Monday, February 8, 2010

Look Both ways before Crossing the Street

Monday, February 8, 2010


Levels: SP500 ends off 9.5 points/0.88% to 1056; the R2K ends off 1.09% and the
Nazz closed down 0.7%.

· Equity Desk Color – buyers tried to make it a green session although failed to
the early gains and stocks finished at their lows after accelerating to the downside
during the last hr of trading. There was never a lot of follow through to Fri’s late session
rally (a lot of which was short covering) – this morning’s buying never had a
lot of conviction
behind it. For much of the morning and early afternoon, the large

vanilla selling from last Thurs and early Fri didn’t really appear and shorts weren’t
being as aggressive putting new exposure on, although this changed in the last hour
of the day (into the close selling picked up and shorts became a bit more active).
The trend still remains to fade rallies (like we saw today) and the weak close today
was very discouraging to the bulls. Larger vanillas were relatively quiet up until 3pm.
European sovereign headlines remain top of mind but didn’t seem to have to the type
of systemic impact as they did last week (also note that European equities had a
strong session and finished near the highs of the day). The calendar is pretty light
this week both on the corporate and eco front; the biggest event will prob. be
Bernanke’s testimony before the House on exit strategies. We failed to close north
of the 1071 level on the sp500 (cash), a neg. technical development. Tough to read
today’s tea leaves – US equities sag into the bell following a strong European close;
US TSYs didn’t really rally though the session; while the Euro lagged vs. the buck in
the last hr of US trading, it ended off its lows from overnight.

· Equity Sectors financials have been laggards all session, weighed down by larger
money centers and some profit taking in the REITs (fins finish off >2%). The
materials stocks saw selling into the afternoon (the sp500 materials fell >1%, which
is in contrast to their European peers, which traded well on back of the Xstrata #s,
and in contrast to the underlying metals, which were higher). Leading materials on
the downside: NEM, TIE, MON, CLF, AKS, NUE. Industrials dip >1% (some of the
big cap goods firms, like UTX, and CAT, along w/rails, all close off >1%). Tech,
which outperformed for most of the day, ended off ~0.4% after failing to hold its gains
(WFR, ABDE, WU, BRCM, ORCL all weighed). The homebuilders were one of the
performing groups today (ahead of earnings from PHM tom morning; the WSJ

had a pos. article on the group).

Calendar of events to watch
· the House will hold hearings on Fed exit strategies on Feb 10 (Bernanke will be
testifying here). Also in Washington – the House could vote this week to revoke
the HMO industry’s anti-trust immunity and Congress will try to move forward on
a jobs creation bill (reports on Fri indicated this effort was running into some

· In Europe, there are a bunch of events people are watching for: 1) Greece's main
public sector union ADEDY holds a nationwide, 24-hour strike against austerity measures
on Feb 10; 2) Portugal’s Parliament starts discussion on 2010 draft
budget bill on Wednesday,
Feb. 10; 3) EU leaders meet for a one-day economic
summit in Brussels on Thursday, Feb 11.

· Treasuries - will auction $40 billion in three-year notes on Feb. 9, $25 billion in 10-
year notes Feb. 10 and $16 billion in 30-year bonds Feb. 11 – Bloomberg

· Chinese New Year - February 14 will mark the first day of the Chinese New Year.

· The FTSE was able to post a gain on the day, up .62%, led by basic materials as
financials lagged; Lloyds dropped 2.3%. In mining, Xstrata finished up >3.5% after
reporting strong earnings and resuming its dividend. This is a big week for mining
earnings, w/BHP and MT coming on Wed and Rio Tinto on Thurs.

· The EURO Stoxx outperformed the sp500 to finish up 1.24%. Health care was the
best performing sector (led by Sanofi Aventis) and tech underperformed (drivendown by
SAP, which fell following its mgmt change announcement)

· The Dax closed the day positive (up .93%) as tech was the worst performing sector
in the group (notably SAP) as Telecom gained 1.75% (with Deutsche Telekom as the
best performing stock)

· Spain was able to finish up 1.02% as Oil & Gas rallied, led by Repsol, and Healthcare
lagged, as Grifols fell more than 3%

· The Athex composite was one of the worst performing indices today, losing 3.86%.
Consumer services was the only group to finish positive (highlighted by a near 3%
gain in Aegean Airlines) and Financial dropped the most, as EFG Eurobank slipped
more than 9%

· Tech update – has been one of the market’s best performing groups all session
although gave back the bulk of its gains into the close; hardware stocks have been
strong (led by DELL, NTAP, and HPQ, all of which will be reporting earnings next

· Hardware - the group has had a bid to it all session although like the broader tape
ended off its best levels. DELL has been outperforming all session, up 1% (helped
by pos. Barclays earnings preview). HPQ and NTAP also were strong (all ended off
their best levels). AAPL was higher early on but gave up its gains (there were
reports that the co may refresh its MacBook Pros on Tues ahead of the MacWorld

· PALM – the stock dips 5% on back of cautious Piper comments (said initial sales at
Verizon of Pre/Pixi have been tepid)

· RIMM – the stock traded higher intra-day after WSJ All Things Digital published an

article talking about a potential RIMM buy by MSFT although RIMM shrs gave up
their gains (ends off >1%).
· Software – the group underperformed within tech; SAP off 5% on its mgmt reshuffle. A
ll the main enterprise names weaker – CA, BMC, QSFT, CPWR, ORCL, SY, etc.

· Financials have been for sale all session today (this wasn’t just the case in the
US – financials world wide underperformed during trading today). NDAQ was the
weakest sp500 financial after reporting disappointing earnings today. larger money
center banks were also heavy. SPG have back some of its very strong rally from Fri.
regional banks were better to buy today.

· Exchanges – NDAQ falls >3% after earnings disappoint this morning. NYX reports
Tues morning. CME shrs trading higher (note that JPMorgan added the stock to our
Focus List today; also Jefferies upgraded the name too).

· Brokers – ETFC is the only major broker making gains on the day (the co after the
close on Fri unveiled some price cuts and was also a big advertiser during this
weekend’s Super Bowl).

· Life insurance – the sector traded higher earlier this morning but gave up those
gains into the close; this is going to be a big week for earnings from the group (we
get PRU, PRE, TMK on Wed, and PNX, MFC, and SLF on Thurs); PNX has been a s
tandout all session and this is persisting into the bell (stock up 8%).

· Banks – the regionals have been outperforming all day…this strength persisted into
the bell but like the broader tape they have up some of the gains. FITB, MI, RF, STI, ZION all
among the outperforming regionals. The bigger money centers come for
sale on worries about global
contagion risks from European sovereign situation –
BAC and WFC fall close to 3%.

· Credit cards – CCRT, MA, and V all outperform today.

· Best Performing SP500 financials (from Bloomberg): ETFC, FITB, RF, MI, ZION,


· Weakest performing sp500 financials (from Bloomberg): NDAQ, SPG, BAC, AFL,

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