of 46,477 last week) and net short 26,493 soybean contracts (vs. net shorts of 37,090 last week)... In energy, speculators were net long 129,352 natural gas contracts on the NYMEX (vs. net longs of 132,490 last week) and net short 37,615 crude oil, light sweet contracts (vs. net shorts of 46,309 last week)... In metals, speculators were net short 216,708 gold contracts on the COMEX (vs. net shorts of 211,342 last week), speculators were net short 48,056 silver contracts (vs. net short of 42,718 last week) and speculators were net long 4,075 copper contracts on the COMEX (vs. net long of 1,307 last week). GHL Acquisition Corp (GHQ) announces it has commenced an offering of 16 mln newly issued shares of common stock (9.95 +0.00) U.S. banks need to have higher capital, ex-Fed Greenspan says - Reuters.com Australian business confidence near six-year high – AFP
Page |5
NEWS ALERT US Integrated Oil: Still bearish on fundamentals, expect prices to fall into Q4 Deutsche Bank LG predicts near 50% jump in 2010 LCD TV sales - Reuters.com TEN Tenneco removed from Americas Conviction Buy list at Goldman- Reuters (15.55 ) China imports of corn ethanol by-product surges; drought hits crop Reuters.com MRK Merck: Leerink Swann expects the VRBPAC to issue positive recommendations for MRK's Gardasil and GSK's Cervarix (30.70 ) Argus upgrades Ingersoll-Rand (IR 31.24) to Buy from Hold saying they expect Ingersoll-Rand to benefit from stronger economic conditions, government stimulus spending, and cost synergies from the Trane acquisition Citigroup upgrades Harley Davidson (HOG 23.29) to Hold from Sell and raises their tgt to $26 from $14 based on their channel checks, they believe US retail sales trends for HOG and the overall heavyweight motorcycle category have improved since 2Q. Firm says checks indicate July retail sales were down 30% and August was down 15-20% resulting in down 25% for 3Q to-date. The trend is likely better than Street expectations ING ING Group: HSBC bids for ING's private banking businesses - Times of London (15.29 ) COMDX Gold rises above $1,000 an ounce – FT Fed must not leave rates too low, Fed's Hoenig says - Reuters.com White House weighing public health care option - NY Times Grassley embraces nonprofit co-ops for health care – AP ITLN Intellon: Atheros to Acquire company in stock and cash transaction valued at approximately $244 mln PNRA Panera Bread upgraded to Buy from Neutral at BofA/Merrill (53.30 ) PDLI PDL BioPharma issues downside Q3 rev guidance (9.06 ) SWN SW Energy upgraded to Buy at Stifel Nicolaus; tgt $56 (37.21 ) BA Boeing: WTO finding bolsters Boeing's backers in Congress - WSJ (49.15 ) – Update
Page |6
NEWS ALERT Concerns are mounting FHA may need taxpayer assistance – WSJ RHT Goldman upgrades Red Hat, VMware to Buy- Reuters (23.63 ) ASCA Goldman Sachs cuts Ameristar Casinos (ASCA), and Penn National Gaming (PENN) to Neutral from Buy- Reuters (16.84 ) China's bank regulator eases some rules – WSJ Credit Suisse upgrades Gap (GPS 21.12) to Outperform from Neutral JP Morgan upgrades General Electric (GE 13.87) to Overweight from Neutral.. Argus upgrades Ingersoll-Rand (IR 31.24) to Buy from Hold saying they expect Ingersoll-Rand to benefit from stronger economic conditions, government stimulus spending, and cost synergies from the Trane acquisition Citigroup upgrades Harley Davidson (HOG 23.29) to Hold from Sell and raises their tgt to $26 from $14 based on their channel checks, they believe US retail sales trends for HOG and the overall heavyweight motorcycle category have improved since 2Q. Firm says checks indicate July retail sales were down 30% and August was down 15-20% resulting in down 25% for 3Q to-date. The trend is likely better than Street expectations SWN SW Energy upgraded to Buy at Stifel Nicolaus; tgt $56 (37.21 ) COST Costco upgraded to Overweight from Neutral at Piper Jaffray (55.47 ) SWN SW Energy upgraded to Buy at Stifel Nicolaus; tgt $56 (37.21 )
Page |7
CURRENT MARKET SENTIMENT Five pounds heavier and a sense of optimism, investors will be looking for a better sense of clarity this week from Godot, since neither a positive U.S. consumer sentiment (expected 67.5) nor a slower fall of wholesale inventory will do the job. A squeezola led the Dow to finish at the high of 9441 level. The nature of the recovery is the question at stake. Will it be a W or U pattern? if Goldman believes the latter, there is no reason for the papa bull to be crying high valuation and overbought territory, thus the Dow may be revisiting the 9600 or better. If the former a la Krugman is the case, selling on the news will be the response. Wait for an hour for market direction.
