The Market Ticker

The bulls will obviously point to Apple's afterhours action, and Amazon's yesterday, as "proof" that The Bull is Alive And Well.

Oh really?

Let me point something out to you guys today. On a day where the Nasdaq NDX (Big cap Nasdaq 100) was up 1/2%, 10.59 points, declining issues beat advancers by 45:55.

On the S&P, which gained 0.47% today, once again advancers lost to decliners, 239:246.

This sort of price action is totally normal as a market tops.

Why?

Let's think about what happens during a top.

A healthy market rises more-or-less in synchronicity. There are leading sectors for sure, but there are no serious downstrokers. No really ugly surprises.

But when a market begins to top, this dynamic changes. There are one or more groups which start to not just lag but take actual, significant losses. For example today, Home Builders and Mortgage Lenders. Money rotates out of those sectors and into ones that are still rising.

This causes those sectors to fall more, and the others to rise. All things being equal, this would be market index neutral.

But its not!

People see the "winning" sectors go up and pile in; the index rises further.

But as the "brain drain" continues, breadth contracts. The rate of increase in the "chosen few" is forced ever higher - that is, the rate of change increases.

It must in order to sustain the index number increases.

Think about it guys. You have 100 stocks in the Nasdaq 100 (NDX). If 10 of them are causing all the price rise, each must go much further in order to keep the index going up - especially if other parts of the index go down!

As this rotation continues you start to see stupidity like we saw with Amazon - or RIMM last quarter - occur more and more. Companies cramming the channel and being rewarded with 20% stock price gains. Companies trading with a P/E of over 100 and a 4% net margin getting a 25% gain on earnings. Companies that disappoint on expected shipments of a new product get a nearly $15 pop, as Apple did tonight.

Why?

Because there is nowhere else to go! These are the only stocks still going up, so anything that can be spun good becomes a "safe haven" compared to the other stocks that are actually losing money.

But what comes next?

Someone who bought 10,000 shares of Apple at $150 in the aftermarket this evening wakes up at 3:00 AM. Maybe not today, but perhaps next week - or next month. He wonders to himself - "You know, that iPhone - Apple wouldn't tell us how much AT&T is paying them in commission, wouldn't give us a lot of color on things, and pretty much said they're not going to drop prices...... hmmmm..."

The next morning he wanders over to his terminal and looks for something else to buy - to rotate into. As he searches, he starts to sweat. See, there really isn't anywhere else to go with the money! AMZN? Crazy P/E. RIMM? I thought Apple was going to kill them - and they have a crazy P/E! Google? They're spending too much.....

This is how tops break and why, once they do, it is extremely violent to the downside. There simply is nowhere to rotate into that makes any sense any more! The rush to the exits begins!

So - for those of you who are sitting there tonight wondering how a company that does indeed beat the street, but says they had shipments well below consensus of the product that has been responsible for a full double in their stock price in the last few months gets a $15 pop on that announcement..... now you know.

And you also know what to watch out for - perhaps not tomorrow, or the next day - but sure as the sun rises in the east and sets in the west, when breadth contracts and market representation narrows, you better make damn sure you peek down that tunnel before sauntering in, and listen carefully to see if the rails are singing.

If you wait until you see the light and hear the noise - its too late.

This is getting pretty exciting!

Give credit to Bucky for rescuing us from the abyss this morning; by bouncing from "almost breaking 80" to just over 80.5, a monstrous move in the short term, he took the heat off the market for a bit.

In addition we had great results from Boeing and last night's moonshot from Amazon didn't hurt. Never mind that Amazon is one of those stocks that defies reason - with a 4% profit margin I hope you have a really good thesis for why you would want to own the stock trading on a triple-digit P/E!

More negative comments this morning on Apple's iPhone sales. They're floating higher anyway ahead of earnings. Be careful here guys; while this could be another moonshot aka Amazon, one whiff of disappointment in the air and......

Mortgage application rates fell. I have prognosticated that as this mortgage mess works its way out we would first see a spike in applications as people literally "paper the town" trying to get a loan but then will give up and the app rate will collapse in despair. Are we seeing the start of this? Not sure - one week does not a trend make - but this bears close monitoring because when that happens it foretells the next major leg down in the housing market and will lead it by a month or two.

So the bull and bear fight continues today, with the morning, at least, being marked by The Bulls goring The Bears.

By the way, in the "I'm gonna take a cheap shot" department (sorry, can't resist), Jimmy Cramer raped his followers once again - this time on Countrywide Financial, who he pounded the table on relentlessly just a couple of months ago, driving the stock to nearly $42 with one of his famous "this one's gonna get bought" calls! Yesterday, of course, the stock totally crapped the bed, breaching the $30 level before settling at $30.50 (and being a great daytrade for me on the short side!) Gee, Jimmy, you lost your followers 25% of their money in just a couple of months! If I was as good as you are, I'd be broke. Booya!

You have to love analysts too - downgrading CFC this morning. If there's a bigger "close the barn door after all the horses have left", I've not seen it in a while. Remember 2000 when people maintained "strong buy" ratings on tech stocks even as they played lawn darts?

In more signs of Chucky's Indigestion, Panera Bread missed and is getting pummelled this morning to the tune of about 6%. We have a Panera here - I like their food; they're a nice fast lunch place. Chucky running out of fuel - or room on his plastic? What 'ya think?

The open was marked with violent moves in the Nasdaq Composite, with two gaps (one up and one down) within the first 15 minutes. Clearly, people don't know what to make of this - do we buy the dip or sell the rally? There's some of this showing up in the Dow and S&P too, but its less pronounced on the open. We'll see how it all shapes up as the day progresses.

