Update On Dead Cat Bounce

Today was clearly a better day for long positions and while not the best looking bounce it had its moments. Breadth improved steadily but was not even 2:1 for advances. Volume was lower than Friday but still a heavy 2 billion on the NYSE. My take is that there was some further heavy selling in the morning and that was the end of it. The rally took hold from there and progressed reasonably well. Unless there is a major shock to the system tomorrow, we should see good follow through. The bull case would enjoy healthy volume tomorrow (1.5 - 2.0 billion shares) with breadth better than 2:1. While we are ordering, new lows should contract to under 100 or so, new highs should expand but its too early in the game to expect anything more than 100 or so of those.

Last summer we had an interesting scenario unfold. As the market bottomed from the May - June swoon, volume continued light all through July and August. This vacation mode threw off a lot of players as the lack of volume was perceived to be a lack of demand. But, the demand was real and when vacations ended it ramped up even more. Drawing from that experience I would expect a similar curve. Some indicators will look good, others not. Overall, its the way our stocks behave that matters most.

So, lets talk about stocks. In my review today I found that our stocks seemed to fall into four categories:
1. Stocks that appear to not have been in correction at all: AAPL, PCU, RCI, T, DECK, SBS, etc.

2. Stocks that clearly corrected but are still healthy: LECO, MTW, JLL, AMX, CVX, FCX, etc.

3. Stocks that corrected, became damaged, and then staged a major comeback or held a support line or moving average and may be worth sticking around awhile longer: LTR, UNM, PVH, etc.

4. Stocks that corrected, became damaged, and appear to be broken: GS, AFG, X, CVG, DDS, LNC, AIZ, etc

For the first 3 types of stocks we will likely hold and possibly buy more of them. For the last one, we will sell most of these positions and replace them with new stocks that we believe to be among the first 3 varieties. In this way we will use the correction to help us. How is it possible to “use the correction to help us”? Let’s understand a correction: this is when a market starts to weaken but that weakness is either hard to perceive or appears to be a market that is resting. But, then the weakness broadens and stocks begin to fall. Some don’t and we love those. Some do but still act ok. But the ones that fall and appear to be broken are often in sectors that are weakest and will likely receive the weakest demand from new buyers. This is because something has gone wrong in the perception of their future results. Usually where there is smoke there is fire. And, as they do rally, they will run into overhead resistance, i.e., shares that were purchased at higher prices before the correction and are now being held onto for a breakeven. This makes the upside limited or difficult to come by. So, by rotating out of what appears to be bad and replacing it with those stocks that appear to be strong and in demand, we should achieve continued good results.

Let's face it, stocks like Goldman Sachs and Dillards Dept Stores are fine companies. They will go higher in time. But history says that once they are broken they will take time to clear out all the congestion. During that time they will be underperformers and act as a drag on our portfolio performance. These can be tough decisions but they must be made to keep the portfolio in 'fighting' shape primarily because we don't know what is really wrong with them nor do we know how long their perceived troubles will plague them.

So, this morning's dead cat bounce woke up some. We know what we want to see from Mr. Market and how we are going to play it. Let's see how it all unfolds...more to come.

Dead Cat Bounce?

After a murderous week the market has been choppy-to-higher all day. Many of the stocks in the portfolio are acting better and that is most important. But, on the exchanges the leadership is vague as more stocks are declining than advancing. There are also more than 10x as many new lows to highs so far today. Before anything meaningful can happen these dynamics have to shift back towards to bullish/advancing camp.

Rather than chase our tails here, we are watching what unfolds. And working steadfastly at determining which of our stocks are fine and worth holding and which are not and will get the boot. And of course, doing the work to find the new names that will bring us continued outperformance. That's the sanest thing to do after a week like last.

Stay tuned...

A Most Difficult Week

Stocks got slammed this week as credit-related concerns dominated trading and headlines. Essentially there is a credit crunch of sorts taking place that is causing players difficulty in getting deals done and raising concerns about future deal flow. Since the stock rally was a funciton of the takeover game this is cause for concern.