ECONOMIC NUMBERS AND DATA Time (ET)
Indicator
Date
3:00 PM
Consumer Credit
Sep 08
Actual
Expectation
Range
Prior
$-4.0B
$-7.0 B to $-2.5 B
$-10.3B
TECHNICAL Indices
S2
S1
Pivot
R1
R2
INDU (DOW)
9231
9326
9402
9479
9526
SPUZ (S&P)
991
1002
1011
1020
1026
DOW STOCK TO WATCH Strong UTX
Weak MMM
HPQ
DD
CAT
BA
MCD
AXP
MARKET HIGHLIGHTS 09/08/2009
PRISM CALL Today is the first day back in the office for many on Wall Street, following the extended holiday. Goldman Sachs raised up the valuations on all metals, which may be responsible for the big up opening. What has been working all month is shorting the rallies and I will continue to do so. We are looking for the big gap up this morning followed by an initial pullback, probably to 1019-1020 on the futures. The market will probably then squeeze up, breaking higher to take out the stops, topping in the 1027-1030 area, before pulling back down and settling around 1017-1019. If the market can’t hold its gains and sells below 1015, room exists on the downside to go to Fridays lows. On the upside, the market can touch 9600.
Page |1 RISK DISCLAIMER: There is a very high degree of risk involved in trading equities. Trading is not for every investor and only risk capital should be used. Past results are not indicative of future returns. Prism Trading School, LLC (“Prism”) and all individuals affiliated with Prism assume no responsibilities for your trading and investment results. The indicators, strategies, articles and all other features are for educational purposes only and should not be construed as investment advice. Any person who chooses to use this information as a basis for their trading assumes all the liability and risk for themselves and hereby and absolutely agrees to indemnify and hold harmless Prism, its principals, agents and employees. All of the material contained herein is believed to be correct, however, Prism will not be held responsible for accidental oversights, typos or incorrect information from sources that generate fundamental and technical information. Prism does not warrant the completeness or accuracy of such information, and does not warrant any results from the use of the information. Your use of Prism materials is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade and make your own independent decisions regarding any securities mentioned herein. Prism affiliates may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
UPGRADES / DOWNGRADES Stock Upgraded Altera (ALTR) Lam Research (LRCX) Metlife (MET) Costco (COST) PMC Sierra (PMCS) QLogic (QLGC) Lexmark (LXK) Intercontine ntal Hotels (IHG) Stock Downgraded Repsol (REP) Lincoln National (LNC) Novellus (NVLS) Texas Instruments (TXN) IBM (IBM) Dell (DELL) American International (AIG)
Current Price
Price Adjustment
Morgan Stanley Morgan Stanley
19.60
Overweight
31.54
Overweight
BofA/Merrill
36.61
Buy
Morgan Stanley Morgan Stanley Morgan Stanley Morgan Stanley Credit Suisse
55.47
Overweight
9.03
Overweight
16.36
Overweight
18.80
Equal Weight
12.16
Outperform
House
Current Price
Price Adjustment
Barclays
24.31
Underweight
BofA/Merrill
23.80
Neutral
Morgan Stanley Morgan Stanley
19.63
Equal Weight
24.86
Equal Weight
Morgan Stanley Morgan Stanley Credit Suisse
117.46
Equal Weight
15.69
Equal Weight
40.05
Underperform
House
Target Price
Target Price
Page |2
$15
COMMODITY PRICES Commodity
Price
OIL
69.73
1.71
GOLD
1006
9.10
FOREIGN MARKETS Market
Price
FTSE
4959.26
26.08
0.53
DAX
5490.38
26.87
0.49
NIKKEI
10393.23
72.29
0.7
HANG SENG
21069.81
440.50
2.14
CHINA
2930.475
49.359
1.71
%
Page |3
