I have been harping about this company for a while now. Even despite its recent price weakness, I remain bullish.
LHC Group (LHCG) is a rural provider of home health care ranging from wound care to rehabilitative services. They are focused on growth through acquisitions of smaller fragmented companies in this area that are "for profit". Year to date, the company has acquired and operates 106 home nursing locations,six hospices, a diabetes self management company, and one home health pharmacy. The company began operations in 1994 in Louisiana and has since grown to 132 locations in Louisiana, Mississippi, Alambama, Texas, West Virginia, Arkansas, Kentucky, Florida, Tennessee, and Georgia.
So you say, big deal! Yawn, next please! I'm bored already. But wait a minute here. Before you turn your attention to another sexier stock with purportedly better growth prospects, consider the following:
1. Home health service is the fastest growing segment in allied health industry.
2. Home health service still commands favorable Medicare reimbursement and it remains one of the few services that has not been cut or reduced.
3. Aging population continues to rise faster and the ages 74 and up is rising the fastest due to improved health technology and science.
4. 27% of Medicare's $327 billion budget goes to care for patients in the final year of life. 27%!
5. Increasingly, hospitals that have in patient nursing homes or hospices are finding that it is not profitable to run these entities in institutional settings.
6. Medicare has increased reimbursement 3.6% for home health care in rural area. The base pay in 2006 was $2264 per 60 day episode.
Now why does this company have a competitive advantage over other smaller players?
1. They have organization and financial discipline to continue to maximize the profits generated from this lucrative field.
2. They are engaged in growing business because the elderly population is growing.
3. They are targeted to specific market segment and thrives there- rural home health care delivery.
4. Repeat business with plenty of opportunity to replenish and grow business.
5. Home health care will continue to grow and consolidation in this space will continue to command premium relative to other services reimbursed by Medicare.
6. Insitutionalized health care continues to sky rocket.
Currently, the company serves 40,000 home health care patients and that number continues to grow by their acquisition of controlling interest in 3 additional home health care agencies. At this rate, we can expect the next five year growth rate to remain above 45%. Their recent YOY quarterly earnings growth was 118.7% and revenue growth was 43.30%. That is phenominal! The forward PE is 16.03 and PEG is 0.96. Debt to equity ratio is minimal at .031 with total debt of $3.84 million and total cash of $26.88 million. This is a well run company with a distinct niche market.
At first glance, you do see some insider selling activity but these are automated selling plans that take place regardless of the stock price and some of the company insiders are compensated in this fashion. It is not like Countrywide's CEO selling activity, which is borderline criminal.
The share prices have come under pressure in the past 3 weeks after the stock hit an all time 52 week high of $33.14, currently trading down at $27.90. Now, the charts are a bit ambiguous with intense selling activity in the past 3 weeks. Currently, the stock trades well below the 50 EDMA, but appears to have set in the bottom as evidenced by the high volume rise and close in the upper end on Thursday and follow through on Friday on lower volume. The point of caution is that on the weekly chart and on the daily chart, it appears that the stock has put in a double top. But it also can be interpreted as a reverse head and shoulders forming on the weekly chart. Take it any way you will, but I also know that the small caps have come under pressure in the past 4 weeks.
I have not found any news or medicare changes in reimbursement that would have changed the fundamentals of the company and I believe that the earnings report on May 1, 2007 will be a good one, possibly breaking through the resistance at $33.14. I continue to hold June $30 options on this and may add in the coming weeks.
Saturday, April 21, 2007
Friday, April 20, 2007
Week in Review: Unusual Strength
The market continues to move up in its torrid pace which is baffling. The DOW is now near 13000, and today 28 out of DOW 30 components participated in the rally in a convincing fashion. NASDAQ which underwent two consecutive days of distribution also found its footing on Friday on strong volume. This rally has been broad with big and mega caps leading the charge and the small caps have been noticeably quiet during this rally. In a strong market up trend, small caps and big caps alike lead the charge. Still, you have to respect the market strength no matter how much the fundamentals of the market place is dissociated from the technicals.
I am not sure what that is. I remain wary of the market as it stands. The follow through day on the NASDAQ was only after three weeks. There are convicing evidence that the interest rates might be headed up instead of down. Inflationary pressure remains and the FED is firmly hawkish in their stance. The housing related bubble topics and subprime meltdown has noticeably been absent from the main stream media's head line. There is rumblings of ALT-A Option ARM's growing influence on the mortgage and housing markets yet, the general populus and the media alike have not grasped this sensational story. Yet it still exists.
China continues its torrid pace of growth with GDP surpassing 11%, continuing to stoke fears of market crash in that region. There is speculation that the Chinese officials may raise interest rates twice this year to calm uncontrolled growth and inflation. This time around, the markets took things in stride and digested the news in a calm rational fashion. As I have said, this market is like teflon for bad news and continues to march forward. It is said that the market is forward looking for about 9 to 13 months. I wonder what circumstances are being factored in for the current bull rally, that has seen a brief respite in February 27th through two weeks of March? What issues would counteract and effectively neutralize the notion that we might be headed into stagflation or recession? I do not know.