Although most every stock I follow was up in the last hour of trading Thursday, there was no short covering rally that extended into today. In fact it was a dismal affair today with the major averages again on their lows. In some ways it was similar to the selloff in late February - ferocious, global, and widespread. New lows swamped highs as well as declines over advances. The technical damage looks as bad now as it did then. My thoughts had been that this selloff would not go as far as it did so naturally one tends to hold back from additional bold statements. However, unless the world is coming to an end the selling will abate and the market will catch a bid. It could be at the 200 day XMA which would be logical but the market is not always so cooperative.

For now, the market is closed and life continues. We'll worry about the rest first thing Monday (and probably a little over the weekend).

The Market Is A Battleground

There are all sorts of things happening that make this a most exciting and interesting juncture. On the plus side, the major indices have set highs and are coming off a 12 month period of atypical strength and momentum. Conditions have been excellent and the question is "will they continue?". I say respect the law of inertia.

But then the worries creep in...subprime and other mortgage woes ala Countrywide & Bear Stearns. Earnings misses from TXN & DuPont. Earnings worries from AAPL. The market responds with a 2-3% decline and EVERYONE is up in arms. The end is near, take profits, wait for lower prices, its almost too much to bear!

The market is a battleground! Every trade matches a pessimistic seller with an optimistic buyer. We all go into a position believing we are right. Sentiment can shift quickly and the declines even faster. This is the hallmark of a bull market - scary moments that can shake you out of good stock, get you out of step, make you think you can actually time things and get back in lower. Well, it really doesn't work out too well that way. Typically the big money is made by sitting, not moving money around. This decline is difficult but that is what a bull market will give you. Look at AAPL, RIMM, AMX, DECK, & RL. There is nothing wrong with those charts. This decline is apparently no different than any of the others that have occured during the last year: a quick shakeout and then the resumption of the trend. Oh, you think you can trade out and buy it lower? That was for last week when the market logged days of no gains on weakening breadth. Now, money should be put to work unless its already invested.

There is no doubt that the end of the bull market COULD BE upon us. We won't know for some time. But, if you look at your stocks and they are behaving reasonably well for a correction then there is one thing to do and that's stay with it. Be realistic about the portfolio and you will note weakness creeping in. At GCM we are reevaluating favorites like GS, X, GOOG, and SCHW. Are they simply consolidating their moves and'waiting' for the 50 or 200 day XMA to catch up? Or, more likely for GS and a host of financials, something potentially more dangerous that's not worth sticking around for. Portfolios always require attention and pruning, sometimes more than other times. High probability that this time is fairly typical for a bull market that's run for 12 months straight. Or, as the expression goes, a storm in a water glass.

The New York Times led off the business section with a bearish article about rising mortgage delinquencies. Enough to make you run for cover. But I'm betting that the strength in the global economies will not be run aground by a statistically small % of US homeowners failing to make timely payments on their mortgages.

Enough said...take me to the bell and AAPL's earnings...

Crosscurrents

Yesterday I felt that the market action was indicative of a bull market - strong follow up to an otherwise tough down day. But by the end of the day, the weakness crept in again, breadth & new highs:lows were lousy, demand declined, concerns about financing (see EXPE's failed wannabe LBO) & subprime fears (see BSC, LEH, GS, MER) continued, and earnings began to weigh on stocks.

Today AAPL is getting hit hard -2.7% on WSJ reports that T activated only 146,000 iphone subscriptions the last two days of June. The street was thinking 700,000 phones sold that first weekend. But, the rollout occured Friday evening June 29. That left an evening and a day for T to record new subscriptions. Yet 146,000 seems light when 700,000 was the forecast for the first full weekend so the stock is selling off. AAPL earnings are due this week and now grey clouds are on its horizon. Usually I like when strong stocks decline into an earnings report but AAPL is a large position so its a little tougher to stomach. 6 weeks ago the same happened with RIMM and we benefited hugely from that insight. GOOG is probing the lows after its earnings miss. Very much the dead cat bounce there. TXN is down 3.5% after an earnings miss citing lower demand for cellphone chips. Are they kidding or braindead down there in Texas? But this is the earnings season we have inherited.

