Maybe Crocs investors shouldn't focus too much on the popularity of Crocs line of footwear and instead focus on the phenom that is Jibbitz. In what appears to be sweeping the nation with popularity amongst adults and children alike, Jibbitz is becoming a buzz word.
Crocs bought out Jibbitz on December 5, 2006 for $10 million with option to pay $10 million more if certain earnings targets are met. I don't think the founder of Jibbitz LLC will have a problem collecting on that additional $10 million!
Jibbitz is addictive. It allows for personalization and customization of Crocs and is one of the strong selling points for Crox. Never mind that Crox comes in varieties of "fun" colors that can be mixed to suit, the Jibitz allows for customization and creates a fan base for millions of school aged children and adults alike. In fact, many children in Phoenix sampled in Nordstrom's by myself recently states that (and I am compiling as a general consensus), everyone in school has one (Crox and Jibitz) and it appears that it has taken on their own element of trading and trendiness. Case in point, popularity now asserts in many of the Phoenix area children based on the number and uniqueness of Jibbitz! Unbelievable!
Can this be the start of the new craze such as the Pokemon, Uh-gi-Oh, and baseball trading cards? It certainly appears that way. If this phenomenon is true and continues, then we can count on Jibbitz which has huge profit margin and are relatively inexpensive to manufacture will add significant profit margin to already stunning results by Crox! During the recent quarterly earnings call, Mr. Schneider, CEO declined to give projections or include Jibbitz contribution to profits until next quarter, probably because the founder of Jibbitz was paid the $10 milllion bonus for Crocs hitting their target.
It continues to get interesting for Crocs in what appears to be the best stock for 2007!
Saturday, May 12, 2007
CROX, AMZN, CAT, GOOG, and TGT
Crocs (CROX)
Crox is forming a bullish pennant formation on declining volume which is very encouraging. This formation is a high risk formation but a break out from this pattern represents a very powerful bullish uptrend move. The volume has been declining last week as it held and consolidated the gap up. The gap held during Thursday's sell off. What remains to be seen is that Tuesday's CPI number must be "just right". If not, we can expect this market to roll over. I do not think that this market is done just yet.
AMAZON (AMZN)
AMZN is forming a short stroke pattern and has been consolidating its monster 40% gain over the past 1 1/2 weeks. If the stock can break above the $65 level in high volume, we can expect strong gains from this point. Additionally, on the daily chart, AMZN appears to have formed the high tight flag formation as well. Either way, this is a high risk high reward chart pattern and again, CPI numbers will determine if the market continues the amazing uptrend and hence AMZN uptrend.
Caterpiller (CAT)
CAT has broken out of the pennant/flag formation and is headed for $80. On the weekly chart it is also finishing the right side of the cup without a handle base, with buy point at $81. But for the adventurous like me, you can get in earlier, if you have faith in this market.
TARGET (TGT)
I know that April comp numbers were bad for 80% of all the retailers out there, Target included. I also know that it may be partly attributed to the slow down in the economy. But has anyone considered also that April was tax deadline day and many Americans are still reeling from paying Uncle Sam. Also, because the retailers were hammered for the past three months, it may be time to start considering retail and I believe Target (TGT) is the best of the breed. Remember, market looks ahead 8 to 12 months, and I have to believe that Target will do better. Why is that? Isn't gasoline prices going through the roof? Isn't inflationary pressure still the FED's primary concern? Don't we have to worry about subprime and housing impact on consumer spending?
Well, yes and no. Again, the determining factor would be to see the CPI numbers. If it shows that the consumers are not impacted too much and that inflationary pressure is also moderating, that will drive the retailers and the general market.
On a side note, I was at Target on more than one occasion here in Phoenix and it is BUSY! I know that it is just one person's view, but you wouldn't believe that this place was doing as bad as the market is pricing it to be. So, I will take a contrarian view and say that the earnings report on May 23, 2007 will surprise. I continue to hold June $62.50 calls.
On a side note, Countrywide keeps hitting highs on rumors of a take over. If the stock goes over $45, I am going to initiate long dated put position. But I am in wait and see mode. For those of you who are new to this site, please read my prior blog on the state of the economy and the housing industry. My view on the economy hasn't changed but I am a momentum trader and I am obeying the "trend". So please don't say that I am flip flopping etc...
Good luck!
Crox is forming a bullish pennant formation on declining volume which is very encouraging. This formation is a high risk formation but a break out from this pattern represents a very powerful bullish uptrend move. The volume has been declining last week as it held and consolidated the gap up. The gap held during Thursday's sell off. What remains to be seen is that Tuesday's CPI number must be "just right". If not, we can expect this market to roll over. I do not think that this market is done just yet.
AMAZON (AMZN)
AMZN is forming a short stroke pattern and has been consolidating its monster 40% gain over the past 1 1/2 weeks. If the stock can break above the $65 level in high volume, we can expect strong gains from this point. Additionally, on the daily chart, AMZN appears to have formed the high tight flag formation as well. Either way, this is a high risk high reward chart pattern and again, CPI numbers will determine if the market continues the amazing uptrend and hence AMZN uptrend.
