Tag - NYSEARCA:IWM

A vertical credit spread is the combination of selling an option and buying an option at different strikes which lasts roughly 10 - 40 days.

Something very unusual is happening this month - and it could mean that we'll be in for some extreme market volatility over the next few weeks.

As an options trader I am often asked about my favorite options strategy for producing income. And recently, after working with Ian Wyatt on an issue for SmallCap Investor Daily, "What You Need to Know Before Using Options on Small Cap Stocks," I have been bombarded with questions from small cap investors about how to trade small cap stocks for income using options.

In my opinion, the best way to bring in income from options on a regular basis is by selling vertical spreads, otherwise known as credit spreads. 

If you're like most investors, you're probably looking doubtfully at this stock market. Is it worth the risk now that many of us are back to where we were before the 2008 crash?

Why not just take money off the table, put it in bonds and be done with it?

Well, there's a little-known way that anyone can KEEP their stocks AND continue to make profits even if the market makes a further turn for the worst.

The time has come for the average investor, whether wealthy or in the process of accumulating wealth, to consider using a powerful investment strategy - covered calls.

As a great options trader once told me - professional options traders are a different breed. We take a statistical, mathematical, rational approach to the marketplace. We add another layer of probability and risk management that is not possible with stocks alone.

We make investments on things like volatility and don't always care which way a stock or ETF moves. Everything we do is at least partially hedged, which reduces the need for Maalox, Prozac and heavy drinking, which many of my stock-trading buddies rely on almost daily.

On Thursday I discussed one of my favorite options strategies for making consistent income. Today, Ian and I have put together Part II of this series.

My favorite options strategy is a vertical bull and bear credit spread. Essentially, this strategy lets you make money even if a security goes nowhere - in fact, you make money BECAUSE the security stays within an upper and lower price. Most securities tend to stay in a price channel over short term periods, so using this strategy lets you make a low-risk bet that nothing extremely bad or good will happen to the underlying investment in the short term.

It is also one used heavily by most options professionals.

As an options trader I am often asked about my favorite options strategy for producing income. And recently, after working with Ian on an issue for SmallCap Investor Daily, "What You Need to Know

The Russell 2000 proxy ETF (NYSE: IWM) has pushed 6.8 percent lower since its closing high back on April 29th. And according to InsiderScore, the world’s leading insider trading, institutional ownership and stock buyback research and analytics firm, corporate insiders have been consistently selling shares since the correction began.

However, as the correction progresses, corporate insiders, particularly insiders of small cap stocks are buying more of their own stock. This is not out of the ordinary to see an increase in buying during a market correction, but not to this degree.

InsiderScore calculates a sentiment level for insiders of small cap stocks and as it stands “the score” has just pushed into bullish territory.

Small cap stocks have more than come into their own in the three plus decades since the legendary small cap guru Chuck Royce revealed his potential to the world of the investing. According to Royce, today there are more than 3,100 U.S. companies identified as micro-cap with market values of up to $500 million; more than 1,100 small-cap with market values between $500 million and $2.5 billion.

***With the Russell 2000 trading near it's all time high, now isn't the time to buy a small-cap index fund such as the iShares Russell 2000 (NYSE: IWM). Rather, now is the time to perform thorough and extensive research to find stocks that offer attractive growth and trade at decent valuations and have been overlooked by other investors and analysts.

I have several on my watch list that I will be sharing with you over the next few weeks. Last week, I brought you DUSA pharmaceuticals. Since writing the report the stock has jumped 11.4%. Today I'll tell you about another undervalued small-cap gem that could reward investors in the years to come.

 

The company is South Korean...

It is official - the Russell 2000 is now trading in uncharted territory

 

After Wednesday's historic press conference by Federal Reserve chairman Ben Bernanke, Wall Street pushed the Russell 2000 to its highest level on record. The Russell has climbed over 150 percent since March 2009 and is currently 9.9% higher year-to-date.

Most people tend to think that small cap stocks are all growth companies. The prevailing wisdom is that if a company has a market cap below $3 billion then the reason to buy shares is that the company has tons of room to grow. Maybe eventually become a large cap stock, and in the process earn early investors multiples on their initial investment.

Investing in small-cap stocks is a great way to add profitable investments to your portfolio, and investment newsletters like my free SmallCapInvestor Daily or my premium SmallCapInvestor PRO service are a great way to find potential winners.
Some investors like to compliment their individual small cap picks with additional exposure to this class of equities that is known to out-perform during and immediately after a recession. Exchange Traded Funds, or ETFs, are one way you add exposure to small caps without having to concentrate all of your investments in individual stocks. And there are a number of options that small-cap investors should be aware of and have in their potential investment quiver.
ETFs function in a similar way to a mutual fund. A fund manager designs an ETF to follow a certain investment theme – this can be an index, a commodity, or even a sector of the stock market such as retail or technology. The fund holds assets that could include stocks, bonds, currencies, or commodities – whatever is needed to meet the design characteristics of the fund.
One major benefit of this investment vehicle is that you can get broad exposure to a trend, but buy shares in only one fund. And it is just as easy to enter, add to, or exit a position as it is trading shares of a single stock. ETFs have become more popular in recent years among active traders who want to be able to trade in funds intra-day. Unlike mutual funds which can be bought or sold only once a day, ETFs trade throughout the day just like stocks

The message is clear: small-cap stocks ruled the market in 2009. That doesn't surprise me, since the biggest winners are almost always small-cap stocks. Because their market capitalizations and share prices are low, rapid growth and increased institutional investor ownership can send shares soaring. Historically these small companies have outperformed following a recession, and 2009 was no different.  As I wrote in my book, The Small Cap Investor: Secrets to Winning Big with Small-Cap Stocks: "After the Crash of 2008, small caps will lead the way."

The common thread among these companies is not that they are all technology innovators, or mining companies, or even emerging market standouts. They are simply small companies that are beating the market by leaps and bounds, often a result of superior revenue and earnings growth.

What's more, they were largely ignored by Wall Street because of their obscurity – and in fact many still are. But once Wall Street takes notice, analyst coverage picks up and big institutions start tracking them and adding the stocks to their own portfolios. And when this happens, demand for shares far exceeds supply, and the result can be a soaring share price.

The message for individual investors is that to earn the biggest returns, you need to buy shares of the small, under-appreciated companies that are simply not yet worth Wall Street's time.

Small caps are modestly rising this afternoon after large-cap benchmarks McDonald's (NYSE:MCD) and Procter & Gamble (NYSE:PG) lifted stocks from their morning descent. 

At 1:50 pm ET, the Russell 2000 (NYSE:IWM) was up 0.73%, the Dow was up 0.42% and the S&P 500 is 0.68% higher. 

