Tag - Pfed

Stocks slid during the morning session and began a more gradual recovery after noon eastern time. The Dow closed up 4.76 points to 8,183 in choppy trading all day and on news that initial jobless benefits claims came in at 565,000 down from the 605,000 that analysts had expected.  

Both the Nasdaq and the S&P 500 closed up today at 1,752 and 882, respectively. 
The top 2,000 small-cap stocks making up the Russell 2000 closed down 0.4 points to end the day's trading at 479. 

Small-cap gainers were lead by Superior Bancorp (Nasdaq:SUPR) up 22% on heavier than normal volume. The stock opened today at $2.19 and hung around that level until shortly after 1:00 p.m. eastern to spike to $2.75 within 15 minutes. The remainder of the trading session saw SUPR trying to push through resistance at $2.97 before settling at $2.69. 

Other small-cap gainers for today include Park Bancorp (Nasdaq:PFED) up 21% to close at $8.70 from a previous close of $7.19; MOD-PAC (Nasdaq:MPAC), a manufacturer of folding cartons in north America, up 20%; and Chicago Rivet & Machine (Amex:CVR) up 25%. 

Decliners in the small-cap space were lead by American International Group (NYSE:AIG), down 28% on news that the company is potentially looking to sell parts of its foreign life-insurance units to MetLife (NYSE:MET). This comes on the heels of AIG's announcement last week that shareholders had approved a 1-for-20 reverse stock split in an effort to maintain the firm's listing on the New York Stock Exchange. 

Other small-caps losing in today's session include United Community Bancorp (Nasdaq:UCBA) down 17%; Tuesday and Wednesday's high flyer, Novagen (Nasdaq:NVGN) was down 20% as profit-takers continued the sell-off that started Wednesday afternoon; and MedQuist (Nasdaq:MEDQ) down 13%.

*****Earnings season has begun. Alcoa (NYSE:AA) kicked things off with a report that was better than expected, even though the company lost $454 million in the second quarter. Yes, nearly half a billion dollars.  

Alcoa went on to say that aluminum demand will be down 7% this year. One analyst widened his loss estimates for the remainder of this year and 2010. And yet the stock is up 6% in the early going.  

How can that possibly be bullish, you ask?  

Well good question. And the answer may not come as that much of a surprise: China. Alcoa believes that Chinese stimulus spending may help it become "…free cash flow positive very soon…" Alcoa's CFO said.

*****I've discussed China's stimulus plans at length here in Daily Profit. And I've also been aggressively adding Chinese stocks to the SmallCapInvestor PRO portfolio. (Click here to find out which ones.) 

But it's still nice to hear from a major U.S. corporation that China's $585 billion stimulus spending plan is expected to have a positive effect on commodity pricing and demand.  
In fact, Alcoa's CEO added a little color to China's stimulus efforts. He reported that China is telling its people "…that it's good to not have too much savings and to buy new cars and get a new air-conditioner." 

It would be ironic if China usurped the U.S. and became the world's consumer of last resort. And a profitable irony at that. 

*****It's being reported that stocks are rallying after weekly new unemployment claims were down sharply last week. But continued unemployment benefit claims from workers already on the dole rose for the week.

The drop in new claims appears to be an anomaly due to a break in layoffs in the auto industry. There doesn't appear to be any significant change in the unemployment trend.  

*****I hope you've been paying attention to Jason Cimpl's video chart analysis and weekly forecasts. He's been hitting the market's next moves with uncanny accuracy. You'll recall from last week, he was looking for more weakness early this week, with a recovery mid-week. If yesterday's late rebound can continue today, he'll be spot on again. Be sure to read tomorrow's Daily Profit to view Jason's forecast for next week.
 
And his prescient forecasts are making money for subscribers to TradeMaster Daily Stock Alerts, too. They just took 15% on the Ultrashort Financial ETF (NYSE:SKF) in 8 days. And it looks as though he's getting his readers ready for some upside trades.  
Of course, you'll get his video forecast in tomorrow's Daily Profit, but if you want to start getting his profitable trades, too, then you'll want to sign up for TradeMaster Daily Stock Alerts. There's a 30-day trial available. Click here to find out how you can enjoy steady profits in this uncertain market.

*****The PPIP is doomed. PIMCO's Bill Gross is dropping out of the government's program to remove toxic assets from banks' balance sheets. Gross and Co. are apparently concerned that the government has gotten too unpredictable, changing its mind, and even the terms, of other bailout measures retroactively.   

Plus, there's also the likelihood that banks won't sell toxic assets at anything resembling attractive prices. And that will kill the program.  