Caterpiller (CAT)
CAT has broken out of the pennant/flag formation and is headed for $80. On the weekly chart it is also finishing the right side of the cup without a handle base, with buy point at $81. But for the adventurous like me, you can get in earlier, if you have faith in this market.
TARGET (TGT)
I know that April comp numbers were bad for 80% of all the retailers out there, Target included. I also know that it may be partly attributed to the slow down in the economy. But has anyone considered also that April was tax deadline day and many Americans are still reeling from paying Uncle Sam. Also, because the retailers were hammered for the past three months, it may be time to start considering retail and I believe Target (TGT) is the best of the breed. Remember, market looks ahead 8 to 12 months, and I have to believe that Target will do better. Why is that? Isn't gasoline prices going through the roof? Isn't inflationary pressure still the FED's primary concern? Don't we have to worry about subprime and housing impact on consumer spending?
Well, yes and no. Again, the determining factor would be to see the CPI numbers. If it shows that the consumers are not impacted too much and that inflationary pressure is also moderating, that will drive the retailers and the general market.
On a side note, I was at Target on more than one occasion here in Phoenix and it is BUSY! I know that it is just one person's view, but you wouldn't believe that this place was doing as bad as the market is pricing it to be. So, I will take a contrarian view and say that the earnings report on May 23, 2007 will surprise. I continue to hold June $62.50 calls.
On a side note, Countrywide keeps hitting highs on rumors of a take over. If the stock goes over $45, I am going to initiate long dated put position. But I am in wait and see mode. For those of you who are new to this site, please read my prior blog on the state of the economy and the housing industry. My view on the economy hasn't changed but I am a momentum trader and I am obeying the "trend". So please don't say that I am flip flopping etc...
Good luck!
Friday, May 11, 2007
Week in Review and Plans for Next Week
What a week! The market continues to amaze me with the resiliency. Again, I understand we are at lofty levels in the market and at a certain point this market will correct, and I anticipate that correction will be rather violent, but, I do not think that time has come yet. There is still a lot of negativity and pessimism in this market. This tells me that there are a lot of uninvested money that are clamoring to get in.
Thursday's action was an opportunity for those who have been on the sidelines a chance to get in. But I am willing to bet that many got frightened into inaction because of the possibility of the dreaded correction. We are embarking on uncharted territory. There are many reasons why one should stay defensive in this market:
1. The market has run up without meaningful pull back since March.
2. Economic numbers continue to show slowing.
3. "Sell in May and Go Away".
4. Subprime Slime.
5. Fed did not cut interest rates.
Yet, the market rarely acts to consensus notions. I do not think that the market is due for a pull back, yet, for the following reasons:
1. Everyone is expecting one.
2. There is too much excess liquidity in the market.
3. There are many "retail" investors that have not yet participated in the market.
4. Subprime slime appears contained (I was wrong).
5. Inflation is moderating which increases chances for a rate cut.
My trades are in Crox June $75 call and Target June $62.50 calls. Crox is consolidating its gains nicely and have held the $70 mark. It may be possible that level may be retested next week as options expire. It is also entirely possible that the option may be pinned at the $70 level but it is also possible that the options may expire at $75 level due to high percentage of short positions. After the options expiration, I believe there will be a rush to get the stock before the record date of 5/31/2007, which may have the stock run up to the $80 to $85 level heading into June. If these conditions are not met next week, I plan on closing out my calls.
Target (TGT) June $62.50 is a gamble, in light of the weakening retail numbers, but, I do believe that the negativity has been priced in and that the markets will begin to price in for the retail recovery and eventual rate cut that the market expects. I hold a small position and I am willing to take this gamble as the risks versus reward is justified here. There is too much possible upside in this trade.
Amazon (AMZN) is forming a short stroke pattern as it has been digesting its 40%+ monster run up for the past 5 days. I believe that the stock still has too much momentum and is due for another break out into the options expiration week as this stock is still heavily shorted. Same story as Crocs here. I may be taking a small 10 contract position into the June $65 position here.
CPI is important and I believe it is the most important economic number next week as that will determine the continued uptrend or beginning of the break down of the uptrend. We will see.
Thursday's action was an opportunity for those who have been on the sidelines a chance to get in. But I am willing to bet that many got frightened into inaction because of the possibility of the dreaded correction. We are embarking on uncharted territory. There are many reasons why one should stay defensive in this market:
1. The market has run up without meaningful pull back since March.
2. Economic numbers continue to show slowing.
3. "Sell in May and Go Away".
4. Subprime Slime.
5. Fed did not cut interest rates.
Yet, the market rarely acts to consensus notions. I do not think that the market is due for a pull back, yet, for the following reasons:
1. Everyone is expecting one.
2. There is too much excess liquidity in the market.
3. There are many "retail" investors that have not yet participated in the market.
4. Subprime slime appears contained (I was wrong).
5. Inflation is moderating which increases chances for a rate cut.
My trades are in Crox June $75 call and Target June $62.50 calls. Crox is consolidating its gains nicely and have held the $70 mark. It may be possible that level may be retested next week as options expire. It is also entirely possible that the option may be pinned at the $70 level but it is also possible that the options may expire at $75 level due to high percentage of short positions. After the options expiration, I believe there will be a rush to get the stock before the record date of 5/31/2007, which may have the stock run up to the $80 to $85 level heading into June. If these conditions are not met next week, I plan on closing out my calls.