Small caps on the move today include NxStage Medical Inc. (Nasdaq:NXTM), 30% higher after announcing a strategic business alliance with Asahi Kasei Kuraray Medical. Also on the rise are Pomeroy IT Solutions (Nasdaq:PMRY), up 28% after news broke the tech company would be acquired for $5.02 a share, and Internet Gold Golden Lines (Nasdaq:IGLD) is also 27% higher following a reported rise in Q1 profits. 

*****I was starting to think that Treasury Secretary Tim Geithner was secretly hoping that everyone had forgotten about his plan to remove toxic assets from bank balance sheets. But now he's out saying the Public-Private Investment Program (PPIP) should start in about six weeks. (Go ahead and mark your calendar now, in pencil, of course.) 

As you know, I'm not a big fan of Secretary Geithner. That's because, to me, he represents all that's wrong with how the government has dealt with the Wall Street banks, the likes of which nearly brought down our economy.  
He knew AIG (NYSE:AIG) was about to use TARP funds to pay bonuses and concluded there was nothing he could do. He knew AIG was about to pay Goldman Sachs (NYSE:GS) $12 billion out of TARP funds and again did nothing. He has consistently coddled the very companies that are in desperate need of tough love.  
And frankly, that's got me worried that Wall Street will go back to "business as usual" as soon as possible. Secretary Geithner has done nothing to stop it, and may even be encouraging a return to over-leverage by going to such great lengths to help these companies clean up their books.   

*****The big question surrounding the PPIP is how Secretary Geithner expects to get banks to sell their toxic assets. Banks believe these assets will regain value over time. And between government bailouts and stock sales (see Bank of America's (NYSE:BAC) $13.47 billion stock sale), banks are certainly going to operate under the assumption that they are well-enough capitalized to play the waiting game.  
It seems to me the "stress tests" were an ideal opportunity to force the banks to sell toxic assets. But Secretary Geithner chose to lob softballs, and now he has no leverage.  

Maybe he's got a plan. I sure hope so… 

*****As an investor and ruthless capitalist, I always look for profit opportunities in any situation. I might not like the outrageous stimulus spending coming from the government, but I'll darn well recommend the stocks that will benefit from government handouts. 

The PPIP is presenting a very nice profit opportunity for the companies that participate. That's because the Fed and Treasury will help finance-with your tax money, of course-any toxic asset sales. Companies that participate have an opportunity to make large profits with very little up front risk. It's a sweetheart deal, and I expect these stocks to move when investors realize what's going. I've prepared a Special Report on the subject and you can get it HERE. 

Stocks are seesawing this afternoon about housing construction data tumbled to a record low.

At 2:57 pm ET, the Russell 2000 (NYSE:IWM) is up 0.63%, while the Dow is up 0.27% and the S&P 500 is up 0.63%.

The Commerce Department reported this morning that the construction of homes and apartments fell 12.8% last month to the lowest pace on records dating back a half-century. Analysts were expecting a rise.

Small-cap semiconductor company Kulicke and Soffa Industries Inc. (Nasdaq:KLIC) is up 28% this afternoon after it increased its revenue outlook for the third fiscal quarter. Formula Systems (Nasdaq:FORTY) has climbed 23% after reporting a rise in Q1 profit, and Lifeway Foods Inc. (Nasdaq:LWAY) is 20% after reporting record first-quarter 2009 revenues and earnings.

*****Stocks are down this morning after a “surprise” drop in new housing starts and a fall in new building permit applications. This shouldn’t really be a surprise. After all, we are in a recovering economy, and that means progress will come in fits and starts. And since housing was the underlying cause of the last run-up and a major contributor to the market slide, there should be no question that we’ll see “surprises” like this going forward.

Recall that we’ve seen some upside surprises from the housing market in recent weeks. Yesterday’s big move was attributed, in part, to an improvement in a homebuilders confidence survey. A little bad news to balance out the good should be expected.

Still, the data from April represents a new all-time low for housing starts on an annualized basis. Year over year, housing starts are down 54%, and the housing market was already headed down then.

If there is a bright side, it’s in the understanding that economic sectors, like the stock market, have to bottom out before they can improve. We could be seeing the housing market bottoming out now.

Bell-weather homebuilder Toll Brothers (NYSE:TOL) reports tomorrow. Toll Brothers is a major player in new home construction so look to them as a bellwether . . .

Stocks are in the red today after new data did little to bolster investors’ spirits that the economy is slowly getting better.

At 2:51 pm ET, the Russell 2000 (NYSE:IWM) is down 1.43%, while the Dow is down 1.10% and the S&P 500 is down 1.44%.

Today the Labor Department said consumer prices in April were flat, as economists predicted, while New York-area manufacturing activity and industrial production contracted less than economists expected. Investors remain cautious ahead of several reports out next week on housing.

Small caps bucking the decline today include BioCryst Pharmaceuticals (Nasdaq:BCRX), up 30% after reporting encouraging results from its Phase II lymphoma trial, and Fuqi International (Nasdaq:FUQI), 20% higher following strong first-quarter results.

******You know over the course of the past few months I’ve not held Wall Street or the banking executives in high regard. I hold them almost — that’s almost — singularly accountable for our current recession (Uncle Sam and private citizens who borrowed too much are to blame as well), but the government is beginning to really stick its nose too far. For example, today’s headlines (those not about whether Nancy Pelosi knew about torture and when she knew it) are consumed with government pushing itself on private industry, most notably with the pressure on Bank of America (NYSE:BAC) to change its board.

Granted, “regime change” is a necessity for most of the companies receiving TARP money. After all, they’re the ones who got us into this mess. But shouldn’t it be shareholders forcing the issue? You saw how they forced Ken Lewis of Bank of America to give up his role as chairman. This was done at the shareholder level, not by some bureaucrats in a windowless office overlooking the National Mall.

But for many Beltway insiders this isn’t enough. Someone’s got . . .

Despite opening lower this morning, small caps have shrugged off bad unemployment data and are trading higher this afternoon.

At 2:36 pm ET, the Russell 2000 (NYSE:IWM) is up 2.78% at 484.96, while the Dow is up 0.92% and the S&P 500 is up 1.42%.

Although stocks are higher today, they are still down sharply for the week, no thanks to new data out. Today the Labor Department reported that more workers filed last week for benefits than anticipated. New claims jumped to 637,000, much more than what was forecasted. The overall number of people seeking unemployment benefits grew faster than expected, increasing to 6.6 million, while continuing claims hit a 15th straight weekly record.

Small caps on the rise today include Gildan Activewear Inc. (NYSE:GIL), up 21% after announcing second-quarter results, and Forest City Enterprises (NYSE:FCY), up 18% after guiding in line.