I still believe Geithner blew his opportunity to use the stress-tests to force banks to sell their toxic assets and improve their balance sheets. But as we know, Geithner simply does not play hardball. And that's too bad, because our economy could use some leadership from the Treasury.  

P.S. I just finished reading through a new book by senior trader Larry Connors. It's called "High Probability ETF Trading". It's on profitable trading strategies using ETFs and he's hitting a 93% win rate. I don't know about you, but I'll take 93% any day. He gave me a link to more information about the book to share with Daily Profit readers (I asked him for it as readers send me a ton of questions on ETFs). Click here to find out more about his book and discover how to get up a 93% win rate on your ETF trades.

It started off as another ugly day for stocks. But the major indices rallied out of the hole after hitting their lows for the day around 11 AM. There was no particular fundamental catalyst propelling stocks prices higher. The move appears to be technically based, with traders apparently considering the drop to 886 on the S&P 500 close enough to support At 880 to start buying.

The S&P finished the day with a slight 2.3 point gain. The Dow Industrials finished up 44 points, completing a 122 point reversal. Only the Nasdaq finished in the red. The 9 point loss there was led by Apple (Nasdaq:AAPL) and Amazon.com (Nasdaq:AMZN).

Once again, there plenty of regional banks on the top performers' list. Park Federal (Nasdaq:PFED) was up 34%. Eurobancshares (Nasdaq:EUBK) rose 18% and Community Shores Bank (Nasdaq:CSHB) was up 18%. The only problem is that these stocks are rallying on extremely light volume.

At least with today's decliners, there are some stocks that aren't regional banks. TerreStar (Nasdaq:TSTR) dropped 20%. Spectrum Pharmaceuticals (Nasdaq;SPPI) was off 16% and Republic Airways Holdings (Nasdaq:RJET) was down 16%.

*****Despite the early declines, TradeMaster technical analyst Jason Cimpl had us prepared with his excellent video chart analysis that accompanied Thursday's Daily Profit. If you missed Jason's analysis, here's the link again.

Jason is expecting some upside later in the week. That would coincide with the start of earnings season. Alcoa (NYSE:AA) kicks things off tomorrow.

*****Bloomberg is reporting that the earnings decline is slowing. Year over year corporate earnings fell around 60% in the first quarter. Earnings were expected to have dropped another 34% last quarter and may slow to a 21% drop in the third quarter.

67% of companies beat expectations in the first quarter. But of course, when expectations were as low as they were, that's not particularly impressive. Plus, gains were accomplished through cost-cutting, which is only a temporary fix. Still it was enough to get a rally going. It will be interesting to see if earnings season can send stock prices higher again...

*****Oil has dropped to $64 a barrel. Demand is down as the economic recovery is not exactly robust. Back in 2005 and 2006, oil was the leading indicator for the economy. Even though oil prices were taking a bite out of consumers' budgets and even sparking some price inflation, stocks moved higher as oil demand indicated a thriving global economy.

Not much has changed. Even though comparatively lower gasoline prices give us a bit more spending money, rising unemployment is indicative of a still-weak global economy. Some analysts are saying that oil could fall to $50 a barrel.

*****China's still about the only country in the world that's growing. Its Purchasing Manager's Index rose for the 4th straight month. Current estimates are for a 7.8% GDP expansion this year. The U.S. will contract 2.7%, and that includes slight growth for the fourth quarter.

At SmallCapInvestor PRO, we've been ahead of the curve, adding Chinese stocks for the last two months. You can get our complete analysis on 4 top Chinese investments here.

*****Now, let's have a look at this week's economic data...

Wednesday, July 8, we get weekly crude oil inventories and the consumer credit report for May.

Thursday, July 9 we get weekly unemployment claims numbers and wholesale inventories for May.

Then on Friday, July 10, we get import and export prices along with the trade balance. We'll also be treated to a preliminary look at the Michigan Consumer Sentiment poll for July.

This morning it was reported that payrolls declined at a faster than expected rate and the unemployment rate rose to 9.5%. Neither of these are good news, and the stock market responded with a sharp sell-off. The Dow Industrials fell 212 points or 2.5%, the Nasdaq dropped 49 points or 2.67%, the S&P 500 fell 26 points or 2.8%. Small caps tend to lead, and today was no exception - the Russell 2000 was down 18 points or 3.5%.

Because we are heading into a holiday weekend, volume was on the light side.