And then there is the issue of bank stocks and financial stocks. Bank stocks are acting like death, insurance stocks are arguably worse, & investment banks are in the same league. The only thing acting well in financials are asset managers but even they are hit or miss (see IVZ vs LAZ). If the money guys are getting hit it always seems to be tough sledding in the overall market.

Another item to note is small vs large cap. True, the small cap indices are only down 4% from their highs. And mid caps are only down 3%. But both of those have sold off to the lower end of the recent range. Large caps on the other hand are down about 2% but are holding their heads up higher and stronger. If this trend continues the best action will be in large caps for the next move. The caveat being that the market wants us to think "If there is one."

The well managed portfolio is now being pruned (again and again...) so that losses do not stub our toes too badly. Positions are being reviewed for relevance so that the next rebalance may dig a little deeper. Holding the right stocks in the right proportions is critical and that's what we are after.

The decline should last another day or two and or another 1/2 - 1%. Then the rally bears close scrutiny for further cracks. If they continue then a little deeper pruning should occur.

Stay tuned...

Very Often, In Strong Bull Markets...

...nasty selloffs get reversed the next day. Today the market is following that script (for now). After a mostly higher open there was some settling in. And then demand overwhelmed supply. RIMM & AAPL, both off a few dollars each, have reversed field and are trading higher. Other stocks, e.g. GS, SCHW, & RL, are coming off the lows as well. If one is managing a very large fund and believes that we are in an uptrend, down days present golden opportunities to load up, add to, or establish positions. I believe this is what we are seeing today.
Although its early in the day, its good confirmation about the type of market we are in. Stay tuned...

Interesting Week

Much has happened this week but the topper was the GOOG earnings. That knocked the market but all week there have been little signs of deterioration. A sloppy AD line & breadth are the obvious ones. Leadership has also shifted away from small to large cap as the Dow and S&P 500 both set records.

Fact is, GOOG missing by 3 cents changes little and in fact put most stocks on sale today. There are a number of good names that have come to trend lines and should be considered at this time. Howeve, the best of the best, AAPL, RIMM, PCAR, STRA, PCLN, FCX, & PCU, to name a few, still have set new highs. The stroy for these remain the same until further notice. GOOG likely will rally from here as it is still a strong growth play and a favorite.

Stay tuned...more upside to follow!

New Highs, Again

The correction that I wrote should only last a day or two ended as quickly as it started & the NYSE has made a new high today. So has the Dow, the S&P 500 and the Transports are close, and the mid and small cap indices have a little more to go but they are moving in the right direction. Even the Utilities seem to have straightened out and are looking higher. Breadth and the new high list look fine after some weaker readings the last couple of weeks. No matter, it all requires careful watching and analysis to confirm the strength.

More important than the market are the stocks we are long in our various portfolios. Today FCX, SBS, PCU, RCI, CVX, VIP, X, UNM, & AMX are all sharply higher &/or setting new highs. RIMM & AAPL are also moving but its nice to see other stocks in the list making the big gains.

Over the last week CTL, PVH, & DECK got a little sloppy on us. GS has been deteriorating and failing to make a move during this time as well. This is what to focus on at times like these. The good ones are fun to look at but what's affecting certain names is of greater concern. Ultimately if they misbehave too much they will be sold. Taking small losses is the thing to do when markets are acting well and certain stocks aren't. Taking losses eliminates problems, cleans out the portfolio and keeps it fresh to ensure its in the best shape possible for further gains. As portfolio manager, its important to 'love' losses because of the good they indirectly do. This is a critical aspect of proper portfolio management - the thing we excel in for our clients. Feel free to write or call for further information that could benefit your situation.

Stay tuned!

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Geller Capital Management, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

Typical Bashing

Indeed, the market took something way too seriously today. Doesn't it know that we only want to see prices rise? Alas, this will never be the case. Its actually an important part of a bull market to have prices decline. And they are typically sharp ones at that. I recall a study of the worst declines of the last 50+ years and at least half of them occurred during bull markets. It serves to keep the fear factor up and money on the sidelines. This keeps buying power in reserve, ready for an opportunity. Today's decline in S&P 500 terms could easily find a low in the 1490 - 1500 range but more likely lasts only a day or two and doesn't broach 1500. During a bull market, the sharp selloffs rarely get far as buyers who understand the move take advantage of the selloff. So we should see limited weakness from here before another run at the highs.