*****The selling got serious yesterday. But once again, as TradeMaster technical analyst Jason Cimpl forecast, the dip was a buying opportunity. Stocks are up this morning as if nothing happened…

But of course, something did happen. Cracks in the rally are beginning to show. And economic data is starting to weaken. Consider this morning’s Producer Price Index (PPI). This popular measure of inflation on the wholesale level came in stronger than expected. Prices for food are ticking upward.

No doubt the Fed is relieved to see a little strength in prices, as overall, prices have dropped 3.7% over the last 12 months. The only thing that scares the Fed more than inflation is deflation.

My question is: at what point do rising prices motivate the Fed to start sopping up the flood of liquidity it has released over the last eight months? Clearly, there will have to be stronger signs of recovery, but with the potential for full employment numbers to be higher than they’ve historically been, I can’t help but be . . .

Small caps are lower today following a drop in U.S. exports in March and multiple stock offerings across the board that doused enthusiasm.

At 2:04 pm ET, the Russell 2000 (NYSE:IWM) is down 2.46%, while the Dow is down 0.26% and the S&P 500 has fallen 0.97%.

New data out today showed that the U.S. trade gap widened in March for the first time in eight months and exports fell 2.4%, weighing on the market.

Small caps bucking the trend today include STEC, Inc. (Nasdaq:STEC), up 31% after reporting operating results, while small-cap Chinese seller of mobile phone ringtones and games Hurray! Holding Co., Ltd. (Nasdaq:HRAY) is up 28% on speculation that Shanda Interactive, China’s biggest online games provider, may acquire the company.

*****Oil is above $60 a barrel. Investors are buying on the expectation that the end of the recession is in sight. And hopefully, Daily Profit readers are benefiting via my recommendation of oil services company Graham Corp. (AMEX:GHM). Graham is breaking above $15 a share today. It’s now up 65% for those who have been following me for a while.

Of course, oil stocks are up on expectations. A dose of reality comes from the housing market today. It’s reported that home prices fell in 134 of the 152 metropolitan areas the National Association of Realtors tracks during the 1st quarter.

Sounds bad, but there is a silver lining. The number of homes sold more than doubled in Nevada, rose 81% in California and 50% in Arizona. These states were among the hottest real estate markets during the housing bubble, and they suffered mightily when the bubble popped. That homes are selling is far more important than the price they are selling for. Housing inventory must get turned over for the economy to improve.

*****Nobel prize winning economist Paul Krugman isn’t convinced the recession is nearing an end. He doesn’t believe economic fundamentals support the recent rally and warns that recent economic data could breed “a dangerous complacency.”

The fear, of course, is that we will have the proverbial “double dip” of recession once government stimulus money (and patience) runs out. Like in the housing market, first time buyers are assisted by an $8,000 credit. That will boost

Small caps took a breather after financial stocks pulled back today following a rally last week.

At closing, the Russell 2000 (NYSE:IWM) was down 1.93%, while the Dow was down 1.82% and the S&P 500 fell 2.15%.

Concerns about more shares issued to the market by three banks that passed the government’s “stress tests” weighed on financial stocks today. Tech saw a rise today, though, after large-cap benchmark Microsoft Corp. divulged plans to raise money through a debt offering for the first time, and Dish Network posted better-than-expected quarterly profits.

Although today was a “down” day, there were still small caps that made solid gains. Communications services provider D&E Communications (Nasdaq:DECC) climbed a healthy 52% today after news broke that the small cap would be acquired by Windstream for $330 million. Anadys Pharmaceuticals (Nasdaq:ANDS) was also up 33% today after an analyst upgrade, while The South Financial Group (Nasdaq:TSFG) gained 32% following its operating results release late last week.

*****The “Stress Test rally” didn’t last long. Bank stocks had a good day Friday. In fact, they had a good week. Bank of America (NYSE:BAC), for instance, went from $8.70 to $14.17, a +62.8% gain. With that type of one-week gain, it’s not too surprising that banks backed off today as investors look to take profits.

There’s no doubt that the major indices are extended. Some kind of pullback is on order. But Jason Cimpl, technical analyst at TradeMaster, is in “buy the dips” mode.

Even though prices might be extended, we are still looking at an economy and a stock market that is in recovery. And that means current levels, like 8,400 on the Dow or 1,700 on the Nasdaq, have room for upside.

I’ll keep you posted on what Jason’s looking at and where he thinks . . .

Small caps are up nearly 3% this afternoon after the government reported this morning that fewer jobs were lost in April than expected.

At 2:06 pm ET, the Russell 2000 (NYSE:IWM) is up 2.81% at 506.81, while the Dow is up 1.56% and the S&P 500 is up 1.85%.

Employers cut 539,000 jobs last month. That is a big improvement from a revised 699,000 job losses in March and less than the loss of 610,000 jobs analysts had been expecting. Also, the federal government reported that 10 of the 19 largest U.S. banks must raise about $75 billion in new capital, which is less than some had feared.

Small caps on the rise today include MedQuist Inc. (Nasdaq:MEDQ), up 64% after announcing first-quarter 2009 results, and Huntington Bancshares Inc. (Nasdaq:HBAN), 36% higher after completing a $120 million stock issue. Fuel Systems Solutions (Nasdaq:FSYS) is also up 40% today after posting a Q1 net profit, while VNUS Medical Technologies (Nasdaq:VNUS) has popped 35% after news broke that Covidien Ltd. will be acquiring the small cap.

*****The headline reads “Bank Stress Tests Lifts Clouds of Uncertainty.” And bank stocks are rallying. Regional bank Fifth Third Bancorp (Nasdaq:FITB) is up 40% in the early going on the news that it needs to raise $1.1 billion.

In total, the government’s stress tests recommended that banks raise $75 billion to withstand further potential losses. I’m not sure how to reconcile the stress tests results with the IMF report on bank losses that was released in April.

In that report, the IMF said that total losses for banks and financial institutions would hit $4 trillion. The U.S. share of that is $1.6 trillion, of which $510 billion has already been written off. That leaves another $550 billion in write-offs . . .

Stocks are higher this afternoon despite mixed data on manufacturing and lackluster earnings reports.

At 2:34 pm ET, the Russell 2000 (NYSE:IWM) is up 0.31% at 489.08, while the Dow is up 0.32% and the S&P 500 is up 0.5%.

New data out today showed the manufacturing industry contracted slower in April than in March, but the government said orders to U.S. factories in March fell more than expected. Also, disappointing earnings from large-cap benchmark MasterCard Inc. and two major insurance companies also weighed on the market.