NEWS ALERT China alarmed by US money printing - Daily Telegraph HSY Hershey weighs Cadbury options - WSJ (38.63 ) World economic recovery might come a quarter early, IMF says – AFP UN wants new global currency to replace dollar - Daily Telegraph ZINC Horsehead Holding announces proposed offering of 6 mln shares of common stock (11.21 ) ALL Allstate tgt raised to $44 from $40 at FBR Capital as they note book value could rise by 12% this quarter (28.85 ) UBSH Union Banc announces $62.5 mln common stock offering NPBC National Penn Bancshares announces common stock offering of approximately $125 mln (5.19 ) OPXA Opexa Therapeutics reports additional 'favorable data' with Tovaxin for multiple sclerosis (1.53 ) SFD Smithfield Foods misses by $0.01, misses on revs (13.04 ) COV Covidien announces DuraSeal Spine Sealant receives FDA approval (39.60 ) European shares gain for 3rd day, led by Cadbury, gold miners; FTSE +0.55%, CAC +0.37%, DAX +0.48% Asia markets close; China up on government policy support for equity trading; Nikkei +0.7%, Shanghai Composite +1.71%, Hang Seng +2.14%, Sensex +93 pts Credit Suisse downgrades American International (AIG 40.05) to Underperform from Neutral and lowers their tgt to $15 from $30, based on near term monetization of value of businesses that suggests little to no value for common equity, a book value analysis that suggests mid-teens stock and near term debt maturities that may increase reliance on federal line. Firm doesn't expect that a 2- to 3-year process will render upside value for common equity holders, and notes the risk of further erosion of franchise value and the intention of the government to be a bridge rather than a permanent stakeholder suggests meaningful asset sales/IPOs need to occur over the coming 12-18 months. Firm estimates angible book value of $15.70 per share after excluding AOCI (unrealized losses), goodwill and the prepaid commitment fee on the Federal Reserve credit facility... BA Boeing, China airlines in talks to delay 787 jet - Reuters (49.15 ) –Update
Page |4
NEWS ALERT OPEC set to hold supply steady, likes oil price – Reuters EOG EOG Resources mentioned positively in Barron's (70.47 ) ESV Ensco Q3 EPS are currently projected to be reduced by ~$0.14-0.18 due to unanticipated incremental downtime and repairs required on two rigs (37.29 +0.80) COMDX CFTC Commitment of Traders long/short commodity positions -Update Update The Commodity Futures Trading Commission (CFTC) released its commitment of traders report weekly data through August 18, which shows non-commercial (speculators, hedge funds) and commercial (Cos who are actually hedging input costs) net trading positions in various commodities... Non-commercial contracts: This week in agriculture contracts, speculators were net long 22,075 corn contracts on the CBOT (vs. net longs of 31,188 last week), net short 37,736 wheat contracts (vs. net shorts of 28,277 last week) and net long 57,516 soybean contracts (vs. net longs of 67,491 last week)... In energy, speculators were net short 169,846 natural gas contracts on the NYMEX (vs. net shorts of 176,818 last week) and net long 28,594 crude oil, light sweet contracts (vs. net longs of 39,532 last week)... In metals, speculators were net long 184,501 gold contracts on the COMEX (vs. net longs of 182,982 last week), speculators were net long 34,429 silver contracts (vs. net long of 29,130 last week) and speculators were net short 3,548 copper contracts on the COMEX (vs. net shorts of 1,244 last week)... Commercial contracts: This week in agriculture contracts, speculators were net long 66,532 corn contracts on the CBOT (vs. net longs of 60,598 last week), net long 57,345 wheat contracts (vs. net longs of 46,477 last week) and net short 26,493 soybean contracts (vs. net shorts of 37,090 last week)... In energy, speculators were net long 129,352 natural gas contracts on the NYMEX (vs. net longs of 132,490 last week) and net short 37,615 crude oil, light