Outlook for the week of 5-4-09

By Ryan Wheeler

Will this Rally Hold Ground? I say “No”

When I look at the equity market and attempt to predict short-term movements, I look at a few different factors. I start by looking at the expected news flow in the coming week. The relative strength of the news (its ability to move the market) will usually give me a decent idea about whether the following week is primed for volatility. Next, I look at the past few weeks’ news, the strength of that information and how the market reacted to it. This tells me the mood of investors and how they are generally assessing the information. The last thing I look at is the bond market; specifically intermediate term Treasuries. I generally believe that monitoring relative movements of the bond market compared to equity indices can tell you a lot about what direction money is flowing (bonds to stocks or stocks to bonds).

Read the rest of this entry »

This week’s Newsletter only includes the Outlook portion. The Recap will be back next week.

Outlook

By Ryan Wheeler

I would be curious to get into the minds of some of the CEOs of top banks at this point. Needless to say, they have had a whirlwind of issues and struggles to deal with over the last 18 months, but there are still so many possibilities of what can happen. We are fully immersed in earning season right now, and banks are still the main focus. Along with earnings, we are hearing inklings of news about a stress-test progress report. While bank earnings have shown some signs of strength in certain business units, any negative reports from regulators about capital adequacy could rock the financial sector again. We are also getting mixed news about lending activity among banks who received tax-payer money through TARP. According to an article in today’s WSJ, bank lending in February dropped at a higher rate than the 2.2% month/month decline reported by the Fed on Wednesday. The Journal uses a different method of calculation that shows a 4.7% drop. For my purposes, those two numbers are ambiguous because we don’t know what the situation would have been like without the program (better or worse). The fact is that, at the current rates, mortgage refinancing is picking up, treasury rates are unattractive, and riskier-asset yields are begging for investors to play. People are slowly feeling out some of the “lower quality” bond issues for extremely rewarding yields. As that happens, Treasury rates will start to drop and the see-saw will start to balance out. Now I know what a lot of you are thinking… “It is not that easy” and “There are so many other things that need to happen first”. I agree. We are not in a position where this stuff is just going to fix itself. We have a long road of regulation fights, debt runoffs, liquidity program reductions (hopefully), and consolidation. All I am saying is that the laws of supply and demand along with market efficiency theories will play out over the next year.

Read the rest of this entry »

This message is to remind you all that are in the trading competition that trading starts TOMORROW! Don’t forget to put your orders in tomorrow and building your portfolio!

If you are not in the competition and still would like to, here is the information:

DIG Trading Competition sponsored by the LeBow College of Business
1st Prize – iPod!

Go to vse.marketwatch.com.

Register by creating a username and password – YOUR USERNAME MUST BE YOUR FULL FIRST AND LAST NAME

Click “Find a game to join” and type in DIG2009 – THIS IS CASE SENSITIVE

The password to join is dig2009.

Thanks, and good luck!

Click HERE to see the full report.

The Recap

 By Steve Romasko

 The S&P 500 ended the holiday shortened week up 1.7%, led by financials. Trade was volatile despite only four sessions that had a relatively small amount of news and economic reports. The upside move came despite Alcoa (AA) kicking off first quarter earnings reporting season on a weaker-than expected note.

 On Tuesday evening, Alcoa reported a loss of $0.59 per share, $0.02 worse than the First Call consensus that called for a loss of $0.57. Alcoa said the sharp drop in revenue resulted from the impact of the economic downturn on the company’s end markets — automotive, transportation, building and construction and aerospace. Despite the miss, the results were better than many had feared, and as a result Alcoa finished the week with an 4.0% gain.

 There were some upside earnings results, however. Wells Fargo (WFC) preannounced record first quarter earnings of approximately $3 billion and earnings of $0.55 per share, topping the consensus estimate of $0.23. Wells Fargo expects revenues of $20.0 billion, versus the consensus of $18.98 billion.

 The news gave a healthy boost to financials, which ended up 15.9% on the week and provided a measure of confidence going into the coming week when JPMorgan Chase (JPM), Goldman Sachs (GS) and Citigroup (C) report their quarterly results. On a related note, life insurers also helped lift financials, gaining 15.9%, after it was reported that the Treasury will soon announce it will extend the TALF program to aid some life insurers.

  Read the rest of this entry »

The Drexel Investment Group is holding their second annual trading compeition. Last year over 80 students participated in the 6 week trading competition. We are expecting even more participants this year! The competition begins on Thursday, 4/16 and last 6 weeks. It is open to ALL LCOB STUDENTS! At the end of the competition, there will be a participants meeting during which the winner will go through their trading strategy and what they did to win!

DIG uses the Virtual Stock Exchange trading platform for their competitions. This year, the competition is being sponsored by the LeBow College of Business. The winner of the contest will receive an 8GB iPod nano donated by the LCOB! Here is how to participate:

Go to vse.marketwatch.com.

Register by creating a username and password – YOUR USERNAME MUST BE YOUR FULL FIRST AND LAST NAME

Click “Find a game to join” and type in DIG2009 – THIS IS CASE SENSITIVE

The password to join is dig2009.

Then begin your research, because trading starts on Thursday 4/16! JOIN TODAY!

Click HERE for the full report

Recap

By Steve Romasko

Reoccurring themes tend to be the norm for the market, as the entire month of January was largely motivated by poor economic data, earnings guidance (or lack thereof), and the indecision of the government on how best to handle the financial crisis and economic policy. This week followed the same pattern, marking the worst month of January on record—closing down 8.6%

The market was given a surplus of earnings data to mull over this week as the heart of 4Q earnings season is upon us. The lack of appropriate guidance ahead of estimates, and the consistent results coming in below expectations provided an indication that estimates may be too high. This was most evident in Dow component, Caterpillar (CAT), as the industrial giant missed earnings—reporting $1.08 EPS compared to consensus $1.31; guidance was also far off-pace, as they issued rather vigilant guidance of $2.50 EPS for FY09, well below analysts’ guesstimate of $4.50—With  60% of its revenue generated abroad, the careful guidance reflects their concern on the continually deteriorating global economy and its effects on infrastructure spending.

Read the rest of this entry »