In the "duh" segment today we have this:

"The oversupply will force prices down as much as 30 percent, the worst decline since the 1970s, and help push Florida's economy into recession as early as October, said Mark Zandi, chief economist at West Chester-based Moody's Economy.com, who owns a home in Vero Beach, Fla.

"Florida is the epicenter for all the problems that exist in the housing industry," said Lewis Goodkin, president of Goodkin Consulting Corp. and a property adviser in Miami for the last 30 years. Goodkin, too, foresees a recession."

Naw, 'ya think?

We're starting to see people pound the table on the "creative accounting" aspect of the lending bust. This is a good thing - especially if it spurs some regulatory action. Example:

"Back in 1998, as the subprime- lending industry imploded, critics blasted the loose rules that allowed profits to be booked under 'gain-on-sale' accounting - - the financial world's equivalent of crack cocaine. While the rules got a few patches, they stayed largely intact, and most investors forgot the whole mess.

Nine years later, the subprime world is imploding again. One difference now: The folks who write U.S. accounting standards say they want to redo the rules, insisting that their desire predates the current debacle. Whatever the impetus, it's about time."

No kidding?

Existing home sales fell 3.8% in June; 11.4% below last year. Median home price rose. No big shock there - only the top end is moving. Across the board sales fell; all regions. 5.75m run rate for sales; weakest since '02. Inventories down slightly; still nearly 9 months. Is this people taking homes off the market? Looks like it.

The market did not like those numbers, with the Nasdaq being hit the hardest, although it recovered most of its ditch quite quickly, being a net-net flat on the Dow, before resuming somewhat of a slide. We'll see how this all turns out.

Bottom line - this is a very weak report. The low end is not selling at all; the rise in median prices is simply due to the lack of lower-end properties selling at all! Duh!

Now we wait for the Beige Book.....

Banks and brokers, along with builders, are getting a bit of an oversold bounce today. That's a dead cat guys - if anything its a gift! Did you take advantage of it?

Cerberus has "postponed" the debt portion of the Chrysler deal! Here we go guys! They were trying to offer it at nine hundred basis points over LIBOR and nobody wanted it! REFUSED - AT NINE HUNDRED BASIS POINTS!

KKR has also had their deal for Boots go tits-up, with a hang-fire in the banks, who are now stuck with it. And these are SENIOR notes that they can't syndicate!

Here's our credit crunch guys! This is going to hit the market hard. With the LBO premium coming off equities, there is the possibility of a near collapse in equity prices, as they are, by my figures, showing a nearly 30% premium on the back of LBO expectations!

Take that away and.....BOOM!

Now maybe not all at once. But as people start to realize that they can short again and not wake up in the morning to an LBO at a 30% premium, you can bet people will be piling back in on that side on the "weak hands" - or just the plain old-fashioned overextended.

Why not? If you can't syndicate the deal then the LBO market comes to a screeching halt, as there is no way to clear your balance sheet so you can do another deal!

Oh, and Oil is now back up over $75 after a fairly significant pullback the last few days. Not so good.

We seem to have a sea change in process here. Boeing reported a monster quarter but in the end it didn't do a bit of good for anyone but them. Ditto on Amazon. Rallies were sold into today instead of dips being bought, and the result has been rather amusing to watch. Whether this pattern holds or not is difficult to determine, but this much is certain - if it does hold then we've got real trouble ahead for equity prices.

There were two major spikes attempted today and the afternoon one held a bit - but there was no follow-through. Interestingly enough, there was no attempt to buy the futures into the close either; it all went out pretty much flat.

Beige Book came in "moderate to modest", 2ish%, with several banks saying mixed to below expectations. High gas prices blamed for restraint. Residential construction continues to fall, household lending continued to fall. Banks also citing "lower credit demand." The market hiccuped a bit but then resumed its previous trend for the day - and it wasn't up!

Etrade (ETFC) reported 37 cents, 42 cents pro-forma; Thompson estimated 40, so somewhere up the middle. Revenue up fairly solidly, 10%ish. Not a lot of immediate reaction to the numbers, edging higher immediately following the report. They are holding guidance for FY07.

Apple (AAPL) reported 92 cents, with revenues up 25% and EPS up 73% from the year ago period. Sees 4Q EPS of 65 cents; way down from street estimates. Looks like a 20 cent beat on the earnings but guidance is kinda crappy from what I see here on first blush. The 'Daq and S&P futures are not liking it although it appears the shares themselves are halted. iPhone expected to ship 1M units by end of first full quarter of sales (way below the "whispered" amounts.) Gross margins up, which is good. IPod sales inline. The Nasdaq futures, in particular, were shellacked immediately. The stock opened at 16:50 ET and was whacked to $132.21, then continued down even further, breaching the $130 level almost immediately before recovering somewhat in the $134 area. I suspect the iPhone shipments number and projected sales are going to result in some serious pounding on the stock as people digest it; volume is huge as well. Remember, nearly all of the essential double in the last few months has been on the strength of the iPhone and expectations that it would sell far beyond what the company is now projecting!

Select Comfort (SCSS) reported poor earnings. Earnings 6c .vs. 19c, revenue down 4.8%. Not good. A miss, but guides "in-line". Yeah, ok. Lipstick, meet pig! G'night Chucky?

Oh and our good buddy the CMBX crashed again.....


Gorgeous. Just gorgeous. And you gotta love the newest, and best ABX, the 07 series. Look where they opened and what has happened to them...





How'd you love to own that crap? Can you say "oooohhhhh nnoooooo!"

Psst - here's the LCDX



That's very pretty too! At least its a bit more stable today..... but still....

To be updated if appropriate later.....