Target (TGT) June $62.50 is a gamble, in light of the weakening retail numbers, but, I do believe that the negativity has been priced in and that the markets will begin to price in for the retail recovery and eventual rate cut that the market expects. I hold a small position and I am willing to take this gamble as the risks versus reward is justified here. There is too much possible upside in this trade.
Amazon (AMZN) is forming a short stroke pattern as it has been digesting its 40%+ monster run up for the past 5 days. I believe that the stock still has too much momentum and is due for another break out into the options expiration week as this stock is still heavily shorted. Same story as Crocs here. I may be taking a small 10 contract position into the June $65 position here.
CPI is important and I believe it is the most important economic number next week as that will determine the continued uptrend or beginning of the break down of the uptrend. We will see.
PPI and Retail Sales Look Bullish for the Market
PPI is up 0.7% on energy but core is unchanged. Retail Sales are down 0.2% less than forecasted. However, when considering slow down in the housing market and the auto market, this number isn't as bad.
So the tug of war continues. This is exactly what I was talking about regarding this market. One day you have concerning numbers that the investors react to, then the next day, the numbers don't seem all that bad. This is what I call whipsaw. It is best to take a position and stick with it, lest you lose money by flip flopping in this market. I made a resolve to stay with the trend and that's what I have been doing for the past 1 month.
On the trade front, Crox looks to resume their uptrend. Yesterday's sell off meant that it was time to step and buy and those buyers are getting rewarded today. Also watch the retailers which have been beaten up due to the slowing sales. I believe a lot of them have hit technical bottoms and should begin to move up a bit from here, which offers a trading opportunity. I have initiated a small call position on Target with 20 call options for June 07 strike $62 at $0.50. I may add more on weakness. I anticipate an earnings report upside as all negative factors appear in the stock price now. Report bad numbers, the stock goes up, the guidance is key for Target (TGT).
Looks like we're going to have an upday today. Good luck everyone.
So the tug of war continues. This is exactly what I was talking about regarding this market. One day you have concerning numbers that the investors react to, then the next day, the numbers don't seem all that bad. This is what I call whipsaw. It is best to take a position and stick with it, lest you lose money by flip flopping in this market. I made a resolve to stay with the trend and that's what I have been doing for the past 1 month.
On the trade front, Crox looks to resume their uptrend. Yesterday's sell off meant that it was time to step and buy and those buyers are getting rewarded today. Also watch the retailers which have been beaten up due to the slowing sales. I believe a lot of them have hit technical bottoms and should begin to move up a bit from here, which offers a trading opportunity. I have initiated a small call position on Target with 20 call options for June 07 strike $62 at $0.50. I may add more on weakness. I anticipate an earnings report upside as all negative factors appear in the stock price now. Report bad numbers, the stock goes up, the guidance is key for Target (TGT).
Looks like we're going to have an upday today. Good luck everyone.
Thursday, May 10, 2007
Long Expected Correction Arrives!
Folks, take heart! The correction is here! Why am I so giddy about the prospects of the market going down? It is because the markets have risen without a smidge of a correction since March! It is said that corrections are the ingedients for future upside moves. It is a process by which excess speculation and euphoria is washed out of the market. It builds strong support bases which are essential for the next upside moves.
Having said that, the markets corrected on average volume today. You wouldn't know it but it seemed much worse with close to 3:1 decliners over advancers on the NYSE and NASDAQ was worse with 4:1 ratio.
The million dollar question then is this: Is the beginning of the end? I would beg to differ. I know a lot of you would argue that it is a seasonally weak time to be trading. That major traders have packed it up until fall. But is it really different this time? Not really. The only major issue that I would like to point out is that there still exists excess liquidity in the market place and the long sided bulls that have been clamoring to get into the market before it ran away from them. You see, after the Correction in February 27th, many gun shy long sided traders have stayed on the sidelines to watch this market propel higher and higher and to their dismay, this market gave no convenient points of entry. Until now.
I hang on to the thesis that the markets have been pricing in a stronger economi growth in 12 to 13 months down the road. Also, the markets were pricing in a rate cut some time this year, and based on the retail numbers and the PPI and CPI (due next week) numbers, the markets may get just what they wished for. I still believe that the markets need a rate hike, not a rate cut, to combat inflation, but my feeling is that Bernake will succumb to the pressures of politics and dare not destroy the economy during the presidential election cycle. No way! It is too bad because whoever the next president will be, they will have a lot of garbage to clean up and our economy may be in for a rude awakening.
I do not fight the trend. Rarely in my trading career did I make money by fighting the trend and I will not change it this time. I have to stay true to what makes me a relatively successful trader. Until that trend is violated, and no matter how contrary the markets act in relation to the economic fundamentals, I will obey the trend. That trend is still up!
