Keystone Morning Quickie November 13th 2009

Market Commentary

THe Bulls have returned this Friday morning. Futures are up +3.10 as Wall Street feels confident after Disney’s (DIS) earnings last night. A full economic calendar awaits us this morning which should give us further direction. October import prices, trade gap for September and Consumer confidence.

The trade number should have an effect on the direction of the U.S dollar. The Dollar had a slight reboumd yesterday and needs to be watched closely as commodities have had a major run to the upside. Many believe that the dollar will continue to fall and Gold will continue to make all time highs.

We will be watching the $109.40 level in the $SPY which was a prior resistance level and ironically the $SPY is trading at this level in the pre-market. If we can get above this level and hold, we would expect at least a test of yesterday’s high of $109.60 and then at $110.

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Technical Levels

50 Day 200 Day
S&P 1061 929
DOW 9818 8677
NASDAQ 2110 1815
Research Round Up

-AXP, COF- Seasonally weak period, delinquencies to head higher; expect data to underscore some divergence in credit trends that could cause some near term out performance in AXP ($39.50); expect continued long-term strength in group, especially COF ($38.37) trading at a steep discount to normalized EPS.

It’s no secret that credit cards are dangerous territory for AXP and COF these days with unemployment, historically directly correlated with credit card charge-offs, near 10%. Besides that, new consumer protection laws are expected to take away revenue, while usage of debit cards is already cutting into transaction volumes.

Keystone’s Trades

Kohls(KSS) Short sale – Kohls earnings rose 21% on improved sales and margins and raised its earnings targets, however, the new projections were below analysts views. Technically, KSS has been downtrending since mid October and looks as though their may be more downside. We will look to enter our short around the $55.90 level

Closing Price:$54.64

Target: $53.49

Stop: $57.10

20 EMA:$56.89

50 EMA: $56.85

200 EMA: $47.05

Corning (GLW) Long Trade – After bouncing off the 200 EMA in the beginning of November, GLW has exploded to the upside. Traing higher for 8 days in a row. This morning it is opening above a resistance level of $16.30 and seems to be headed higher. $16.50 presents some resistance, and then after that we can expect to see $16.85.
Closing Price: $16.44

Target: $17.07

Stop: $15.65

20 EMA: $15.47

50 EMA: $15.40

200 EMA: $14.56
Economic Calendar

8:30 Trade Balance
8:30 Import/Export Prices
9:40 Kenneth Feinberg speaks
9:55 Reuters/UofM Consumer Sentiment
10:30 EIA Natural Gas Inventory
11:30 Fed’s Evans: Asset Price Bubbles and Monetary Policy

Notable premarket earnings: ANF, A, JCP, TK, YGE

Top News Stories

Liberty Global pays €3.5B for Germany’s Unitymedia. Liberty Global (LBTYA) agreed to acquire Germany’s #2 cable operator, Unitymedia, from its private-equity owners BC Partners and Apollo Management for a total of €3.5B including debt. Liberty said it’s paying 7.4x 2010e Ebitda to acquire Unity, which will complement its “existing European footprint, and has significant untapped growth potential in one of the fastest-growing cable markets in Europe.” Unity’s competitors include Deutsche Telekom (DT) and Sky Deutschland ( NWS). Liberty’s global cable footprint including Unitymedia will exceed 40M homes.

BA, Iberia to merge. British Airways (BAIRY.PK) and Iberia ( IBRLF.PK) agreed to a complex, $7B “merger of equals.” BA shareholders will own 55% of the new airline, which will be the world’s third-biggest by revenue. Named TopCo, it will be led by BA CEO Willie Walsh, registered in Madrid, house its main offices in London, and will not be subject to U.K. takeover laws. The pair estimate €400M in synergies by the end of year-five, and expect to close the deal in late 2010. The merger will meld BA’s web of U.S. routes with Iberia’s Latin America services, extending its leading trans-Atlantic position and consolidating its #3 status in Europe. Shares of both were up 3-5% in early trading.