In small-cap stock news, beverage producer Cott Corp. (NYSE:COT) is up over 77% today on heavy volume after the company posted strong quarterly results this morning. The small-cap company is the world's largest maker of private-label soft drinks. Year-to-date, the company is up a whopping 184%.

*****On Wednesday, the Taiwan stock market posted its biggest gain in 17 years after China Mobile (NYSE:CHL) bought 12% of Taiwanese telecom Far EasTone. The deal was worth $529 million, but the ramifications are much bigger.

That’s because China and Taiwan just signed trade deals that allow Chinese institutional investors to buy Taiwanese stocks for the first time in 60 years.

China Mobile is a state-run company. That Taiwan has allowed it to buy into one of Taiwan’s largest telecom companies represents a dramatic shift in China-Taiwanese relations. And this new relationship could prove to be an economic powerhouse in the making.

*****The latest manufacturing data from China is showing improvement. That’s in part due to China’s stimulus efforts, which are more direct and immediate . . .

News that Chrysler will be filing bankruptcy is causing stocks to seesaw through Thursday afternoon.

At 2:35 pm ET, the Russell 2000 (NYSE:IWM) is up 0.28%, while the Dow is up 0.25% and the S&P 500 is up 0.32%.

Small caps flying high today include Bare Escentuals (Nasdq:BARE), up 42% after its Q1 results topped the Street’s view. Also higher are Orexigen Therapeutics (Nasdaq:OREX), up 44% on heavy volume, and Green Mountain Coffee Roasters (Nasdaq:GMCR), up 37% after the small cap boosted its FY sales and EPS view.

On the downside, Build-A-Bear Workshop, Inc. (NYSE:BBW) is 20% lower today after posting a Q1 loss, and small-cap Oshkosh Corporation (NYSE:OSK) has falledn 19% after projecting a loss for 2009 and suspending its dividend.

******Bank of America (NYSE:BAC) shareholders voted to remove Ken Lewis as chairman of the board. But he remains CEO, at least for a little while. As much as I railed against Lewis, I must acknowledge that he is a something of a victim.

Now, don’t get me wrong. I have no sympathy for the CEOs who over-leveraged and mismanaged their companies during Wall Street’s greed bonanza. And Lewis was right there with the rest of them.

But when it comes to the Merrill Lynch acquisition and the surrounding events, it’s pretty clear that Fed Chief Ben Bernanke and former Treasury Secretary Paulson hung him out to dry. In other words, I believe Lewis’ assertion that Bernanke and Paulson strong-armed him into the Merrill acquisition and encouraged him to keep his mouth shut about Merrill’s $15 billion fourth-quarter loss.

The one question – and this gets right to the heart of the matter – is why did Lewis play ball? He had to know that his shareholders would be irate. And that’s the point – CEOs ultimately work for their shareholders. And bank CEOs for the most. . .

Stocks are soaring this afternoon after the Federal Reserve announced it is seeing a “somewhat slower” slide in the economy and left interest rates at a record low level.

At 2:37 pm ET, the Russell 2000 (NYSE:IWM) is up 4.53% at 494.26, while the Dow is up nearly 3% and the S&P 500 is up 3.05%.

On the data front this morning, the Commerce Department reported that the U.S. economy contracted at a steeper-than-expected pace in the first quarter, weighed down by sharp declines in exports and business inventories. The news did little to quell positive investor sentiment after the Fed left interest rates untouched.

Small caps flying high today include Town Sports International Holdings (Nasdaq:CLUB), up 35.5% on heavier-than-average volume, while Encore Capital Group (Nasdaq:ECPG) is up 36% after reporting a rise in Q1 profits.

*****We’ve reached the stage of this rally where bad is good. It started innocently enough in early March when Citigroup (NYSE:C) shocked the world by saying it was making money. A few earnings surprises have helped it along. But now, good news is running out, and to fill the void, investors are saying that bad news is actually good.

I don’t know how many of you have learned your lesson by uttering the phrase “It can’t get any worse.” I have. It seems that those five words have the power to conjure ancient gods that are full of wrath. Such is their displeasure with man that they will, rest assured, make certain that things do, indeed, get worse.

I now fear these gods are being awakened. Because there’s no way to explain the rally for stocks in the face of poor forward earnings guidance, continued weakness in home prices, and worse than expected GDP unless investors are saying that “It can’t get any worse.”

Repent, I beg you. Cast off your hubris before we get some serious gnashing of teeth.

*****Case in point: oil prices. Crude prices continue to remain strong despite falling demand and growing inventories. Of course, we all know that prices will rise eventually (and SmallCapInvestor PRO members have made good money on this expectation by buying small oil exploration companies). But timing is an issue.

Right now, oil is sitting in tankers because traders are convinced that the . . .

The Russell 2000 (NYSE:IWM) is drifting higher this afternoon, buoyed by a dividend hike at large-cap benchmark IBM and reassuring data out this morning.

At 1:25 pm ET, the Russell is up 1.16%, while the Dow is down 0.04% and the S&P 500 is down 0.07%.

Earlier today consumer confidence data numbers were released, showing a rise of more than 12 points to 39.2, up from a revised 26.9 in March. Analysts were expecting a reading of 29.5. Also out today was more housing data that showed an 18.6% drop in February.

Small caps on the rise today include Virtual Radiologic Corporation (Nasdaq:VRAD), up nearly 30% after announcing first-quarter financial results.

*****I figured Citigroup (NYSE:C) would be asked to raise more cash to insulate it against further losses. But when I read that the Treasury will raise reserve requirements for all 19 banks subjected to the Treasury’s “stress tests,” it suddenly made sense.

As you know, I’ve explored a couple different stress test scenarios. In one, all banks pass the stress tests in order to convince investors that banks are healthy. In another, one or two banks are failed and made examples of, prompting the others to quickly get behind Geithner’s PPIP and dump their toxic assets at reasonable prices.

I’m a little embarrassed that I didn’t see this outcome. After all, Geithner and the Obama administration have made it painfully clear that they prefer to play softball with Wall Street at the taxpayers’ expense. How could I have thought that any bank would be singled out and be made an example?

And I suppose passing all the banks would have been a little obvious. But . . .

Stocks are looking up during Friday trading after the Federal Reserve released details of how it conducted bank “stress tests.”

At 3:00 pm ET, the Russell 2000 (NYSE:IWM) is up nearly 3%, while the Dow is up 1.96% and the S&P 500 is up 2.04%.

Small caps making large moves today include Ruth’s Hospitality Group (Nasdaq:RUTH), up over 31% on very heavy volume ahead of its earnings release on May 5.

*****Today is the day Treasury Secretary Geithner lets us in on the criteria he’s using for the bank “stress test” to determine the health of these financial firms going forward. Stocks have already responded well to his comments that most banks are well-capitalized.