I am not right 100% of the time, but I am right just enough that it makes me money. Many of the readers will realize that for the past two months I have been really getting hammered and many are wondering how do I consistently trade? It is because I take small position sizes relative to my trading capital. To some that may be a big huge position but to others it may be peanuts. I generally trade anywhere between 10 contracts all the way up to 1000 contracts depending on how bullish I am. I have a win percentage of 38.4% which makes me money. The key is to manage contract size and capital wager.
Okay, I am boring you. So I will get to the gist of what I am up to lately.
I believe the market correction today will be short lived and the fundamentals today was ugly. Retail sales were down sharply more than forecasted spurring on fears of recession and slowing economy. Like I have said, the FED is in a precarious position but they will have to choose their poision soon enough and I am willing to bet that Bernake will wink and cut rates. Based on that, the economic data coming out will continue to be mixed causing much volatility in the market. But this sell off today will be a one or two day event and I predict that we will continue resumption of the uptrend soon enough. Thus today represents a key buy point for those who are in the market and those who are clamoring to get in.
It is doubly important that the "wall of worry" is brought back into the focus and according to my theory, it is a necessary evil for the markets to continue their upward trend. So that is a plus.
I am heavily involved in Crox. You might say, "what the heck are you on crack?" Well listen me out here. That quarter that Crox reported was just a monster one! It legitimizes Crox as more than a FAD. Additionally, it proved many naysayers wrong. Yet, as is often the case, the naysayers will not give in easily, even as they see the stock leap 20,30, even 60% from this point. I think that the price target of $105 by the end of the year is not unrealistic and a short term price target of $85 is reasonable. With the impending stock split, it is likely the hedgies and institutions will bid it up. Did you notice how it has been silent in terms of upgrades from big brokerages? It is likely that they are accumulating shares, quietly. This can take a while. But all indications are that there still is the 6 days to cover 28% short position in this stock and the meat of the squeeze is yet to come. Once the market gets over their conniption, we will see resumption of the uptrend in this stock. I have now accumulated 240 contracts of June $70 at an average price of $3.73. I plan on adding if the current option prices hold for the June $70 at $3.80 to $5.00 range.
That is my major trades. I have not done much with J&J or CAT. CFC looks like a good short from here and I may just do that but I have been burned on that stock before so I will tread carefully.
good luck!
Having said that, the markets corrected on average volume today. You wouldn't know it but it seemed much worse with close to 3:1 decliners over advancers on the NYSE and NASDAQ was worse with 4:1 ratio.
The million dollar question then is this: Is the beginning of the end? I would beg to differ. I know a lot of you would argue that it is a seasonally weak time to be trading. That major traders have packed it up until fall. But is it really different this time? Not really. The only major issue that I would like to point out is that there still exists excess liquidity in the market place and the long sided bulls that have been clamoring to get into the market before it ran away from them. You see, after the Correction in February 27th, many gun shy long sided traders have stayed on the sidelines to watch this market propel higher and higher and to their dismay, this market gave no convenient points of entry. Until now.
I hang on to the thesis that the markets have been pricing in a stronger economi growth in 12 to 13 months down the road. Also, the markets were pricing in a rate cut some time this year, and based on the retail numbers and the PPI and CPI (due next week) numbers, the markets may get just what they wished for. I still believe that the markets need a rate hike, not a rate cut, to combat inflation, but my feeling is that Bernake will succumb to the pressures of politics and dare not destroy the economy during the presidential election cycle. No way! It is too bad because whoever the next president will be, they will have a lot of garbage to clean up and our economy may be in for a rude awakening.
I do not fight the trend. Rarely in my trading career did I make money by fighting the trend and I will not change it this time. I have to stay true to what makes me a relatively successful trader. Until that trend is violated, and no matter how contrary the markets act in relation to the economic fundamentals, I will obey the trend. That trend is still up!
I am not right 100% of the time, but I am right just enough that it makes me money. Many of the readers will realize that for the past two months I have been really getting hammered and many are wondering how do I consistently trade? It is because I take small position sizes relative to my trading capital. To some that may be a big huge position but to others it may be peanuts. I generally trade anywhere between 10 contracts all the way up to 1000 contracts depending on how bullish I am. I have a win percentage of 38.4% which makes me money. The key is to manage contract size and capital wager.
Okay, I am boring you. So I will get to the gist of what I am up to lately.
I believe the market correction today will be short lived and the fundamentals today was ugly. Retail sales were down sharply more than forecasted spurring on fears of recession and slowing economy. Like I have said, the FED is in a precarious position but they will have to choose their poision soon enough and I am willing to bet that Bernake will wink and cut rates. Based on that, the economic data coming out will continue to be mixed causing much volatility in the market. But this sell off today will be a one or two day event and I predict that we will continue resumption of the uptrend soon enough. Thus today represents a key buy point for those who are in the market and those who are clamoring to get in.
It is doubly important that the "wall of worry" is brought back into the focus and according to my theory, it is a necessary evil for the markets to continue their upward trend. So that is a plus.
