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June 26, 2008

Daily Report for Thu, Jun 26, 2008

Markets Re-cap

Traders actually were more nervous after the do-nothing say-nothing FOMC decision yesterday afternoon. But after some whipsaw action, the Financials and the $USD got hammered and the commodities (oil and gold) started to lift.

At the end of the session, the DJIA (+4.40 +0.04% to 11811.80), S&P 500 (+7.68 +0.58% to 1321.97) and NASDAQ Composite (+32.98 +1.39% to 2401.26) all finished higher, but in, as I say, 'nervous' (but high-volume) trading.

The leading sectors were safe-haven plays Consumer Staples (XLP +2.3%) and Utilities (XLU +1.2%). The losers were the Boeing (-6.9%) and United Technologies (UTX -3.1%)-led Industrials (XLI -0.7%) and Financials (XLF -0.2%).

For the Cara 100, the leaders were NOK +5.8%, PBR +4.1% and VIP +3.7%. The losers were BA and UTX. Boeing ran into a dubious sell-side analyst's downgrade.

The problems at (Cara 100) Gold Fields (GFI) continue. This is more bad stuff in what I think is a good company.

At the close yesterday, the long 30-yar US Bond ($USB) dropped a bit (-0.14%) to 113.97. The yield on the T-bills dropped to 1.760, which shows pressure in the credit market.

Yesterday, $GOLD closed down -$9.30/oz to 882.30, but the Fed has given them some ammunition in the afternoon and prices are on the rise. This morning (8:48am ET), the spot prices for gold, palladium, platinum and silver are flying: 909.32, 466.5, 2065, and 17.28 respectively.

Crude Oil ($WTIC) is up +$1.00/bbl to 135.55. It closed yesterday at 134.55, down -$2.45/bbl.

This morning the $USD has fallen hard to 72.955, and the DJIA futures are off -113 to 11694. Looks like a tough day ahead for the Bulls.

Overnight there was not much action either way in the Asia-Pacific equity markets. In Europe this morning there is a broad sell-off from -1.63% to -1.86% in the FTSE, CAC and DAX.

Research In Motion (RIMM), Oracle (ORCL) and Nike (NKE) were out with earnings reports following the close yesterday. Lots of action there. A real spin cycle.

India's largest lender, the State Bank of India, now appears likely to raise lending rates by +50 basis points following the Reserve Bank of India's move to increase the cash reserve ratio as well as the repo rate by +50 bp. These are reasons why the Indian Cara 100 banks, ICICI (IBN) and HDFC (HDB) have been hammered down since the beginning of May.

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Comments & Outlook

In case you missed last weekend's Week In Review #25 June 22. I wrote that "Value Line reported on Boeing, one of America's top lobbyists in Washington."
(BA: Value Line Report Jun. 20: next one is due Sep. 19)

I like the company. Note that Boeing is in the Cara 100.

The company's financial position is strengthening. Earnings are high and will go higher, as will the dividends. The cash flow is solid given that the production slots are 100% full and will be for a few years. What's not to like?

The stock has come off its 52-week high last July 25 at $107.83, and from the lows on March 13 of $71.58 (where there was a Buy Alert) has crept back to its current close at $75.83. There is still a possibility the company will win the large USAF contract to build flying tankers.

I believe there will be lower prices ahead due mostly to the broad market decline and also to an event like the government still denying the USAF contract. But, this is a good company and if you buy the stock at the right time, your profits going forward will be large.

Yesterday, Boeing (BA) pulled down the DJIA. The stock closed at $69.64 after hitting a 52-week low of 69.16. That's a price not seen since 4Q05, and represents a technical support level going back to the resistance at that level that held in 4Q00, and was broken in 4Q05.

I believe that the price in the 60's is low enough to buy the stock. As there will be likely more tough days ahead for the Bulls in this cycle, there will also be lower prices ahead for BA, in all likelihood. But there is nothing wrong with taking a series of put writes with 60's strike prices if you want to accumulate the stock.

Two factors come to mind: (i) the high oil prices will likely break down soon, which would benefit Boeing as sales contracts would then be under less pressure of being cancelled, (ii) I made a point recently that the strongest companies (ie, in terms of fundamental metrics) may be the first ones taken down by the smart hands so that during the ensuing market Bear those powerful gnomes are buying large blocks into weakness, and those are the first stocks that pop up in the next Bull, and (iii) the airplane manufacturing industry is hurting, not just Boeing. Yesterday, (Cara 100) Brazil's Embraer (ERJ) also hit a 52-week low ($28.21). Yes, planes are being mothballed, but those are the old fuel-inefficient ones. And the tight credit conditions are not going to affect the purchasers for more than a year or two. So the problems are not just Boeing's, and they will revert to normal at some point anyway.

My remarks in the WIR hold water. This is a powerful and well-managed company that has all its production slots filled for several years. The stock is one you want to be buying here in the 60's, not back in July 2007 ($107.83 high) when HB&B were all over you to buy it from them.