But even if they are well-capitalized now, that status could change going forward. Consider these stats from Bloomberg:

Pittsburgh-based PNC Financial Services Group Inc. saw nonperforming assets -- those no longer accruing interest -- jump more than fivefold in the first quarter from a year earlier. They more than quadrupled at U.S. Bancorp in Minneapolis. At 13 of the largest U.S. banks, bad assets increased 169 percent on average from a year ago, according to first-quarter data compiled by Bloomberg.

Clearly, so long as the economy doesn’t improve, non-performing assets will rise. That will mean fewer loans from banks and fewer investments in the financial sector from private investors,

*****Ford (NYSE:F) lost $1.4 billion in the first quarter. The company . . .

Stocks are trying to gain footing this afternoon after a larger-than-expected drop in home sales doused investor hopes that the economy was beginning to recover.

At 2:11 pm ET, the Russell 2000 (NYSE:IWM) is down 1.77% at 462.37, while the Dow is down 0.10% at 7,878.76 and the S&P 500 is down 0.06% at 843.04.

Stronger-than-expected earnings from benchmark Apple (Nasdaq:APPL) were unable to outshine the mood set by poor housing data released today. The National Association of Realtors reported this morning that sales of existing homes dropped 3% to an annual rate of 4.57 million last month.

Despite the bad news, certain small caps are still flying high today. Carrols Restaurant Group (Nasdaq:TAST) is up a whopping 35% after the company beat estimates, while another restaurant small-cap, Famous Dave’s of America, Inc. (Nasdaq:DAVE), is up 30% after seeing a Q1 profit jump.

*****As you know, we are watching oil prices as a measure of economic health. Today, it’s reported that March existing home sales fell by a bigger than expected 3%. And new claims for unemployment benefits rose a bit more than expected.

Consequently, oil prices remain below $50 a barrel.

Conoco-Phillips (NYSE:COP) reported an 80% drop in year-over-year profits for the first quarter. The stock is up because the company still managed to beat earnings expectations.

One interesting note from COP: it’s capital expenditure budget has been cut 37%. That means the company is investing less to bring more supply on line. In the current environment, investing in oil supply is not as rewarding as it was a year ago when oil was trading at north of $100 a barrel. But with global CAPEX spending by oil companies down approximately 17% this year, this is an industry-wide trend that has dire consequences going forward.

*****The International Energy Agency (IEA) reports that as much as 2 million barrels a day of expected new oil supply production isn’t being completed due . . .

Stocks are trading higher this afternoon as earnings reports from industrial and technology companies have buoyed investor sentiment.

At 2:00 pm ET, the Russell 2000 (NYSE:IWM) is up 1%, while the Dow is slightly lower at 0.19%, and the S&P 500 is trending 0.30% higher.

Small-cap Continental Airlines Inc. (NYSE:CAL) rose $0.58, or 3.9%, to $15.58 today despite reporting this morning that it lost $136 million in the first quarter as traffic fell and business travelers saved money by moving from first-class to the coach cabin.

Other small caps moving higher today include RC2 Corporation (Nasdaq:RCRC), up a whopping 45% after posting a surprise Q1 profit and guiding above estimates. Patriot National Bancorp (Nasdaq:PNBK) is up 35% on very low volume, and small-cap retailer Destination Maternity Corp. (Nasdaq:DEST) is up a stunning 32% after reporting its Q2 earnings.

*****I received a very topical question from a SCI Daily reader …

Do you think that Obama is a legitimate "for the ordinary people" real deal, or is he just another cleverly marketed pretty face representing the interests of the ruling class? If you prefer call them the rich, the wealthy, the owners, the bosses … whatever works for you. In the end they are the same people. I deliberately did not label them as capitalists because I believe that they are corrupt capitalists, scamming the game in their favor even though their performance is proven to be mediocre. In real capitalism, ability and performance matter. As in, let the failed banks, brokerages, etc fail and allow the strong to take them over. When I read about these recent government led bailouts it becomes clear that we have been set up and conned into taking the hit for the unworthy managers, making it possible - inevitable - for the rich to triumph regardless of their audacious arrogance and incompetence.  This is not what I understand capitalism to be - and it stinks!

I have to admit, I started to get sucked in by the President’s charm the day he stood on the steps of the Capitol and told us of the sacrifices and hard work that lay ahead for Americans.

I also must now admit that I am extremely disappointed in how President Obama he has dealt with continuing problems on Wall Street. He has repeatedly shown that he is unwilling to take a hard line with the likes of AIG, Citigroup, Goldman Sachs and all the rest.

When the bankers can dictate policy, America is in serious trouble. That’s what got us to where we are now and quite frankly, President Obama doesn’t seem to be changing this situation, for whatever reason, and you’re right: it stinks.

Wall Street has essentially robbed America. And now Washington is driving the getaway car. Washington is essentially helping Wall Street with . . .

Stocks are rising in afternoon trading after Treasury Secretary Timothy Geithner told Congress that some banks could be allowed to repay financial bailout funds.

At 1:24 pm ET, the Russell 2000 (NYSE:IWM) is up 2.47% at 463.65, while the Dow is up 0.74% and the S&P 500 is climbing 1.13%.

Small caps on the move today include retailer Pacific Sunwear (Nasdaq:PSUN), up nearly 20% after it renewed an extension agreement with Alliance Data Systems, and retailer Charming Shoppes, Inc. (Nasdaq:CHRS), which is up 14% on lower-than-average volume.

*****Treasury Secretary Tim Geithner is having his “Lucy” moment today. Yes, he’s got “a lot of explaining to do …”

He spoke Congress today to answer questions as to how the Public-Private Investment Program will actually remove toxic assets and protect taxpayer money at the same time. Also up for explanation is how the remaining $110 billion in TARP money is enough to fund any future bank rescues.

I don’t envy Geithner one bit. That’s because there’s no way he can adequately answer these questions:

If TARP’s $110 billion is sufficient, why is the government talking about accepting equity in return for as much as $200 billion in bailout funds?

How can you provide loans to private investors to minimize the risk of toxic asset purchases, pay the banks a premium for those assets and still believe that taxpayers can make off the deal?

There’s no way everybody can make money of these deals. The taxpayer is taking on the most risk and has the most to lose. 

*****No word on why Geithner thinks $110 billion is sufficient to keep the bailouts rolling. Goldman Sachs mortgage analysts think another $400 in bank . . .

Stocks fell sharply Monday as investors sold financial stocks and locked in profits after a six-week rally.

At 1:45 pm ET, the Russell 2000 (NYSE:IWM) is down nearly 5% while the Dow is down about 3% and the S&P 500 is down 3.56%.