I am heavily involved in Crox. You might say, "what the heck are you on crack?" Well listen me out here. That quarter that Crox reported was just a monster one! It legitimizes Crox as more than a FAD. Additionally, it proved many naysayers wrong. Yet, as is often the case, the naysayers will not give in easily, even as they see the stock leap 20,30, even 60% from this point. I think that the price target of $105 by the end of the year is not unrealistic and a short term price target of $85 is reasonable. With the impending stock split, it is likely the hedgies and institutions will bid it up. Did you notice how it has been silent in terms of upgrades from big brokerages? It is likely that they are accumulating shares, quietly. This can take a while. But all indications are that there still is the 6 days to cover 28% short position in this stock and the meat of the squeeze is yet to come. Once the market gets over their conniption, we will see resumption of the uptrend in this stock. I have now accumulated 240 contracts of June $70 at an average price of $3.73. I plan on adding if the current option prices hold for the June $70 at $3.80 to $5.00 range.
That is my major trades. I have not done much with J&J or CAT. CFC looks like a good short from here and I may just do that but I have been burned on that stock before so I will tread carefully.
good luck!
Tuesday, May 08, 2007
Cisco Reports Strong Earnings but Shares Fall 5%
I am left with quite a dilemma because even though Cisco reported good earnings, the markets were not impressed. I myself had been hoping for at least $.35 to $.38 but non-GAAP $.34 was announced, $.01 above views. It was disheartening to see this stock get taken to the shed and shot but this was clearly the "sell the news" event. The expectations were huge on this stock and because this is a bellweather stock one good thing came out of this event today.
Our economy is doing just okay and that many of the Cisco's vendors are saying that "soft landing" is in full force.
So what is my plan today? I think that this stock will be under pressure tomorrow morning before the market opens. I am not sure if this stock deserves a 5% hair cut though. A fair price for this stock would be around $31 based on this earnings. Once the investors have finished freaking out, it may be a good time to hold on to the options for additional few weeks to see how this stock plays out.
There have been rumblings of possible partnership between Apple and Cisco but no more detail can be found. I am not sure of the authenticity of this claim but if it is that can jump start Cisco in the right direction.
More realistically, the stock should meander from $25.90 to $27.90 tomorrow. For options traders like me, I am going to take advantage of the higher implied volatility at the open and get out. Based on I Volatility.com, stock price of $27.25 will yield call contract price of $1.02 and stock price of $26.77 would yield option price of $.80. My basis point for June 27.50 call was $1.32 and if I can maintain 70% of my position tomorrow morning, I would be grateful.
I will cut my losses and move on.
I am looking into J&J September calls which are fairly undervalued and the IV and HV have not diverged yet. I believe that based on the cup base formation, this stock may be ready to prod upside. Additionally, I am planning on adding onto the June $70 call of Crox. I already have 17 contracts placed on this trade. I would like to take the remainder of my capital and concentrate into Crox over time, taking advantage of volatility in price. I am hopeful that I can gain 300 contracts here. There is more upside left in Crox.
So for those reeling from Cisco, take heart, because there is always another day.
Our economy is doing just okay and that many of the Cisco's vendors are saying that "soft landing" is in full force.
So what is my plan today? I think that this stock will be under pressure tomorrow morning before the market opens. I am not sure if this stock deserves a 5% hair cut though. A fair price for this stock would be around $31 based on this earnings. Once the investors have finished freaking out, it may be a good time to hold on to the options for additional few weeks to see how this stock plays out.
There have been rumblings of possible partnership between Apple and Cisco but no more detail can be found. I am not sure of the authenticity of this claim but if it is that can jump start Cisco in the right direction.
More realistically, the stock should meander from $25.90 to $27.90 tomorrow. For options traders like me, I am going to take advantage of the higher implied volatility at the open and get out. Based on I Volatility.com, stock price of $27.25 will yield call contract price of $1.02 and stock price of $26.77 would yield option price of $.80. My basis point for June 27.50 call was $1.32 and if I can maintain 70% of my position tomorrow morning, I would be grateful.
I will cut my losses and move on.
I am looking into J&J September calls which are fairly undervalued and the IV and HV have not diverged yet. I believe that based on the cup base formation, this stock may be ready to prod upside. Additionally, I am planning on adding onto the June $70 call of Crox. I already have 17 contracts placed on this trade. I would like to take the remainder of my capital and concentrate into Crox over time, taking advantage of volatility in price. I am hopeful that I can gain 300 contracts here. There is more upside left in Crox.
So for those reeling from Cisco, take heart, because there is always another day.
Monday, May 07, 2007
Cashed Out of Crox for Now.
I cashed out of my 80 contract position of June $60 call options on Crox to add to my Cisco options for tomorrow's earnings report. I will wait for some consolidation of Crox, which may only last a few days and will consider reentering this trade at July or August options priced out to $75 call options on Crox. I made good profits on this Crox trade but feel that more is to come.
Also, Disney (DIS) looks interesting for tomorrow's earnings play. I am also paying close attention to Charles Schwab (SCHW), more on this later. I am also paying close attention to Mindray (MR).
Good luck!