What I do know is that the market is extended at these levels but markets rarely act the way they should when you think it should behave in the "normal" way. This market may continue to trudge forward until one of the camps are proven right. Either, the permabull's thesis for goldilocks economy is correct or the bear camp's look at fundamentals of the economy will win out. All I know is that there is a dislocation.
So far, I am net short Countrywide on issues related with their questionable internal affairs, opaque ways in which the shares are pumped, and their reluctance to come clean regarding the state of their company. Even with the less than admirable pump by Cramer, the stock seems to not be able to penetrate the $38 mark. One thing to be cautious about is the earnings on April 26th. This stock will probably move violently one way or the other. It may be a good idea for me to hedge the short position with calls slightly out of the money at $40 July calls. I will see how it shakes out next week.
Google reported stellar earnings and the stock has now began finishing the right side of the double bottom base. The buy point according to the IBD rule is $513, which represents the double top peak. It may test that level perhaps as early as next week, but my thinking is that we will be trading in the range between $477 to $495 through next week. A strong catalyst will be needed to punch through the $513 level, but the chart looks beautiful at this point and I believe a big upside move is imminent. Google currently trades under forward PE of under 29. A valuation that is lower than Yahoo, BIDU, and EBAY. Yet despite the negative sentiments surrounding the question of growth of this stellar company, it continues to wow the street with its latest earnings of over $1 billion dollars for the quarter. Truly astounding.
I am closely following Apple, LHCG, EZPW, PRAA, CSCO for possible long position and BIDU for short position.
Next week should be interesting with a flurry of economic numbers due:
Tuesday: 10:AM Consumer Confidence
10:AM Existing Home Sales
Wednesday: 8:30 AM Durable Orders
10:AM New Home Sales
2:PM FED beige book
Friday: 8:30AM GDP Adv
8:30AM Chain Deflector
Good luck. I keep one finger on the sell button should the reason arise.
I am not sure what that is. I remain wary of the market as it stands. The follow through day on the NASDAQ was only after three weeks. There are convicing evidence that the interest rates might be headed up instead of down. Inflationary pressure remains and the FED is firmly hawkish in their stance. The housing related bubble topics and subprime meltdown has noticeably been absent from the main stream media's head line. There is rumblings of ALT-A Option ARM's growing influence on the mortgage and housing markets yet, the general populus and the media alike have not grasped this sensational story. Yet it still exists.
China continues its torrid pace of growth with GDP surpassing 11%, continuing to stoke fears of market crash in that region. There is speculation that the Chinese officials may raise interest rates twice this year to calm uncontrolled growth and inflation. This time around, the markets took things in stride and digested the news in a calm rational fashion. As I have said, this market is like teflon for bad news and continues to march forward. It is said that the market is forward looking for about 9 to 13 months. I wonder what circumstances are being factored in for the current bull rally, that has seen a brief respite in February 27th through two weeks of March? What issues would counteract and effectively neutralize the notion that we might be headed into stagflation or recession? I do not know.
What I do know is that the market is extended at these levels but markets rarely act the way they should when you think it should behave in the "normal" way. This market may continue to trudge forward until one of the camps are proven right. Either, the permabull's thesis for goldilocks economy is correct or the bear camp's look at fundamentals of the economy will win out. All I know is that there is a dislocation.
So far, I am net short Countrywide on issues related with their questionable internal affairs, opaque ways in which the shares are pumped, and their reluctance to come clean regarding the state of their company. Even with the less than admirable pump by Cramer, the stock seems to not be able to penetrate the $38 mark. One thing to be cautious about is the earnings on April 26th. This stock will probably move violently one way or the other. It may be a good idea for me to hedge the short position with calls slightly out of the money at $40 July calls. I will see how it shakes out next week.
Google reported stellar earnings and the stock has now began finishing the right side of the double bottom base. The buy point according to the IBD rule is $513, which represents the double top peak. It may test that level perhaps as early as next week, but my thinking is that we will be trading in the range between $477 to $495 through next week. A strong catalyst will be needed to punch through the $513 level, but the chart looks beautiful at this point and I believe a big upside move is imminent. Google currently trades under forward PE of under 29. A valuation that is lower than Yahoo, BIDU, and EBAY. Yet despite the negative sentiments surrounding the question of growth of this stellar company, it continues to wow the street with its latest earnings of over $1 billion dollars for the quarter. Truly astounding.
I am closely following Apple, LHCG, EZPW, PRAA, CSCO for possible long position and BIDU for short position.
Next week should be interesting with a flurry of economic numbers due:
Tuesday: 10:AM Consumer Confidence
10:AM Existing Home Sales
Wednesday: 8:30 AM Durable Orders
10:AM New Home Sales
2:PM FED beige book
Friday: 8:30AM GDP Adv
8:30AM Chain Deflector
Good luck. I keep one finger on the sell button should the reason arise.
Thursday, April 19, 2007
Google!
Google came through with an eye popping results today. I don't really care whether the market poses high risk environment for investment right now. However, it is very clear that the company is firing on all cylinders and the game is still fresh. The biggest loser in this foray is Yahoo and MSN.
Today, Google reported non-GAAP earnings of $3.68 and blew past analyst estimates. The bullish statements from CEO Schmidt that "they are strong in their core business which is driving the growth and that it is still early in their growth cycle" says a whole lot about Google's potential.