While the number of new highs have been good the last few weeks, breadth has been a little suspect. This is troubling in terms of the NYSE Composite which did set a new high while breadth did not. We can give this a little while to correct but correct it must. Yields are helping here falling back to 5% but I am a believer that they are going to go higher, rather than lower. The global economy is just too strong. Oil rose again which should hurt but lately doesn't seem to matter.

A most interesting point regarding the market was a piece i recently read on earnings. Naturally, earnings are one of the, if not THE, main driver of stock performance. Typically, earnings pre-announcements are negative and they are released in the month leading up to quarter end (like June). However, the recent spate were more than 3:1 negative:positive which is considered bearish. Yet, through this period of negative forecasts the market has held itself in consolidation at or near the recent highs. Either the market is stupid or the negative preannouncements will not matter. I go with the latter.

Either way, stay tuned.

What a Week!

This was a week I wish didn't end but TGIF! We saw strong results this week from strength in RIMM, AAPL, RL, STRA, DHR, PCU, PCLN, DECK & SBS. to name a few. We also added some new names to the portfolios we manage. No surprise here - leading stocks in the interenatioinal Telco sector were some notable additions.

RIMM and AAPL have dominated the headlines and our performance for good reason. Their products are amazing and are beginning to become mainstream. At hand is the transformation of email on a handheld device for the corporate user to the everday consumer. This sparks demand for Blackberries and Iphones. It also creates demand for servcies from telephone providers to supply wirelss email feeds and internet access. This boom is big and starting to take off.

Other stocks were just plain strong from continued demand for their products and services. PCU (metals) is riding a wave that has given us a double in less than a year. RL (fashion) is dominant in the stores and on the exchange. JLL (real estate services) benefits from continued strength in commercial real estate. The list does not end there.

Of course markets change on a dime and we are fully prepared for a reversal. But for now, we can enjoy the moment and pick it up again on Monday!

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Geller Capital Management, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

Better Than Friday...And Then Some

The freight train continued to roll along today. Several of the stocks in the portfolio set new highs but a bunch of them moved higher and are close to a breakout as well. This is favorable as the market indices are still behind the June 1 highs. We want our stocks to run ahead of the market and they are doing that. This concept is critical to stock selection and outperformance. RIMM exploded for another $14 and a new high, PCU blew past the old high as did OSG, CVX, RDSA, DHR, T, & STRA. SCHW, SBS, MTW, TU, LTR, MAN, TS, LECO, GOOG, & RL, to name a few, got close and are on the verge. Look at some of these charts and its obvious that there is great strength underpinning this market.

RIMM and AAPL have been the dominant stories lately. RIMM kept going today, AAPL sold off moderately. This wasn't a particularly good sign on the first trading day after the big hype-phone launch. The numbers over the weekend were great so I'm not sure what the market wants here but it could be a signal that this one got ahead of itself. However, T, the exclusive carrier for the hype-phone did set a new high. So something happened over the weekend that T holders liked but not AAPL. The gap should narrow one way or another.

RIMM and AAPL have caused a sensation and its playing out in the provider market. As mentioned, T set a new high and acts well. Other winners this year that we hold or are buying are AMX, CTL, TU, PHI, & VIP. Even the rather dead VZ acts ok. The sensation to buy and use phone devices that also transmit email and allow for web surfing create an income stream for the providers and is a rapidly growing business. This is a trend to hang onto as these companies are BIG and promote/advertise heavily. There's no target in my book for where these stocks can go but they are clearly mainstays in this market. Its important that stocks in a group confirm eachother and in this case we have stocks in related groups confirming eachother as well. As much as I would love to take some RIMM or AAPL off the table I believe there is much more to this move. Great stocks are hard to come by and since we have some of the best we are going to try to be patient and let them develop further. Sort of reminds me of the joke about the papa bull and the baby bull standing on a hilltop...

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Geller Capital Management, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.