sweet contracts (vs. net shorts of 46,309 last week)... In metals, speculators were net short 216,708 gold contracts on the COMEX (vs. net shorts of 211,342 last week), speculators were net short 48,056 silver contracts (vs. net short of 42,718 last week) and speculators were net long 4,075 copper contracts on the COMEX (vs. net long of 1,307 last week). GHL Acquisition Corp (GHQ) announces it has commenced an offering of 16 mln newly issued shares of common stock (9.95 +0.00) U.S. banks need to have higher capital, ex-Fed Greenspan says - Reuters.com Australian business confidence near six-year high – AFP
Page |5
NEWS ALERT US Integrated Oil: Still bearish on fundamentals, expect prices to fall into Q4 Deutsche Bank LG predicts near 50% jump in 2010 LCD TV sales - Reuters.com TEN Tenneco removed from Americas Conviction Buy list at Goldman- Reuters (15.55 ) China imports of corn ethanol by-product surges; drought hits crop Reuters.com MRK Merck: Leerink Swann expects the VRBPAC to issue positive recommendations for MRK's Gardasil and GSK's Cervarix (30.70 ) Argus upgrades Ingersoll-Rand (IR 31.24) to Buy from Hold saying they expect Ingersoll-Rand to benefit from stronger economic conditions, government stimulus spending, and cost synergies from the Trane acquisition Citigroup upgrades Harley Davidson (HOG 23.29) to Hold from Sell and raises their tgt to $26 from $14 based on their channel checks, they believe US retail sales trends for HOG and the overall heavyweight motorcycle category have improved since 2Q. Firm says checks indicate July retail sales were down 30% and August was down 15-20% resulting in down 25% for 3Q to-date. The trend is likely better than Street expectations ING ING Group: HSBC bids for ING's private banking businesses - Times of London (15.29 ) COMDX Gold rises above $1,000 an ounce – FT Fed must not leave rates too low, Fed's Hoenig says - Reuters.com White House weighing public health care option - NY Times Grassley embraces nonprofit co-ops for health care – AP ITLN Intellon: Atheros to Acquire company in stock and cash transaction valued at approximately $244 mln PNRA Panera Bread upgraded to Buy from Neutral at BofA/Merrill (53.30 ) PDLI PDL BioPharma issues downside Q3 rev guidance (9.06 ) SWN SW Energy upgraded to Buy at Stifel Nicolaus; tgt $56 (37.21 ) BA Boeing: WTO finding bolsters Boeing's backers in Congress - WSJ (49.15 ) – Update
Page |6
NEWS ALERT Concerns are mounting FHA may need taxpayer assistance – WSJ RHT Goldman upgrades Red Hat, VMware to Buy- Reuters (23.63 ) ASCA Goldman Sachs cuts Ameristar Casinos (ASCA), and Penn National Gaming (PENN) to Neutral from Buy- Reuters (16.84 ) China's bank regulator eases some rules – WSJ Credit Suisse upgrades Gap (GPS 21.12) to Outperform from Neutral JP Morgan upgrades General Electric (GE 13.87) to Overweight from Neutral.. Argus upgrades Ingersoll-Rand (IR 31.24) to Buy from Hold saying they expect Ingersoll-Rand to benefit from stronger economic conditions, government stimulus spending, and cost synergies from the Trane acquisition Citigroup upgrades Harley Davidson (HOG 23.29) to Hold from Sell and raises their tgt to $26 from $14 based on their channel checks, they believe US retail sales trends for HOG and the overall heavyweight motorcycle category have improved since 2Q. Firm says checks indicate July retail sales were down 30% and August was down 15-20% resulting in down 25% for 3Q to-date. The trend is likely better than Street expectations SWN SW Energy upgraded to Buy at Stifel Nicolaus; tgt $56 (37.21 ) COST Costco upgraded to Overweight from Neutral at Piper Jaffray (55.47 ) SWN SW Energy upgraded to Buy at Stifel Nicolaus; tgt $56 (37.21 )
Page |7
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