Google had a lot of negative press lately with a lot of pundits questioning its growth potential to copyright law suits pending against You Tube. But none of these are material to the company's quest to become the largest media company in the world. Yes, that is what they are striving to become. They want to be able to control and monetize content, and they are kicking butt doing it.
It should be also noted that at the current AH quote of $486.80 up over 3%, still represents a significant discount to Yahoo or BIDU. As such Goldman Sachs upgraded this stock with price target of $620. For those who doubt whether Google can continue to grow in the near and long term, just remember that they have produced this stellar result based solely on their core search ad business. They have yet to fully tap the potential of You Tube, advertising initiatives in Radio and Print media (which should become material in late '07 or early'08) remains exciting.
I believe Microsoft and Yahoo better watch out because they are losing market shares in all aspects that they strive to compete in.
I am long on Google with call position in May $500, $470 contracts.
Today, Google reported non-GAAP earnings of $3.68 and blew past analyst estimates. The bullish statements from CEO Schmidt that "they are strong in their core business which is driving the growth and that it is still early in their growth cycle" says a whole lot about Google's potential.
Google had a lot of negative press lately with a lot of pundits questioning its growth potential to copyright law suits pending against You Tube. But none of these are material to the company's quest to become the largest media company in the world. Yes, that is what they are striving to become. They want to be able to control and monetize content, and they are kicking butt doing it.
It should be also noted that at the current AH quote of $486.80 up over 3%, still represents a significant discount to Yahoo or BIDU. As such Goldman Sachs upgraded this stock with price target of $620. For those who doubt whether Google can continue to grow in the near and long term, just remember that they have produced this stellar result based solely on their core search ad business. They have yet to fully tap the potential of You Tube, advertising initiatives in Radio and Print media (which should become material in late '07 or early'08) remains exciting.
I believe Microsoft and Yahoo better watch out because they are losing market shares in all aspects that they strive to compete in.
I am long on Google with call position in May $500, $470 contracts.
Cramer and SEC
Cramer came out today once again pumping Countrywide as a possible buy out target by Merril Lynch. He postulated that Merrill would buy the "last man standing" in the mortgage business citing the fact that Merrill is still looking to expand its mortgage business. Cramer has been a big proponent of Countrywide since he recommended this stock earlier this year, only to see it slide 20% or more.
I do not know what motivation this Cramer has. But one has to wonder what type of insider information that he possesses to come out publicly and "postulates" that Countrywide will be bought out by Merrill? I believe this stupid action by Cramer is even more irresponsible and arrogant than the previous rants about how the hedge funds manipulate the markets and implicating himself in these "illegal" actions while managing Cramer Berkowitz, his hedge fund. This time, he goes out in the open and saying with audacity and authority that Countrywide will be bought out by Merrill.
It is surprising that SEC has not began a investigation into Cramer's actions on the TV. It is no secret that his recommendations on TV moves stocks which can be manipulated. He claims that he manages the Action Alerts Plus Charitable Trust where he is restricted from doing certain things to avoid conflict of interest. Yet, no one ever considers what he does for his own portfolios, possible partnership LLC's and other activities that he might not have disclosed that might in fact BE conflict of interest.
My feeling on Countrywide has always remained negative and more so each day. If not for insider selling activity that is on the verge of breaking the Guiness Book of World Records, key insider departures from the company, to continued pumping of the stocks and other unsetltling activities within the company, that leaves more questions than answers. Had Countrywide been a buy out target by Merrill with favorable buy out conditions, the insiders would not be selling right now but buying, there would be no insider departures, and most importantly, regardless of whether or not Angelo Mozilo might retire, he would be maximizing his estate by holding onto his shares.
No, I believe what Cramer did must wake up the regulatory body that is called the SEC and began a serious inquest into what actually is going on behind the scenes at James Cramer's empire. It is possible that his Hedge fund buddies are complicit in pumping up the share value of Countrywide but life is fair in the end and truth will eventually come out.
SEC where art thou? Aren't you supposed to be protecting the very issues that are arising in Countrywide and the loud mouth Jim Cramer?
I do not know what motivation this Cramer has. But one has to wonder what type of insider information that he possesses to come out publicly and "postulates" that Countrywide will be bought out by Merrill? I believe this stupid action by Cramer is even more irresponsible and arrogant than the previous rants about how the hedge funds manipulate the markets and implicating himself in these "illegal" actions while managing Cramer Berkowitz, his hedge fund. This time, he goes out in the open and saying with audacity and authority that Countrywide will be bought out by Merrill.
It is surprising that SEC has not began a investigation into Cramer's actions on the TV. It is no secret that his recommendations on TV moves stocks which can be manipulated. He claims that he manages the Action Alerts Plus Charitable Trust where he is restricted from doing certain things to avoid conflict of interest. Yet, no one ever considers what he does for his own portfolios, possible partnership LLC's and other activities that he might not have disclosed that might in fact BE conflict of interest.
My feeling on Countrywide has always remained negative and more so each day. If not for insider selling activity that is on the verge of breaking the Guiness Book of World Records, key insider departures from the company, to continued pumping of the stocks and other unsetltling activities within the company, that leaves more questions than answers. Had Countrywide been a buy out target by Merrill with favorable buy out conditions, the insiders would not be selling right now but buying, there would be no insider departures, and most importantly, regardless of whether or not Angelo Mozilo might retire, he would be maximizing his estate by holding onto his shares.