Declining stocks outpaced advancing stocks by a 4 to 1 margin. The biggest loser on the day was Discovery Labs (Nasdaq:DSCO). The stock was cut in half after the FDA delay evaluation of the company's infant respiratory distress drug, Surfaxin.

Other top declining stocks include another biotech, Sepracor (Nasdaq:SEPR) which dropped 18% after it released disappointing trial results for a depression drug. The decliners list was littered with regional bank stocks too, including Park Bancorp (Nasdaq:PFED) down 25%, and Starling Banks (Nasdaq:STBK) down 17%.

Ironically, several regional banks made today's top advancing stocks list. Crescent Banking Co. (Nasdaq:CSNT) led the way with a 47% gain. OakRidge Financial Services (Nasdaq:BKOR) rose 25% and Virginia Commerce Bancorp (Nasdaq:VCBI) rose 17%.

NaviSite (Nasdaq:NAVI) rose 23% on heavy volume on news of a lawsuit settlement. And Matrixx Initiatives (Nasdaq:MTXX) rounds out the big winners with a 18% gain.

*****And so it begins. I'm talking about earnings estimate revisions for banks. And yes, they are headed lower. First up is Morgan Stanley (NYSE: MS). Credit Suisse analyst Howard Chen was expecting a profit of $0.80 a share. Now he says a $0.40 loss is more likely.  

Oppenheimer's Chris Kotowski dropped his expected $0.20 per share loss to $0.94 per share.  

Ironically, part of the reason for the downward revisions is Morgan Stanley's credit quality. But even this is misleading. Accounting rule changes earlier this year allowed falling prices for a company's debt to be treated as a profit on the assumption that the company could show a paper profit by buying back debt at a price lower than what it was sold for.  

Make sense. If you sell a bond at $1 and can buy it back for $0,50, you've essentially made $0.50. But of course, no banks actually did this. They didn't have the cash on hand to buy back debt, because one of the reasons a company's debt falls in value is because investors realize the company has assets that are worth less. In the case of the banks, these impaired assets are often non-performing loans or mortgage related securities.  

As these assets fall in value, the banks have to hold more loss reserves. That, of course precludes them from buying back their own debt.  

*****It should be obvious that accounting rules allowing banks to treat falling prices for its own debt as profits is a complete sham. The measure is a bookkeeping trick designed to let the banks appear healthier while they get their act together. It's just buying time.  

Will it be enough time? I don't see how that's possible, and I've outlined my reasoning over the last few days. Basically, unemployment is still rising (the unemployment rate hit 9.5% today) and the improvement in the housing market appears to be temporary based on foreclosure sales and government mortgage assistance. Some see "green shoots" here. I don't. 

*****There's at least one IPO market getting ready to heat up. No, it's not the U.S. It's China. As many as 100 Chinese companies may be getting ready to list their shares in Hong Kong. And many will come calling for inclusion on U.S. indices as well.  
The first company that will float their shares to the public will be a holding company that's constructing high-speed railroads between Shanghai and Beijing. The $5 billion China expects to raise will go to expand other railways. 
Bloomberg reports that since China announced its $585 billion stimulus plan, it's more than doubled its spending on railroads.  

This is more evidence that China is one of the few countries in the world that can actually grow its economy without taking on massive debt. I view this as very bullish and it's why I've been recommending Chinese stocks frequently in my SmallCapInvestor PRO advisory service. To discover what we're buying to take advantage of China's stimulus spending, click HERE. 

*****Here's TradeMaster Daily Stock Alerts' Jason Cimpl with his weekly video chart analysis. I've really been enjoying his analysis. And his TradeMaster readers enjoy the profits it leads to. But I'd like to hear from you.

*****Finally, I want to wish everyone a great 4th of July holiday. And if you're driving, do it safely. Let's get everyone home safe. I'll talk to you on Monday.

Stocks traded in a generally upward pattern today after a few dips before and after 10:00 A.M. for the indexes. As noted below, stocks were propelled by good news and a resolution to the sentencing of Bernard Madoff, the former trader accused of defrauding investors of tens of billions of dollars.

Notably the VIX, the Chicago Board of Trade Exchange Volatility Index, was down 2.4% today. The VIX is commonly used as a gauge of investor concern about future volatility as reflected as a benchmark for U.S. stock options. It measures the costs of utilizing options contracts as insurance against declines in the S&P 500.

The Dow Jones Industrial Average closed to day at 8,529, up just over one percent. The Nasdaq was up 5.8 points to close at 1,844 and the S&P 500 Index closed at 927, representing an 8.3 point gain.