Also, Disney (DIS) looks interesting for tomorrow's earnings play. I am also paying close attention to Charles Schwab (SCHW), more on this later. I am also paying close attention to Mindray (MR).
Good luck!
Cisco is a Bellweather Stock.
Cisco is a bellweather stock. The current health of the economy and the strength of the stock market can be derived from the action based on tomorrow's earnings report from Cisco (CSCO). I believe that the continuation of the recent bull run is dependent on Cisco so a lot is riding on the market in this regard.
Cisco reports earnings after the bell closes May 8, 2007 at 4:00 PM EST. Analysts are expecting EPS of $.33 and average revenue expectation of $8.76 Billion.
Now, I have to remind everyone that since the follow through day on March 17, 2007, we have had continued record breaking run on the Dow, NASDAQ, and S&P 500. It is to be reminded that the current bull run is on the heels of divergence between fundamentals of the economy (which is terrible) and the technicals of the stock market (which is breathtaking). That is a cause for concern but remember, TREND is always your friend and technically there is nothing to suggest that we are breaking down from this "up" trend. But it is always important to remember that we are setting ourselves for a correction, and that is a good thing and invited. On the other hand, this market run has left a lot of market players shrugging their shoulders and wondering why they have not benefited much. Many have been gun shy from the February 27th market meltdown, which was quick, scary, and intense. So a lot of people are scratching their heads and wondering how this market can continue to go up day after day without a meaningful pull back. All I can say is that you cannot argue with the market or the tape. Thus this rally in the market has left a lot of people eager to get into the markets but are too scared to. This tells me that this market may yet still have legs. But, the Bellwethers have to deliver and Cisco has its work cut out for them tomorrow.
CRITICS
Critics of Cisco say that the bullishness in this stock has already been priced in and that their domestic enterprise division which comprises over 45% of Cisco's business yet delivers only 4% growth has been slowing. The market expectations for Cisco is too high and that a potential exists for Cisco to disappoint the 2Q earnings results. Also, the market is frothy at this point with unprescedented strong run from big cap stocks while leaving the small caps virtually out of the recent rally. Finally, the old adage "sell in May and go away" has some statistical significance since 1929. I am sure many of you investors out there remember the gut wrenching correction in May 2006.
PROPONENTS
Cisco was virtually ignored during last quarter's stellar earnings. The earnings beat analyst estimates and Cisco gave a bullish forecast. Yet the stock did nothing and began to correct down with the low point being $24.82. Now, many stocks including Apple (AAPL), Google (GOOG), Crocs (CROX), Mastercard (MA), Intuitive Surgical (ISRG) also rolled over on bullish earnings report only to report this quarter with similar earnings report and they gapped up and continues to appreciate in price. Additionally, the current market favors large and mega cap stocks to do well on decent earnings report. Look at the likes of Texas Instruments (TXN), Caterpiller (CAT), Honeywell (HON), Microsoft (MSFT), and many more. They all have been the beneficiaries of excess liquidity that exists in the market today despite the divergent fundamentals of the economy which many would argue that the market has already priced this in and that we are not going into a recession. Additionally, Cisco is highly levered to the global economy and the recent weakness in the dollar against the world currencies that matter have boosted Cisco's profitability and that will be evident in this quarter's earnings report. Furthermore, the components to manufacture Cisco's routers, VOIP devices, Video on Demand (Scientific Atlanta) components, and Video teleconferencing devices will increase gross margins and thus boost profitability. Additionally, recent Cisco acquisition of Webex should continue to be accretive to Cisco's endeavor to venture into leadership role in Video teleconferencing, corporate telephony systems, and give a presence in software to run all of these exciting technologies. While the domestic enterprise division still comprises 45% of the entire revenue of Cisco and that it certainly is a cash generating business and not a growth engine, Cisco has done much to transform itself for the new demands apparent for high bandwidth video conferencing, video on demand, and higher bandwidth requirement for internet evolution in terms of MP3 downloads, MPEG and other video format down loads on the internet. With the advent of the popularity of social networking sites and copy cats that are modeling after the sites such as Youtube, Myspace, and many others, Cisco has reinvented itself in the 80's as a telephone switch maker to the Internet router manufacturer in the 90's to Internet Content backbone provider in the 21st Century. Thus it is easy to see why I am so bullish and I am a PROPONENT for Cisco for the short and long term. We should see the fruits of Cisco's hard work in transforming itself and even at $167.97 billion market cap, we are no where near the market cap that was given during the internet bubble era. There is tremendous room for growth and this quarter's earnings will prove just that.
I am expecting EPS of $.38 on Revenues of $9.1 billion with Cisco continuing to wax optimisim. I am heavily levered to June $27.50 calls and I own 1023 contracts. I am also levered to the May $30 call and I own 200 contracts.
Good luck everyone.
Cisco reports earnings after the bell closes May 8, 2007 at 4:00 PM EST. Analysts are expecting EPS of $.33 and average revenue expectation of $8.76 Billion.