No, I believe what Cramer did must wake up the regulatory body that is called the SEC and began a serious inquest into what actually is going on behind the scenes at James Cramer's empire. It is possible that his Hedge fund buddies are complicit in pumping up the share value of Countrywide but life is fair in the end and truth will eventually come out.
SEC where art thou? Aren't you supposed to be protecting the very issues that are arising in Countrywide and the loud mouth Jim Cramer?
China Melting Down
China is melting down on prospects of rising interest rates to cool growth. It is currently down over 4%, this time, however, I believe the markets have learned not to over react to the "small" Chinese market. The Dow, Nasdaq, and S&P 500 futures are all currently positive and it seems that today's action priced in the possiblity of another Chinese market meltdown. It is to be remembered that last time the Chinese market melted down, it promptly recovered. Given the non transparent nature of that market, manipulation has to be considered. This time, the market players will not fall for it.
However, the Chinese market overheating is just another symptom that this market is fundamentally flawed and all is not well. However, trend is clearly up, and barring a few sectors, it would be difficult to continue to fight the tape. I do believe that the major correction is probably closer than further, but at the moment, the path of least resistance is "up".
Keep in mind however, that there is also a significant divergent action within the market. Dow and Nasdaq and diverging from one another. While the Dow continues to set new records, Nasdaq continues to meander. This is reminiscent of the July rally that began with Dow taking the lead and NASDAQ falling behind, only to catch momentum midway thorugh the rally. Having said that, this market continues to remain over extended and in "high risk" territory and long positions should have a short stop loss built into them and everyone should have a strict loss cutting rules.
At the moment, I am net short on Countrywide (more on that on my next blog)and long on Google, LHCG. I am bullish on CSCO and remain bearish on BIDU.
However, the Chinese market overheating is just another symptom that this market is fundamentally flawed and all is not well. However, trend is clearly up, and barring a few sectors, it would be difficult to continue to fight the tape. I do believe that the major correction is probably closer than further, but at the moment, the path of least resistance is "up".
Keep in mind however, that there is also a significant divergent action within the market. Dow and Nasdaq and diverging from one another. While the Dow continues to set new records, Nasdaq continues to meander. This is reminiscent of the July rally that began with Dow taking the lead and NASDAQ falling behind, only to catch momentum midway thorugh the rally. Having said that, this market continues to remain over extended and in "high risk" territory and long positions should have a short stop loss built into them and everyone should have a strict loss cutting rules.
At the moment, I am net short on Countrywide (more on that on my next blog)and long on Google, LHCG. I am bullish on CSCO and remain bearish on BIDU.
Buying Short Term Google Calls
As we speak, I am buying some Google calls to head into the earnings. I believe the May 500 calls are an excellent deal. The premise behind the Google play is that Yahoo has always acted in inverse relationship to Google. Their loss is Google's gain. Namely, Google has a wide moat around its advertising revenue based on search. Others like Yahoo can try to imitate the model a la Panama but fact remains, Google has now become vernacular in terms of search and web portal presence. There have been some missteps along the way but it is in no way material to their growth. Their recent acquisition of Double Click speaks volumes in terms of the strategy that Google will corner the search revenue stream in the market. It still trades significantly discounted when compared to BIDU and Yahoo.
Despite the Chinese market concerns and Yen carry trade concerns, it is likely that the market will shrug this off in the short term. I believe we can breach the $500 mark. I do not know how high it can go but it certainly is undervalued at this point. Based on the last quarter's earnings report, I believe that Google should be able to post at least $3.65 in earnings. What we may also find out is that You Tube's copyright issues are vastly over blown.
When you also consider the ability of Google to monetize search, blogs, main stream news media including radio, all other competitors are playing second fiddle at this point. Microsoft is lagging behind Google and has remained silent in their efforts to combat Google.
Technically, Google is finishing up the right side of the double bottom base and has regained the position above 50 EDMA. It would depend on strong earnings to compel this stock to move higher but that can be accomplished.
We will see.
Despite the Chinese market concerns and Yen carry trade concerns, it is likely that the market will shrug this off in the short term. I believe we can breach the $500 mark. I do not know how high it can go but it certainly is undervalued at this point. Based on the last quarter's earnings report, I believe that Google should be able to post at least $3.65 in earnings. What we may also find out is that You Tube's copyright issues are vastly over blown.
When you also consider the ability of Google to monetize search, blogs, main stream news media including radio, all other competitors are playing second fiddle at this point. Microsoft is lagging behind Google and has remained silent in their efforts to combat Google.
Technically, Google is finishing up the right side of the double bottom base and has regained the position above 50 EDMA. It would depend on strong earnings to compel this stock to move higher but that can be accomplished.
We will see.
Wednesday, April 18, 2007
Futures! Cracks? Reality Bites.
Asian futures are down BIG across the board! http://bloomberg.com. I don't know what is triggering this. Perhaps the news that Iranians have been enriching Uranium in secret under ground facility and that they may be closer than previously thought in making wepons grade plutonium? http://www.nytimes.com/2007/04/19/world/middleeast/19nukes.html?_r=1&oref=slogin Or is it that the Yen continues strengthen carrying with it the lucrative Yen Carry trades?