The Russell 2000, an index representing the 2,000 largest small cap stocks, was the stand-out from the crowd, closing down 2.34 points to end the day at 511.

Gainers in the small-cap space were lead by Crown Crafts (Nasdaq:CRWS) up 45%; NewBridge Bancorp (Nasdaq:NBBC) up 33%; Craftmade Intl (Nasdaq:CRFT) up 34%; and EuroBancshares (Nasdaq:EUBK) up 27%.

Declining small-caps were lead by Cardium Therapeutics (AMEX:CXM) down 31%. Cardium had been one of Friday's big leaders, but gave up some of those gains after a Monday morning opening down 50 cents from the Friday close; others include Park Bankcorp (Nasdaq:PFED) down 29%; Community Shores Bank Corp. (Nasdaq:CSHB) down 27%; and Anchor BanCorp Wisconsin (Nasdaq:ABCW) also down 27%.

*****The positive headlines are everywhere this morning. On Bloomberg alone, we read that the worst is over for Treasury bonds, factory output improved in Japan for the second straight month and home values in England remained stable for the second straight month.  

It's enough to make you think that there's an economic recovery underway… 
Of course, the best news of all would be some price stability for homes here in the U.S. It appears that we're close to that point. 

 *****The rally that began on March 10 was largely about economic recovery. Or maybe it's more accurate to say that the rally began as investors surmised that the economy wasn't getting worse and that a complete financial meltdown had been averted.  

But in the ultimate irony, now that we are about to start the 3rd Quarter, you know, the quarter where actual growth is expected to return to the U.S. economy, traders are starting to question valuations, especially in the commodity space.  

Bloomberg reports that commodities rose 14% in the 2nd Quarter (April-June). Now, many expect prices for some commodities to fall by as much as 30%. That's because producers have expanded supply and investors have bought with little regard for fundamentals.  

*****Now as you know, I have been bullish on commodities, especially oil. But that doesn't mean that prices will make a one-way move higher. Commodities are called "cyclical" for a reason.

In the good economic times prices rise as production expands to meet demand. Once supply and demand reach some level of parity, prices start to drop and producers reel in production.  

The phrase "buy low, sell high" describes commodity investing to a tee. I've advised my SmallCapInvestor PRO readers to take some gains in oil stocks, but we'll be looking to buy back at some point this summer, because any price correction for oil and other commodities is all but certain to be brief.

*****Now let's have a look at the economic calendar this week. Remember, the 4th of July is on Saturday this year meaning the Federal government and the markets will be closed on Friday the 3rd. Many will treat this day as a holiday, including yours truly.  

Tomorrow, June 30th, we get Consumer Confidence, The Chicago PMI manufacturing survey and the Case-Schiller home price index for April.  

Clearly, the home price index is the big one. Expectations are that home prices fell another 18% in April. Any improvement will be bullish, as home prices area integral to economic health. 

Wednesday, July 1, we get construction spending, the ISM Index, truck and auto sales, pending home sales and oil inventories.  

Then, on Thursday, July 2, we get factory orders, initial unemployment claims, factory orders, average workweek (a measure of productivity), and the big one - non-farm payrolls. 

Of course, it's possible for payrolls and jobless claims to expand at the same time. Traders will look to non-farm payrolls as an indication that businesses expect better times ahead.   

*****If you missed Jason Cimpl's video chart analysis on Friday, you missed a great discussion about a potential head-and-shoulders pattern playing out on the Russell 3000. Here's the LINK again if you want to watch it. (Or go to trademasterstocks.com/videoreport/) 

That's it for today.

P.S. Over the weekend I sent investors some information on dividend stocks and how to use them to shore up your retirement funds (whether you're already retired or it's still some years away). I'm following with my Top Stock Insights service. In case you missed it, you can get that information HERE.

After starting the day pointing to a lower open, the DJIA closed up just slightly by 0.02% at 8,764.49 after bank shares helped to offset bad news from McDonald's (NYSE:MCD) and Apple (Nasdaq:AAPL).

The S&P 500 close down just 1/10th of one per cent at 939.14 and the Nasdaq close down just 0.38% to 1,842.40. The Russell 2000, the bellwether index for the 2,000 largest small cap stocks shed 5.57 points for a loss of 1.05% to close at 524.79.

Small cap leaders for today included Park Bancorp (Nasdaq:PFED) up 46.27%; ArtiCure (Nasdaq:ARTC) up 35.48%; and MFRI Inc. (Nasdaq:MFRI) up 32.24%.