Earlier this morning Bank of America (NYSE:BAC) said it earned more than expected in the first quarter but that it also set aside $13.4 billion to cover losses on souring debt. The news did little to quell investor anxiety that the worst of the economic crisis was over, and financial stocks across the board are tumbling on the news.

There are still stocks in the green today, though. Smalls caps gapping higher today include Dynacq Healthcare (Nasdaq:DYII), up over 8% after posting financial results late last week.

******Banks are getting pounded this morning after Bank of America handily beat earnings estimates. Analysts were expecting $0.04 in earnings per share; BAC came in with $0.44.

As I write, BAC shares are down 15%. Now, after Citigroup’s earnings, BAC was expected to beat its number. Are you wondering why investors seem so disappointed at what looks like a solid quarter from a troubled bank?

Well consider this quote from CEO Ken Lewis: “The fact that we were able to post strong, positive net income for the quarter is extremely welcome news . . .

Stocks are flying high Friday afternoon buoyed by better-than-expected earnings releases out this week from benchmark companies and financial institutions.

At 1:58 pm ET, the Russell 2000 (NYSE:IWM) is up 1.46% or 480.80, while the Dow is up 0.56% and the S&P 500 is climbing 0.92%.

After announcing a quarterly cash dividend along with fourth-quarter results, small-cap Virco Manufacturing Corp. (Nasdaq:VIRC) is up a stunning 60%, while DryShips (Nasdaq:DRYS) is 25% higher after being upgraded to “outperform” by Oppenheimer. (DRYS was one of the three promising shipping stocks we included in our recent special report on dry bulk shippers. You can click here for a copy of the report.)

******Stocks have marched steadily higher since March 9. The first 10 days or so of the rally was a mad dash, which is how recovery rallies behave. But since the huge up day on March 23, stocks have settled higher. The S&P is now within spitting distance of its 2009 highs.

There’s no doubt that investors have been pricing in some fairly optimistic expectations. And so far this earnings season is rewarding that optimism.

Now, I’m not saying that earnings have been great. The point is, earnings haven’t been terrible. Or at least, not as terrible as investors thought they’d be back in February.

You may recall that many analysts were saying first-quarter earnings would be when we’d really see just how bad the economy has been. It’s still early in earnings season, but we’ve heard from some important companies. I think it’s safe to say that earnings could have been much worse.  

*****Take General Electric (NYSE:GE), for example. GE stock price is down 63% form its 52-week highs. It cut its dividend and lost its AAA debt rating. That’s . . .

Trading is relatively quiet this afternoon following mixed economic reports out today.

At 2:23 pm ET, the Russell 2000 (NYSE:IWM) is up 1.54% at 468.25, while the Dow is up 0.37% and the S&P 500 is up 0.87%.

Earlier this morning U.S. housing construction plunged a dramatic 10.8 percent in March, far worse than expected, to the second lowest level on record. New jobless claims fall for second straight week to 610,000.

Not all news today was bad news though. Small-cap communications equipment developer Orckit Communications (Nasdaq:ORCT) is up over 30% on heavier-than-average volume while China Sky One Medical, Inc. (Nasdaq:CSKI) is also climbing above 30% after issuing FY 2009 guidance, and record Q4 and full-year 2008 results.

*****The saga continues for the homebuilders. Last week, we saw the first steps toward consolidation in this sector when Pulte Homes (NYSE:PHM) bought out Centex (NYSE:CTX). This came on the heels of some slight improvements in existing home sales.

Even yesterday, a builder sentiment survey showed an improvement among builders. That got investors excited for this morning’s housing starts number. Unfortunately, the optimism was misplaced. Housing starts came in below expectations for March.

Of course, this relates directly to Hovananian Enterprises (NYSE:HOV). Hovnanian jumped 21% yesterday to $2.27, but more importantly, it broke through resistance at $2. And it wasn’t a small break of resistance, either. The stock crushed resistance in what should be considered a breakout move.

There’s not much in the way of a further move to $3 a share. That would be darn near a double for SCI Daily readers who bought on my recommendation at $1.52.

The only thing in the way for Hovnanian is the market in general …

*****Just as traders were looking for a rally in the early days of March, traders are now wondering where the heck the sell-off is. It’s not that there’s . . .

Stocks are fluctuating during Wednesday trading on mixed economic signals and earnings reports.

At 1:03 pm ET, the Russell 2000 (NYSE:IWM) is up 0.92% at 457.41, while the Dow is up 0.86% and the S&P 500 is up 0.48%.

New government data out illustrated further signs of a slowing economy. The Federal Reserve reported that production at the nation’s factories, mines and utilities fell 1.5% in March — the fifth consecutive month of decline and worse than the 1% drop originally projected. Also, the Labor Department reported consumer prices fell 0.1% last month as a drop in energy prices offset the biggest rise in tobacco prices in more than a decade.

Despite the downtrodden data, small cap oil company Delta Petroleum (Nasdaq:DPTR) is up 14% and Agria Corp. (NYSE:GRO) is climbing 12%, both on slightly lower-than-average volume.

******I hate to keep talking oil here, but the sticky stuff is a great proxy for what’s going on with the economy and the financial markets. On the one hand, demand is down considerably, even OPEC has cut production and inventories are rising to the point that some analysts are saying “…we’re swimming in the stuff…”

Oil prices have been as low as $35 in the last couple of months – an inconceivable price just 6 six months ago.

But at the same time, investors fully understand that oil is absolutely indispensable to global economic growth. And alternative energy sources will not be affecting . . .

Stocks are trading lower Tuesday afternoon following a disappointing retail sales report and anticipation of upcoming earnings reports that will help provide further insight into the economy’s health.

At 11:42 am ET, the Russell 2000 (NYSE:IWM) is down 8.41, or 1.8%, at 459.64, while the Dow is down 0.84% and the S&P 500 is down 0.88%.

This morning the Commerce Department reported that retail sales fell 1.1% in March — the biggest decline in three months and a much weaker showing than the 0.3% increase that analysts expected.

Small caps bucking the trend today include Dendreon Corporation (Nasdaq:DNDN), up a stunning 135% after its Provenge prostate cancer treatment met its key goal in prolonging survival in men with advanced prostate cancer. Also climbing higher is Phoenix Technologies Ltd. (Nasdaq:PTEC), up 35% after Roth upgraded the small-cap software company to “buy” from “hold.”

******"Given the challenging fundamental backdrop in the global economy, we continue to be cautious about the near-term outlook for our businesses …"

That’s what Goldman Sachs CFO had to say after it posted pretty good earnings numbers on Monday. Of course, no one in the banking sector in his or her right mind is going to say things are great. But numbers are one thing, actions are another.