Or perhaps it is because the time has come to pay the piper. I have been mentioning how irrational the market has become. But the liquid crack that the market has been consuming might be wearing off and withdrawl may be showing its effect. I have outlined that there will not be any rate cuts in the near future and if anything, we can expect a rate hike. Additionally, the market is currently in a denial mode where even minute news is spun positively or ignored. But that game can only go on for so long.
This is most evident in the home builders and mortgage lenders. They have some how taken positively to Washington Mutual's (WM) earnings which showed a terrible gut wrenching signs of serious deterioration in the company's fundamentals. Please see another blog: http://market-ticker.denninger.net/. The earnings report was nothing but stuff of horror movies. Yet the market rewards this company. I have even postulated, out of frustration, that perhaps that the market has factored these events in, which I didn't think so, but the markets can frustrate even the best of us. This frustration might have crescendoed today.
Pulte also reported bad numbers stating that housing orders decreased by 24%. In the mean time, Countrywide insiders are at their old games again, selling with abandon. So what could all this mean? Are the cracks finally showing up? Possibly. I have bet enough money on April $35 puts which at this point are worthless, that CFC will unravel. Stupid? Probably. But I have also done some hedging today as a day trade and made 1/2 of that position back. Only time can tell. This market has me frustrated but undeterred.
At any rate, it should be interesting tomorrow. It will really hurt when Reality Bites.
Or perhaps it is because the time has come to pay the piper. I have been mentioning how irrational the market has become. But the liquid crack that the market has been consuming might be wearing off and withdrawl may be showing its effect. I have outlined that there will not be any rate cuts in the near future and if anything, we can expect a rate hike. Additionally, the market is currently in a denial mode where even minute news is spun positively or ignored. But that game can only go on for so long.
This is most evident in the home builders and mortgage lenders. They have some how taken positively to Washington Mutual's (WM) earnings which showed a terrible gut wrenching signs of serious deterioration in the company's fundamentals. Please see another blog: http://market-ticker.denninger.net/. The earnings report was nothing but stuff of horror movies. Yet the market rewards this company. I have even postulated, out of frustration, that perhaps that the market has factored these events in, which I didn't think so, but the markets can frustrate even the best of us. This frustration might have crescendoed today.
Pulte also reported bad numbers stating that housing orders decreased by 24%. In the mean time, Countrywide insiders are at their old games again, selling with abandon. So what could all this mean? Are the cracks finally showing up? Possibly. I have bet enough money on April $35 puts which at this point are worthless, that CFC will unravel. Stupid? Probably. But I have also done some hedging today as a day trade and made 1/2 of that position back. Only time can tell. This market has me frustrated but undeterred.
At any rate, it should be interesting tomorrow. It will really hurt when Reality Bites.
Irrational Markets
Earlier, I posted a change in my thesis and I got an interesting post (all posts are appreciated) that proclaimed that I am a "contrarian" indicator. That's fair. It may even be fair to accuse me of being a novice. I can accept that. I never professed to be a professional trader. I consider every trade whether it be a loss or a gain, a learning opportunity.
Just a clarification in case some have misunderstood my position. I am net short on Countrywide and continue to be so. However, the current market condition is just too bullish with technicals showing an uptrend. I have to obey my set of rules. However, I know that eventually, the overwhelming bullishness in this market will hit a crescendo and all will revert back to the norm. Since I am a short term trader, I trade on momentum either to the long or short side. My long position in CFC is short term until options expiration and this position has netted me a nice gain today. I plan on holding this through Friday and take whatever gain I can get. I am long on April $37.50 call. So excuse me for being a novice.
I would like to wait and see how the earnings report is received by the market when Countrywide reports on April 26. Based on that I may continue to hold my long term puts and stay on hold or buy more. My research and insights on this blog shall not go in vain. But when the opportunity presents itself, I will also take it.
Google looks to be completing a double bottom base pattern and Yahoo's demise is Google's gain. I believe that Google can regain and break above the $510 resistance and make a run for mid $500's after earnings. So I will go long on that. LHCG is digesting its gains and it should do well when they report earnings.
The market is behaving in a way that is completely irrational. Perhaps it is due to the manipulation by PPT? I don't know. But when the market acts in dislocation to the underlying fundamentals, before long, it needs to revert in concert with the technicals. Either one must give and join the other. Eventually, the market will get overbought and then it will realize the "dream" has been dashed.
But at any rate, for those coming on to my blog either for amusement, information, or just to throw insults, that is fine. At least you are reading and that is validation enough. And, thank you "Mr. Anyonymous" for visiting my blog, I am glad that I can be of service.
Just a clarification in case some have misunderstood my position. I am net short on Countrywide and continue to be so. However, the current market condition is just too bullish with technicals showing an uptrend. I have to obey my set of rules. However, I know that eventually, the overwhelming bullishness in this market will hit a crescendo and all will revert back to the norm. Since I am a short term trader, I trade on momentum either to the long or short side. My long position in CFC is short term until options expiration and this position has netted me a nice gain today. I plan on holding this through Friday and take whatever gain I can get. I am long on April $37.50 call. So excuse me for being a novice.