Another more well-known small cap gainer today was SLM Corp. (NYSE:SLM), known to those with student loans as Sallie Mae, with a gain of 19.97% after TV personality Jim Cramer called SLM a "speculative stock of the year". We'll see if SLM suffers the "Cramer effect" endured by so many other stocks over the years.

Small cap decliners were lead by two technology firms: Edgewater Technology (Nasdaq:EDGW) down 14.48% and VeriSign (Nasdaq:VRSN) down 14.19%.

*****I don't like to accuse people of lying. Those are fighting words. But after last night's 60 Minutes interview with Fed Chief Ben Bernanke I am compelled to say that I don't think he's telling the truth about America's banks.

The interviewer asked point blank if Bernanke believed our banks are solvent. Bernanke responded with an unblinking, unflinching "yes."

Of course he used the recently performed "stress tests" as his measuring stick. And that's where the problems begin…

*****The stress tests were supposed to assess each bank's viability if economic conditions worsen from where they are now. So you would expect for inputs into the formulas to reflect an even more dire economy - unemployment at 12% instead of 9%, mortgage default rates of 7% instead of 4%, that kind of thing.

Unfortunately, the stress tests didn't do that. The unemployment rate used in the tests was reported to be 8%. We passed that a month ago. The stress tests used a loss rate for subprime mortgages of 21% to 28%. But 40% of subprime mortgages are currently over 30 days late. And they could hit 55% according to one industry expert, a far cry from 21%...

So when the Fed required banks to raise an additional $75 billion to strengthen their capital base, it wasn't so the banks could stay afloat if things get worse, it was so they could survive right now.

Seems to me, the economy could easily get worse. Then what? The Fed will require the banks to raise more money?

*****In early March it was Citigroup (NYSE:C) that really got this rally going. You may recall Citi CEO Vikram Pandit announcing gleefully that Citi was going to turn a profit for the first quarter. There's been much rejoicing ever since.

At the time, I speculated that Citi was, um, full of it. I surmised their profits were based on mortgage modifications, credit card debt modifications and such. In other words, I believed at the time that Citi wasn't feeling the positive effects of new lending business, but rather, was creating revenue by re-casting existing loans. In other words, I thought it was basically an accounting trick.

(Of course, just because I was skeptical didn't stop me from squeezing substantial gains from stocks as they rallied. All of my advisory services, SmallCapInvestor PRO, Top Stock Insights, TradeMaster Daily Stock Alerts and Recovery Portfolio thoroughly beat the market so far this year.)

*****Good ol' Bloomberg. They ran an article on Friday that not only confirmed my suspicions about banks accounting practices, but now, I'm considering a bank or two, which would have been inconceivable just a week ago.

The change came on April 2nd, just three weeks into the rally. The Financial Accounting Standards Board changed the rules. Banks now have greater freedom to value assets how they choose. And what's more, banks can recognize losses on some assets without counting the write-downs against earnings. And you'll recall it was the write-downs that were a big issue for banks starting at the end of last summer.

Banks are also helped when the value of its own debt falls. So when the bonds they've sold go in the tank, the banks can actually record the difference between the issues price and the current price as income, because they could theoretically buy the debt back at a lower price. Of course, no banks are doing this, but it's estimated that Citi generated $2.7 billion in pre-tax revenue from its own impaired debt. (Think about it, your assets go down and you book it as a profit? Try that with your home and a friendly I.R.S. man will pay you a visit.)

One of my colleagues, Martin Weiss, estimates that without these and other accounting rule changes, Citi would actually have lost $2.5 billion for the 1st Quarter.

And it's not just Citi. Bloomberg also reports that Wells Fargo (NYSE:WFC) boosted its capital base by $2.8 billion by simply re-valuing $40 billion of bonds.

Joseph Stiglitz, economist at Columbia University, believes the government is trying to buy the banks time to earn their way out of this mess. Clearly, he doesn't believe Bernanke is telling the truth. But it's worse.

If banks' ability to hide losses is enhanced, and nothing is really done about the losses on the books that remain, banks will remain unwilling to do much lending, which will keep them from increasing earnings and also impair the economic recovery.

*****Jason Cimpl, technical analyst at TradeMaster Daily Stock Alerts, took 5% gains on the iShares China ETF (NYSE:FXI). This is one of the investments he covered in the video I gave you last week. You'll recall I promised to tell you when he sold…

You can find out more about TradeMaster Daily Stock Alerts HERE.

That's it for today.

P.S. If you're interested in discovering profits from more China opportunities, be sure to request your own copy of my new report, "Going for Growth: 3 Top Chinese Stocks to Buy NOW". It's available HERE.