Goldman earned $1.66 billion in the first quarter, or $3.39 a share. Analysts were expecting earnings of $1.64 a share. Goldman essentially blew the numbers out of the water, like Wells Fargo.

But here’s the sticky point: Goldman said it will repay its $10 billion in TARP . . .

Stocks are trading lower today as investors prepare for key company earnings later in the week and brace for a potential bankruptcy filing from General Motors.

At 12:36 pm ET, the Russell 2000 (NYSE:IWM) is down 7.71, or 1.65%, at 460.49. The Dow is down 0.92% and the S&P 500 is down 0.46%.

Key banks, which kicked off a rally in early March when several institutions said they were profitable in the first two months of the year, will report quarterly earnings this week. Asian markets also gained more ground Monday as Japan's new $150 billion stimulus plan and upbeat news about Chinese bank lending boosted hopes for recovery in the region's major economies.

Small caps on the rise this afternoon include AgFeed Industries (Nasdaq:FEED), up 31% on heavy volume, while Rosetta Genomics (Nasdaq:ROSG) is up nearly 20% after signing a license and collaboration agreement with Prometheus Laboratories.

*****Thank you, Wells Fargo. The S&P 500 ramped nearly 4% on Friday as Wells Fargo said it expects its first-quarter earnings to be nearly double what analysts were expecting. And it wasn’t even Wells Fargo’s earnings day – the company pre-announced earnings that will be released on April 22. These days, if you have something to crow about, you do it. ASAP.

Financials have been at the forefront of the current rally, and that’s as it should be. Any good rally has to have the financials out in front. Of course, the financials are moving off such low levels that even huge percentage gains, like the 12% Citigroup was up or the 31% Wells Fargo jumped, are barely a drop in the weighted index bucket. 

Still, stocks are up and that’s good. 

*****There is some concern that Wells Fargo’s earnings surprise is more about accounting than an actual uptick in business. Some are saying that Wells Fargo’s loss reserves (money it sets aside to account for future losses) are too low, . . .

Stocks opened in the green this morning and have held their own through Thursday afternoon on news that Wells Fargo issued a surprise profit announcement.

At 12:25 pm ET, the Russell 2000 (NYSE:IWM) is up 18.34, or 2.64%, at 460.46, while the Dow is up 2.22% and the S&P 500 is up 2.53%.

New employment data out today did little tamper the strong rally. New jobless claims fell more than expected to 654,000, while continuing claims set an 11th straight record. The total number of laid-off Americans receiving unemployment rose to 5.84 million, from 5.75 million, the most on record since 1967.

Small-cap A-Power Energy Generation Systems (Nasdaq:APWR) is up a whopping 33% after reporting a surge in Q4 profits. Cardiome Pharma (Nasdaq:CRME) is also up 24% after announcing a licensing agreement for Vernakalant, an investigational candidate for the treatment of atrial fibrillation.

******The minutes from the last FOMC meeting were released Wednesday. You might recall that was the meeting where Fed Chairman Ben Bernanke announced that the Federal Reserve would start buying $1.13 trillion worth of Treasury bills, corporate bonds and consumer debt.

Bernanke didn’t say at the time he was proposing the biggest Fed balance sheet expansion in history, but the members of the Fed lowered their estimates for economic recovery significantly.

The Fed had expected growth to return in the second half of this year and unemployment to top out around 8.8%. At the last meeting, dismal numbers from the start of 2009 prompted recovery expectations to be pushed into 2010, along with upward adjustments in unemployment number expectations.

It makes sense that the Fed took a more negative view of the economy. Why else would it take such a radical step as the balance sheet expansion? And I’ve been saying all along that unemployment will hit double digits before this recession is over.

What is interesting is what the Fed will say next. Bernanke has made some bullish comments over the last few weeks—comments that are somewhat contrary to the minutes from the last FOMC meeting. Perhaps Bernanake was just talking . . .

Stocks are navigating choppy trading Wednesday after the Federal Reserve’s recent meeting meetings showed that officials saw that the economy was deteriorating.

At 2:18 pm ET, the Russell 2000 (NYSE:IWM) is up 5.73, or 1.33%, at 437.43, while the Dow is up 0.23% and the S&P 500 is up 0.59%.

Pulte Homes Inc. announced today that it has agreed to buy rival small-cap Centex Corp. (NYSE:CTX) for $1.3 billion in a stock deal that will create the nation's largest homebuilding company. Centex shares are currently up almost 20%.

Other small caps climbing today include United Western Bancorp (Nasdaq:UWBK), up 42% on news it will sell certain assets of its Sterling unit.

******It doesn’t happen often. Earnings season usually kicks off with either some bullish enthusiasm or bearish pessimism. But Tuesday afternoon, Alcoa (NYSE:AA) gave analysts exactly what they were looking for: nothing more, nothing less.

Alcoa lost money in the first quarter. A lot of it, really. $497 million. A year ago it earned $303 million.

But that loss was, apparently, perfectly priced into the stock. And so . . .

Stocks are extending losses seen Monday as earnings week kicks off on a low note.

At 11:52 am ET, the Russell 2000 (NYSE:IWM) is down 7.3, or 1.63%, at 440.26, while the Dow is down 2.05% at 7,812.73 and the S&P 500 is down 1.75% at 820.82.

Aluminum giant Alcoa will kick off earnings season Tuesday after the close of the market. The company is expected to report a loss and set the tone for dismal results to come. Financial stocks helped push the market lower Monday, and are likely to remain under pressure in the coming days as investors brace for more losses.

But not everyone was in the red today. Small-cap restaurant chain Benihana Inc. (Nasdaq:BNHN) is up 9% after reporting an increase in total and comparable sales for Q4 and full year 2009, while First Niagara Financial Group (Nasdaq:FNFG) is up 13% on news the small cap will buy 57 branches from a unit of PNC Financial. Also rising today is biopharmaceutical company Oncothyreon Inc. (Nasdaq:ONTY), 14% higher on heavier-than-average volume.

******I sure hope SCI Daily readers bought some shares of Graham Corp. (AMEX:GHM) when I suggested it in the March 19 edition. Graham closed at $9.33 that day. Today, it’s pushing $11 a share for a 16% gain.

Graham is exactly the type of stock I love. It’s in an important sector (oil services), it has a pristine balance sheet with virtually no debt, it generates plenty of cash and it has a solid backlog.

Graham is rallying now because it is announcing new orders — $6 million worth in the last week. That may not sound like much, but when you’re doing around $100 million a year, $6 million is significant.

Among other things, Graham helps oil refiners retrofit their equipment so it can handle heavy or “sour” crude, like what comes from oil sands production. Oils sands production is more expensive than the oil we get from OPEC. Oil sands companies are break even with oil in the $50 range.