I would like to wait and see how the earnings report is received by the market when Countrywide reports on April 26. Based on that I may continue to hold my long term puts and stay on hold or buy more. My research and insights on this blog shall not go in vain. But when the opportunity presents itself, I will also take it.
Google looks to be completing a double bottom base pattern and Yahoo's demise is Google's gain. I believe that Google can regain and break above the $510 resistance and make a run for mid $500's after earnings. So I will go long on that. LHCG is digesting its gains and it should do well when they report earnings.
The market is behaving in a way that is completely irrational. Perhaps it is due to the manipulation by PPT? I don't know. But when the market acts in dislocation to the underlying fundamentals, before long, it needs to revert in concert with the technicals. Either one must give and join the other. Eventually, the market will get overbought and then it will realize the "dream" has been dashed.
But at any rate, for those coming on to my blog either for amusement, information, or just to throw insults, that is fine. At least you are reading and that is validation enough. And, thank you "Mr. Anyonymous" for visiting my blog, I am glad that I can be of service.
Trend
The recent market run up has is now testing the old Dow highs established earlier this year. Additionally, S&P 500 is at its highest point since 2000. Negative news in the lending front is like teflon for the major banks that issue home mortgages. Every bit of negative news does not affect any of the subprime lenders and banks. I believe the momentum has shifted towards the upside and now the trend is "up".
This tells me that it is useless to fight the tape and that more attention should be paid to the long side of the trade. It appears that the market has priced in a rate cut in the near future, even though, I continue to think that is impossible, it would be a losing proposition to fight the tape. Remember, the market is always right, and fundamentals do not necessarily reflect the technicals of the market.
In the current time, I do not think continuing to short on the way up on Countrywide is a prudent idea. I think that we should wait for the earnings release and cover our shorts.
I am going long on Google, CSCO, LHCG, CFC (into earnings).
This tells me that it is useless to fight the tape and that more attention should be paid to the long side of the trade. It appears that the market has priced in a rate cut in the near future, even though, I continue to think that is impossible, it would be a losing proposition to fight the tape. Remember, the market is always right, and fundamentals do not necessarily reflect the technicals of the market.
In the current time, I do not think continuing to short on the way up on Countrywide is a prudent idea. I think that we should wait for the earnings release and cover our shorts.
I am going long on Google, CSCO, LHCG, CFC (into earnings).
Monday, April 16, 2007
Countrywide Up on Private Equity Buy Out Possibilities
Today, Sallie Mae announced that it would be bought out by a group including a pair of leveraged buyout firms. http://blogs.wsj.com/deals/2007/04/16/sallie-mae-breaks-the-buyout-barrier-is-countrywide-next/
It raised speculation that Countrywide, CIT Group, and iStar Financial might be fair play in the wake of this mega news.
It continued by speculating on today's share price rise as possible noise regarding the possiblity of a buy out.
My take on this is another blatant attempt by either the hedge fund or the main stream media to pump up the share price of Countrywide Financial Corporation. After today, Countrywide is only down about 16% from its highs and does not carry significantly compelling buy out thesis that Sallie Mae does.
Additionally, if this was in the works, then Angelo Mozilo would not be actively liquidating his shares in the company, unless of course, he plans to retire after he sells all of his shares. This might be a remote possibility. But a leveraged buy out would require share holder approval and there will be some road block to this issue.
Right now, CFC has an open options probe that is ongoing, questionable off balance sheet accounting, and more questions than answers regarding its claim that it is immune to the recent subprime and ALT-A Option ARM fall out.
Just look at today's Wall Street Journal's article which show that Washington Mutual and Countrywide lead in questionable lending to second home buyers and subprime. Notice that subprime, high cost loans consist of 25% of the 2006 loans originated by Countrywide while second home buyer loan was 13%. Not quite what Countrywide said their subprime or "risky" loan portfolio was.
Everytime any piece of information or news is unearthed, Countrywide is at the top of the list. Look at the chart, Countrywide is ranked right behind Washington Mutual as "risky" lending practices.
Yet, the market rewards Countrywide with a 7%+ rise today? Perhaps they WILL be bought out, I do not know the ins and outs of their daily misrepresentation, but, it does remain clear, that even if they are a buy out candidate, I do not think any buy out firm or LBO would touch this company until all questions have been satisfactorily answered.
If I had to be a bit "off the wall", I would say that today's rise was a manipulation to shake out the shorts before the "announcement" of materially damaging news that might be coming for CFC, possibly this week.
Maybe so, maybe not. I still think something fishy is going on. Tomorrow, the CPI and housing starts will be released. If CPI is "hot", that would be a damaging blow to today's irrational market rise. For some reason, the market sees dillusional fantasy of rate cut in the near future. FED has maintained that despite every consideration, inflation must be the priority. Last time I checked, the price of milk is expected to rise 9% in the fall, oil is above $60+ and is one severe storm or hurricane away from $70. Today's consumer spending data was "skewed" from an already low prior month number AND with doctoring of "Easter" data that happened to fall on March.
Yet the march continues towards the Apertoire.
Sunday, April 15, 2007
Milk as Inflationary Gauge
If anyone has any doubts that inflation IS real, then one needs to consider the price action of milk.