Now, I have to remind everyone that since the follow through day on March 17, 2007, we have had continued record breaking run on the Dow, NASDAQ, and S&P 500. It is to be reminded that the current bull run is on the heels of divergence between fundamentals of the economy (which is terrible) and the technicals of the stock market (which is breathtaking). That is a cause for concern but remember, TREND is always your friend and technically there is nothing to suggest that we are breaking down from this "up" trend. But it is always important to remember that we are setting ourselves for a correction, and that is a good thing and invited. On the other hand, this market run has left a lot of market players shrugging their shoulders and wondering why they have not benefited much. Many have been gun shy from the February 27th market meltdown, which was quick, scary, and intense. So a lot of people are scratching their heads and wondering how this market can continue to go up day after day without a meaningful pull back. All I can say is that you cannot argue with the market or the tape. Thus this rally in the market has left a lot of people eager to get into the markets but are too scared to. This tells me that this market may yet still have legs. But, the Bellwethers have to deliver and Cisco has its work cut out for them tomorrow.
CRITICS
Critics of Cisco say that the bullishness in this stock has already been priced in and that their domestic enterprise division which comprises over 45% of Cisco's business yet delivers only 4% growth has been slowing. The market expectations for Cisco is too high and that a potential exists for Cisco to disappoint the 2Q earnings results. Also, the market is frothy at this point with unprescedented strong run from big cap stocks while leaving the small caps virtually out of the recent rally. Finally, the old adage "sell in May and go away" has some statistical significance since 1929. I am sure many of you investors out there remember the gut wrenching correction in May 2006.
PROPONENTS
Cisco was virtually ignored during last quarter's stellar earnings. The earnings beat analyst estimates and Cisco gave a bullish forecast. Yet the stock did nothing and began to correct down with the low point being $24.82. Now, many stocks including Apple (AAPL), Google (GOOG), Crocs (CROX), Mastercard (MA), Intuitive Surgical (ISRG) also rolled over on bullish earnings report only to report this quarter with similar earnings report and they gapped up and continues to appreciate in price. Additionally, the current market favors large and mega cap stocks to do well on decent earnings report. Look at the likes of Texas Instruments (TXN), Caterpiller (CAT), Honeywell (HON), Microsoft (MSFT), and many more. They all have been the beneficiaries of excess liquidity that exists in the market today despite the divergent fundamentals of the economy which many would argue that the market has already priced this in and that we are not going into a recession. Additionally, Cisco is highly levered to the global economy and the recent weakness in the dollar against the world currencies that matter have boosted Cisco's profitability and that will be evident in this quarter's earnings report. Furthermore, the components to manufacture Cisco's routers, VOIP devices, Video on Demand (Scientific Atlanta) components, and Video teleconferencing devices will increase gross margins and thus boost profitability. Additionally, recent Cisco acquisition of Webex should continue to be accretive to Cisco's endeavor to venture into leadership role in Video teleconferencing, corporate telephony systems, and give a presence in software to run all of these exciting technologies. While the domestic enterprise division still comprises 45% of the entire revenue of Cisco and that it certainly is a cash generating business and not a growth engine, Cisco has done much to transform itself for the new demands apparent for high bandwidth video conferencing, video on demand, and higher bandwidth requirement for internet evolution in terms of MP3 downloads, MPEG and other video format down loads on the internet. With the advent of the popularity of social networking sites and copy cats that are modeling after the sites such as Youtube, Myspace, and many others, Cisco has reinvented itself in the 80's as a telephone switch maker to the Internet router manufacturer in the 90's to Internet Content backbone provider in the 21st Century. Thus it is easy to see why I am so bullish and I am a PROPONENT for Cisco for the short and long term. We should see the fruits of Cisco's hard work in transforming itself and even at $167.97 billion market cap, we are no where near the market cap that was given during the internet bubble era. There is tremendous room for growth and this quarter's earnings will prove just that.
I am expecting EPS of $.38 on Revenues of $9.1 billion with Cisco continuing to wax optimisim. I am heavily levered to June $27.50 calls and I own 1023 contracts. I am also levered to the May $30 call and I own 200 contracts.
Good luck everyone.
Sunday, May 06, 2007
Thoughts for the Coming Week.
Earnings season is now winding down and so far, the earnings have been down right spectacular. Economic numbers continue to remain mixed and this leaves the lame duck FED with nothing much to do. As I have opined in my past blogs, I believe that worst of the economic numbers are now coming out and the recessionary force probably has already passed. Remember, the effects of the recession will be felt well after the "real" recessionary force has passed. In effect, the market is pricing in for economic recovery 6 to 12 months out.
Now that doesn't mean anything. I cannot predict things and I may be completely off base. I am a trend trader following momentum. I know that the market is extended at these levels but why fight the momentum and trend? In environments like the current market condition, it is prudent to limit downside exposure with hedges or smaller initial position sizing. In my trading I tend to ride the "wave" so to speak but once the market condition is in the "red" zone, I tend to stay in cash. Right now, there is no indication that this market is headed for trouble.
Having said that, FOMC interest rates will be announced on Wednesday 5/9/2007 at 2:30 PM EST. We have a lot of economic numbers due out this week.
May 9 10:30 AM: Crude Inventories- this number plays a critical role in easing the market's concern regarding rising oil and gasoline prices. The market has priced in the possibility of abundance of crude inventories and the oil futures have come down a bit last week.