Graham hit $54 a share when oil prices were hitting their highs. Oil sands production was ramping up and refiners were investing to accommodate that supply. But when oil prices dropped, investors thought Graham’s business would drop. It has, but not as much as expected.

Now that oil prices have found some stability in the $50 range as expectations . . .

Stocks are trading lower today as fearful investors brace themselves in anticipation of poor earnings reports that will begin being released this week.

At 1:40 pm ET, the Russell 2000 (NYSE:IWM) is down 14.55, or 3.19%, at 441.58, while the Dow is down 1.75% at 7,877.09 and the S&P 500 is down 2.09% at 824.93.

Small caps bucking the trend today include SumTotal Systems (Nasdaq:SUMT), up 47% after receiving a buyout offer. Legacy Reserves (Nasdaq:LGCY) is also climbing 29% today after receiving a proposal from Apollo Management to acquire all outstanding units of the company at a cash purchase price of $14 per unit.

******Time flies. Seems like earnings season just ended and yet here we are again. But first-quarter earnings kick off tomorrow with Alcoa (NYSE:AA).

Given how far the stock market has come over the last three weeks, you might think stock prices are set up for a fall as the reality of earnings dashes the enthusiasm that economic recovery is at hand.

Earnings will be bad. S&P 500 companies are expected to report that earnings are down around 35% from the year-ago quarter. And earnings were already falling then.

But don’t forget, stocks have been rallying because investors are anticipating an economic recovery. Though there have been some subtle signs that the economy is starting to improve, it hasn’t happened yet. In other words, nobody expects Q1 earnings to be good.

This earnings season is going to be all about guidance. What do companies see in the future? Will they be willing to say things look better? And more importantly, will any optimism be reflected in revenues and earnings forecasts?

That’s what investors will be focused on. I’d say it’s an “even money bet” whether stocks are higher or lower when earnings season wraps up a few weeks . . .

Stocks are fluctuating in Friday trading after investors looked past new unemployment data that showed unemployment jumped in March to its highest rate since 1983.

At 2:37 pm ET, the Russell 2000 (NYSE:IWM) is up 0.92% at 454.33, while the Dow is up 0.41% at 8,010.98 and the S&P 500 is up 0.79% at 841.

This morning oil prices rose above $53 a barrel, extending a rally fueled by market optimism that crude demand may rebound if the U.S. economic downturn bottoms out soon, while it was reported that U.S. banks that have received government aid are considering buying toxic assets to be sold by rivals under the Treasury's $1,000 billion plan to revive the financial system.

Small caps on the move today include Zale Corporation (NYSE:ZLC), which is up a whopping 51% after AM Best affirmed the jeweler’s financial strength rating.

******There's a lot going on today. The unemployment rate "surprisingly" hit 8.5%. President Obama knocked 'em dead at the G-20 meetings.

But the headline that caught my eye was "Bailed-out banks may buy toxic assets."
Believe it or not, Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and JP Morgan (NYSE:JPM), are considering using the Public-Private Investment Program to buy toxic assets from other banks, according to the Financial Times.

The Public-Private Investment Program is designed to encourage private investors to put money to work buying toxic assets from distressed banks. The Treasury and the Fed have offered loans to make the purchases less risky for the buyer. In essence, all a buyer has to do is put up a token amount of cash and the government will fund the rest. 
Yes, the plan reduces risk to the point that it's kind of like a free money giveaway - the taxpayer takes the risk, the subsidized investor makes the profit, assuming there is one. 

Personally, I'm not happy about the plan. But something has to be done to get the market for these toxic assets moving. Right now, there's a huge spread between the banks asking price and investors' bid. And nobody's budging. Throw in . . .

Stocks are in rally mode this Thursday, adding to gains after the board that sets U.S. accounting standards agreed to give banks more flexibility in applying mark-to-market accounting to their toxic assets.

At 12:41 pm ET, the Russell 2000 (NYSE:IWM) is up 24.71, or 5.76%, at 453.87, while the Dow is up 3.88% at 8,062.59 and the S&P 500 is soaring 4.04% at 843.87.

Small caps on the move today include Stein Mart, Inc. (Nasdaq:SMRT), up 22% today, and Century Aluminum (Nasdaq:CENX) is also treading 26% higher.

******Unemployment numbers continue to rise, but investors are more focused on the hope that the economy has bottomed and may be positioning for recovery. At least for now.

Please note that I said “positioning for recovery.” Mortgage rates are down and that seems to be helping the housing market a little. Credit afforded by the Treasury aimed at removing toxic assets from banks is resulting in higher valuations for those banks.

But all of the steps that have been taken are in their infancy. How long will it take to work off the available inventory in the housing market? Will banks and private investors come to an agreement on acceptable prices for toxic assets?

These questions will be answered over time. And it should go without saying that there’s plenty of room for disappointment down the road.

*****The Public-Private Investment Program could create some very low risk profits for its participants. That’s because the Treasury and the Fed are . . .

Stocks extended gains Wednesday after investors were encouraged by factory and home sales data that further solidified beliefs that the economy is stabilizing.

At 3:00 pm ET, the Russell 2000 (NYSE:IWM) is up 0.59% at 425.26, while the Dow is up 1.6% at 7,730.38 and the S&P 500 is up 1.18% at 807.26.

Small caps moving higher today include PLX Technology (Nasdaq:PLXT), up 18% after the small cap formed an alliance with Fusion-io on new products.

*****Even before they’ve had the chance to present a third (or is it fourth?) turnaround plan, President Obama has said bankruptcy is the best way for GM and Chrysler to deal with their problems.

GM would be able to restructure with bankruptcy protection, but apparently it’s a lost cause for Chrysler if the proposed Fiat merger fails. GM’s got around $47 billion in debt it has to deal with.

It’s likely that Obama’s mention of bankruptcy is intended to bring bond holders and union officials to the table for some serious negotiating. Bankruptcy proceedings could cost 4 GDP percentage points and 1 million jobs.

*****Hovnanian Enterprises (NYSE:HOV) is back in the green after the National Association of Realtors said pending home sales rebounded. Some are even calling bottom for the housing market. However, given the massive supply that still exists, I think it’s a little early to ring the bell. Let’s say the housing market is in a bottoming process. That way, when prices stay weak longer than expected, we can say it’s just part of the process. Hovnanian is up 7% in the early going.

*****As you know, it’s Newsletter Advisors Wednesday. Today’s interview follows …

Timothy Lutts is Cabot’s chief investment strategist and editor of Cabot Stock of the Month Report. I sat down with him recently to ask him about the . . .