Milk? Yes, milk. I know this news might be old for some, but I don't know if anyone seriously considered the implications of milk.
Around the globe, cow milk is a core ingredient in many of the food substances both natural and processed. Milk is in just about everything from chocolate, baby formulas, to cakes. When you consider the ubiquitous nature of milk and the implications it has on world food consumption, which should rise as population continues to grow logarithmically with no end in sight, you can consider that the price of milk, long an after thought, actually has serious implications on inflation.
On May 30, 2007, it was announced that the price of milk is expected to rise 9% based on rising fuel costs and increased feed cost. http://msnbc.msn.com/id/17869458/ This is a rise of over 30 cents per gallon by fall.
Heed this as the warning that should have even the sunny perma bulls of this market shaking in their pants. It has trickled down to the basic food group. The whole sale take home message is that milk's rise in price has to do with inflationary pressure that is currently the major issue with the FEDS. It also is an indication that other aspects of the economy is experiencing significant inflationary pressure. Oil, rising health care cost, wages that are not keeping up with inflation, and global demand for raw materials all contribute to the inflationary problems that are not an isolated event exclusive to USA.
Rising milk price is by far the most confirmatory signal that inflation is worse than even the FEDS who stated that inflation is not contained recently, and thus should be taken seriously.
I do not think that the market is healthy despite the recent market movements. Remember, the current rally comes on suspicious follow through day on the Nasdaq and that the rally lacks significant volume. If anything, this action is reminiscent of the 2000 tech rally that eventually pittered out. Thus, for those of you who are thinking of giving up and joining the "long" camp, consider the LOUD WARNING being issued by of all things, MILK.
Milk? Yes, milk. I know this news might be old for some, but I don't know if anyone seriously considered the implications of milk.
Around the globe, cow milk is a core ingredient in many of the food substances both natural and processed. Milk is in just about everything from chocolate, baby formulas, to cakes. When you consider the ubiquitous nature of milk and the implications it has on world food consumption, which should rise as population continues to grow logarithmically with no end in sight, you can consider that the price of milk, long an after thought, actually has serious implications on inflation.
On May 30, 2007, it was announced that the price of milk is expected to rise 9% based on rising fuel costs and increased feed cost. http://msnbc.msn.com/id/17869458/ This is a rise of over 30 cents per gallon by fall.
Heed this as the warning that should have even the sunny perma bulls of this market shaking in their pants. It has trickled down to the basic food group. The whole sale take home message is that milk's rise in price has to do with inflationary pressure that is currently the major issue with the FEDS. It also is an indication that other aspects of the economy is experiencing significant inflationary pressure. Oil, rising health care cost, wages that are not keeping up with inflation, and global demand for raw materials all contribute to the inflationary problems that are not an isolated event exclusive to USA.
Rising milk price is by far the most confirmatory signal that inflation is worse than even the FEDS who stated that inflation is not contained recently, and thus should be taken seriously.
I do not think that the market is healthy despite the recent market movements. Remember, the current rally comes on suspicious follow through day on the Nasdaq and that the rally lacks significant volume. If anything, this action is reminiscent of the 2000 tech rally that eventually pittered out. Thus, for those of you who are thinking of giving up and joining the "long" camp, consider the LOUD WARNING being issued by of all things, MILK.
Countrywide 50 EDMA Crossed Over 200 EDMA
It is confirmed. CFC has now crossed the 50 and 200 EDMA where the 50EDMA is now below the 200 EDMA. This is a bearish sign and also, CFC has failed to mount any up days in materially strong volume, instead majority of their up days have finished on the lower end of the price range on lack luster volume. This is not bullish.
I predict that the stock will continue to see "significant" downward pressure and may be ready to test the $32.50 historic support level, which I believe may be breached by April 26, 2007.
Have those shorts and puts handy. For the adventuresome, the April $30 puts still has some value and would be a good "outside" chance bet on some huge gains.
It would be prudent to stay short or buying the July $30 puts or out further.
I predict that the stock will continue to see "significant" downward pressure and may be ready to test the $32.50 historic support level, which I believe may be breached by April 26, 2007.
Have those shorts and puts handy. For the adventuresome, the April $30 puts still has some value and would be a good "outside" chance bet on some huge gains.
It would be prudent to stay short or buying the July $30 puts or out further.
Go Read Karl Denninger's Blog!
I have always read with interest and enthusiasm Karl Denninger's blog. While I incorporate a lot of my own opinionated posts, Karl's site is full of interesting facts and insights. I think it will provide a valuable addition to my blog. But even more strongly so today, please go read his blog on http://market-ticker.denninger.net/index.html
The title is: "The Week Ahead- Market Preview". Please pay attention to the graph on Mortgage Refinance Resulting in 5% or Higher Loan Amount (Cash Out). Notice the parallels of the housing down turns and how refinance activity resulting in cash out is clearly noted. That is a trend and trend must be heeded along with statistically significant projections.
I also would like to point out the following after reading his blog:
The title is: "The Week Ahead- Market Preview". Please pay attention to the graph on Mortgage Refinance Resulting in 5% or Higher Loan Amount (Cash Out). Notice the parallels of the housing down turns and how refinance activity resulting in cash out is clearly noted. That is a trend and trend must be heeded along with statistically significant projections.