May 10 2:30 PM: FOMC meeting. Fed will stay put but may change their hawkish wording.
May 11 8:30 AM: PPI core and non core, Retail Sales ex auto.
These numbers are what I would consider to be critical for the markets. Again, since the market is pricing in for a "soft landing goldilocks scenario", these numbers have to be "just right".
I would like to see the market take a little breather and correct at least 2 to 3% soon as I am getting worried about how overheated this rally has been.
I am going to hold Crox options through Tuesday (please see prior blog for my trade positions). I am planning on entering Cisco trade for July $30 contracts currently trading for around $.60 or June $27.50 contracts. I like the prospects of Cisco, and like Crox, it got taken down during the market correction despite stellar earnings. I believe that this quarter earnings will benefit from global operations and that the concerns regarding the domestic enterprise division slow down is overblown. The risk continues to remain this overheated market and what the FOMC meetings will have in store. Cisco reports earnings on Tuesday 5/8/2007 after the market close. I expect the markets to remain jittery heading into Wednesday for the FOMC rate decision. That could present additional buying opportunity for Crox and CSCO.
I am interested in looking at Mindray (MR), Johnson and Johnson (JNJ), and Apple (AAPL) for quick options trade. I am especially interested in Apple as the IV has come down significantly ahead of the iPhone release in June 15 (some say June 21). We can expect some price volatility until then. I am looking to possibly play the July $100 or $105 call.
Mindray (MR) also did not fare well in last earnings quarter despite mostly good earnings due to Shanghai market meltdown (which was short lived). This time around, the Chinese markets have recovered and is powering ahead. If the earnings are good, I can expect this stock to trade from the current $24 and change to $32 by July. I am interested in the July $25 or $30 call. There is unusually high open interest for July $30 at 3641. It is currently trading for around $.30 per contract. Company is due to report earnings on May 15, 2007. If the market condition holds, this can be one of the biggest sleeper trades out there. IV is relatively high compared to HV but, that is due to the abberant stock price decline since last quarter's earnings report. All indications are is that this company should handily beat earnings estimate.
As always, protect your capital and be very careful not to lose it all!
Now that doesn't mean anything. I cannot predict things and I may be completely off base. I am a trend trader following momentum. I know that the market is extended at these levels but why fight the momentum and trend? In environments like the current market condition, it is prudent to limit downside exposure with hedges or smaller initial position sizing. In my trading I tend to ride the "wave" so to speak but once the market condition is in the "red" zone, I tend to stay in cash. Right now, there is no indication that this market is headed for trouble.
Having said that, FOMC interest rates will be announced on Wednesday 5/9/2007 at 2:30 PM EST. We have a lot of economic numbers due out this week.
May 9 10:30 AM: Crude Inventories- this number plays a critical role in easing the market's concern regarding rising oil and gasoline prices. The market has priced in the possibility of abundance of crude inventories and the oil futures have come down a bit last week.
May 10 2:30 PM: FOMC meeting. Fed will stay put but may change their hawkish wording.
May 11 8:30 AM: PPI core and non core, Retail Sales ex auto.
These numbers are what I would consider to be critical for the markets. Again, since the market is pricing in for a "soft landing goldilocks scenario", these numbers have to be "just right".
I would like to see the market take a little breather and correct at least 2 to 3% soon as I am getting worried about how overheated this rally has been.
I am going to hold Crox options through Tuesday (please see prior blog for my trade positions). I am planning on entering Cisco trade for July $30 contracts currently trading for around $.60 or June $27.50 contracts. I like the prospects of Cisco, and like Crox, it got taken down during the market correction despite stellar earnings. I believe that this quarter earnings will benefit from global operations and that the concerns regarding the domestic enterprise division slow down is overblown. The risk continues to remain this overheated market and what the FOMC meetings will have in store. Cisco reports earnings on Tuesday 5/8/2007 after the market close. I expect the markets to remain jittery heading into Wednesday for the FOMC rate decision. That could present additional buying opportunity for Crox and CSCO.
I am interested in looking at Mindray (MR), Johnson and Johnson (JNJ), and Apple (AAPL) for quick options trade. I am especially interested in Apple as the IV has come down significantly ahead of the iPhone release in June 15 (some say June 21). We can expect some price volatility until then. I am looking to possibly play the July $100 or $105 call.
Mindray (MR) also did not fare well in last earnings quarter despite mostly good earnings due to Shanghai market meltdown (which was short lived). This time around, the Chinese markets have recovered and is powering ahead. If the earnings are good, I can expect this stock to trade from the current $24 and change to $32 by July. I am interested in the July $25 or $30 call. There is unusually high open interest for July $30 at 3641. It is currently trading for around $.30 per contract. Company is due to report earnings on May 15, 2007. If the market condition holds, this can be one of the biggest sleeper trades out there. IV is relatively high compared to HV but, that is due to the abberant stock price decline since last quarter's earnings report. All indications are is that this company should handily beat earnings estimate.
As always, protect your capital and be very careful not to lose it all!
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