Europe returns to growth, at a canter. The euro zone returned to growth in Q3, but quarterly GDP came in at a weaker than expected +0.4% (consensus: +0.6%), up from -0.2% in Q2. Year-on-year GDP contraction narrowed to -4.1% (consensus: -3.9%) from -4.8% in Q2. The consensus miss was expected after France and Germany announced Q3 growth that undershot estimates – +0.7% vs. +0.8% expected for Germany, and +0.3% vs. +0.7% expected for France. Economists were underwhelmed by the results, and warned growth could reverse in coming quarters once car scrapping and other stimulus schemes fade.

Yuan will rise with time. A top Chinese central banker told Asia-Pacific officials Friday that Beijing wants to let the yuan move more freely, but that any change will be very gradual, and that China will not bow to external pressure. The APEC meetings have been noteworthy for their focus on the weak dollar, but officials – including Tim Geithner – have refrained from pressuring Beijing to unhitch the yuan from its informal dollar peg. “The U.S. and China depend too much on each other and this has to change,” the banker said.

Dell announces first smartphone. Dell (DELL) announced it will enter the smartphone business, sealing initial partnerships with two of the world’s largest mobile operators – China Mobile (CHL) and Claro (AMX). The Mini 3 smartphones will be designed around the Android (GOOG) platform. “Our entry into the smart phone category is a logical extension of Dell’s consumer product evolution over the past two years,” Dell said. “We are developing smaller and smarter mobile products that enable our customers to take their internet experience out of the home and do the things they want to do whenever and wherever they want.”

AMD cashes in its chips. Archrivals Intel (INTC) and Advanced Micro Devices ( AMD) announced a game-changing settlement to their antitrust and patent infringement dispute, including a $1.25B payment from Intel to AMD and a five-year cross-licensing agreement. Intel also agreed not to induce competitors to shun AMD, but Intel has denied ever doing so. Numerous government lawsuits and private class-action litigation against Intel will not go away as a result of the deal, but Intel did eliminate its exposure to AMD-related charges. Intel CEO Paul Otellini called the pact a good deal for Intel shareholders, a sentiment shared by analysts who believe a court ruling could have cost it more. AMD CEO Dirk Meyer said the agreement proves to its customers, once and for all, “that AMD will survive and continue to offer them a choice of suppliers.”

White House sure of debt increase. The Treasury is confident Congress will raise the U.S. debt limit by year-end, and not allow a showdown similar to one that shuttered parts of the government in 1995. Sources say the White House is looking for a $1-1.5T increase beyond its current $12.1T limit. The request is higher than a proposed increase already passed in the House, but would get the government through the November 2010 midterm congressional elections without needing another increase. Geithner has repeatedly stressed the need to bring deficits down to sustainable levels, but in the short-term he’s more worried about the need to keep up spending until unemployment recedes.

Iconix gets a read on Playboy. Iconix Brand Group (ICON), owner of London Fog, is reportedly in talks to buy Playboy Enterprises ( PLA), and has looked at its books. Iconix CEO Neil Cole is thought to be looking to add more brands that it can license to retailers and manufacturers. 56-year-old Playboy, which was worth about $100M before yesterday, has been looking to sell itself since Scott Flanders replaced Christie Hefner as CEO in June. Her father, Hugh, owns 70% of Playboy’s voting shares and 28% of the Class B shares.

FHA’s razor-thin reserves. The FHA’s capital reserves are almost depleted, making it likely the goverment-controlled housing market lender will require a taxpayer bailout. The FHA has said for months that its reserves for unexpected loan losses would fall short of the required 2% level by this fall, but an audit released Thursday showed that reserves have been depleted much faster than expected; its capital-reserve fund fell to $3.6B as of Sept. 30, down 72% from a year earlier, leaving reserves at just 0.53% of the $685B in total loans insured by the FHA.

FDIC orders banks to prepay $45B. The FDIC’s board approved Thursday $45B of bank premium prepayments that it needs after its deposit insurance fund slipped into a deficit at the end of Q3. The prepayments – which equate to three years of dues – will satisfy the fund’s “need for liquidity without imposing undue burden on the industry,” FDIC Chairman Sheila Bair said. A surge in failures – 120 so far this year – has pushed the industry-supported fund into a deficit for the first time since 1991.

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