I also would like to point out the following after reading his blog:
- NASD margin borrowing is at its record levels
- Refinancing homes led to ATM effect which is now drying up
- Consumer spending is slowing significantly
- Credit card debt levels are at an all time high
Also, please read between the lines when assessing last week's rally. It came on below average volume with no confirmation that the institutions are buying. If anything, they are selling into the weakness.
I have fears for this market.
Market Irrationality
Before, the markets were concerned about rising inflation rate and corresponding FED interest rate increase. For the past month or so, the market has rallied based on the notion that the FED will ease sooner than later. Once the FED made it clear that the possiblity of interest rate hike exists due to unmitigated inflation, the market now prices in a rate hike some time in Autumn, and then rallies. Every new "negative" news is spun and recreated with a "positive". All I can say is that the market is now in a dangerous territory. The market refuses to price in the fact that the economy might in fact be headed straight into a recession and worse, possibly a stagflation. So the market rallies on what? HOPE.
If anyone has ever studied the stock market in any detail, it is essentially a mass conglomeration of human psycholgy. That is greed, fear, and worse of them all, HOPE. "Hope" is a dangerous thing. I think they said that in the movie, "Shawshank Redemption". It is clearly so in this case.
The market refuses to price in the possiblity that the economy needs a period of cooling and reevaluation. That possibly that the market needs a little respite. That market corections of 20% or more is a positive thing for the market. Yet the market plunge that started in February 27 was brushed aside. Call it what you will, I have heard enough nonsense about PPT to market corruption. But do we really need all of that to realize that we are in a dangerous territory?
No matter where I look, the market seems to have the genuine ability to spin things. Or, are we setting up for a precipitous fall? I don't know. But the rate of the market rise in light of rather dim economic news, established notion that the corporate earnings will slow or fall in the coming quarters, consumer spending is slowing, housing bubble continues to weigh on the economy (of which the full consequence won't be known until after the fact, no matter how many people have an opinion on this), and inflationary pressures. The last time I checked, the dollar continues to fall in relation to EURO and people have all but forgotten about the YEN and the possiblity of the higher YEN having material impact on carry trades. I am keeping tabs and I do not see anything positive in the near of far future. Not until we have "reset" the market with at least a 20% correction.
Corrections are not all that bad in and of itself. It is a process that refreshes for the next earnest bull run. It is a necessity of which no new bull market has ever started without one. The next issue about why I am so bearish and think that the market is irrational is that we have had an unprecedented run up since last July without a moderate correction. As it turns out, the February 27th drop was a blip and cannot be considered a major event that would satify the 20% correction requirement. None the less, the follow through day that came after the February 27th correction was too short and I still believe that we are treading on unshaky grounds technically.
I have always traded on the bullish side but the parallel leading up to 2000 tech correction is uncanny here. So instead of heeding the market, I stand a contrarian. It is costing me money but I have to learn from history and that is where I will be, a learned student of history. But boy oh boy, do I wish I stayed in cash. That cannot be taken back. I am in too deep at this point to regret. All I know is that I am short and believe more each day that being short is the right decision, no matter the short term pain.
If anyone has ever studied the stock market in any detail, it is essentially a mass conglomeration of human psycholgy. That is greed, fear, and worse of them all, HOPE. "Hope" is a dangerous thing. I think they said that in the movie, "Shawshank Redemption". It is clearly so in this case.
The market refuses to price in the possiblity that the economy needs a period of cooling and reevaluation. That possibly that the market needs a little respite. That market corections of 20% or more is a positive thing for the market. Yet the market plunge that started in February 27 was brushed aside. Call it what you will, I have heard enough nonsense about PPT to market corruption. But do we really need all of that to realize that we are in a dangerous territory?
No matter where I look, the market seems to have the genuine ability to spin things. Or, are we setting up for a precipitous fall? I don't know. But the rate of the market rise in light of rather dim economic news, established notion that the corporate earnings will slow or fall in the coming quarters, consumer spending is slowing, housing bubble continues to weigh on the economy (of which the full consequence won't be known until after the fact, no matter how many people have an opinion on this), and inflationary pressures. The last time I checked, the dollar continues to fall in relation to EURO and people have all but forgotten about the YEN and the possiblity of the higher YEN having material impact on carry trades. I am keeping tabs and I do not see anything positive in the near of far future. Not until we have "reset" the market with at least a 20% correction.
Corrections are not all that bad in and of itself. It is a process that refreshes for the next earnest bull run. It is a necessity of which no new bull market has ever started without one. The next issue about why I am so bearish and think that the market is irrational is that we have had an unprecedented run up since last July without a moderate correction. As it turns out, the February 27th drop was a blip and cannot be considered a major event that would satify the 20% correction requirement. None the less, the follow through day that came after the February 27th correction was too short and I still believe that we are treading on unshaky grounds technically.
I have always traded on the bullish side but the parallel leading up to 2000 tech correction is uncanny here. So instead of heeding the market, I stand a contrarian. It is costing me money but I have to learn from history and that is where I will be, a learned student of history. But boy oh boy, do I wish I stayed in cash. That cannot be taken back. I am in too deep at this point to regret. All I know is that I am short and believe more each day that being short is the right decision, no matter the short term pain.
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