Morning Market Thoughts

by DAN Good morning. Futures are pointing to a slightly lower open this morning. If you’re looking at CNBC, the Nasdaq futures are down 19, which might seem like a lot. But fair value is -16. We take the difference between the two for the implied open. The Nasdaq should open up just 3 points lower. Not a big deal, and actually a healthy development because we want to see a bit more base-building. The longer the base, the more solid the platform for a move higher. I just don’t think we are there yet.

On the earnings front, Bank of America ($BAC) and Goldman Sachs ($GS) both beat their earnings estimates, but their trading revenue was low. That’s interesting because TD Ameritrade ($AMTD) is up this morning after beating earnings. So somebody is making money, and it appears to be the brokers charging commissions. The big forms like GS, MS, JPM, BAC, WFC, C, etc., make money in a volatile environment. The have the resources to trade profitably and seize on market dislocations.

There have been none in the second quarter. Instead, it’s just been a “melt up” market, where many stocks have just trended higher along rising trendlines. Only the Nasdaq suffered a setback in early June. And it came with such rapidity, it’s tough to imagine the big guys turning that into a cash cow. There was no follow through, and anyone who bet that the Nasdaq would continue to fall after a big semiconductor sector selloff on June 9th didn’t make any money…at all! So the trading revenue miss isn’t particularly surprising. Also, many of these banks telegraphed a shortfall in trading revenue a while ago. No biggie.

As you watch BAC and GS open up this morning, I’m pretty confident that you’ll see these little pullbacks as buying opportunities. These wouldn’t be “trades”; these would be stocks to hold in a sector that’s showing resilience with an upside bias.

As noted last night, Netflix ($NFLX) beat the estimates for subscriber growth, but missed earnings estimates by a small margin. Traders don’t care. The stock is up $15 bucks pre-market. That’s a gap of about $10. Careful about chasing this — I suspect we’ll see some profit taking which might result in a pullback from the open. Let the stock dictate the direction; it doesn’t care what you think. It doesn’t value your opinion…neither do any other traders.

Puma Biotechnology ($PBYI) received approval from the FDA for its breast cancer treatment, and the stock is up 10% pre-market. The short interest on this stock is fairly high. Congratulations to all of you who have been in this stock. We’ve been waiting for some positive news as the stock has consolidated between $80 and $90 during the past several weeks. Consider selling some at the open.

Health care is, not surprisingly, dead. (Seriously…are you surprised by any of this? I’m not…and I’m not even following politics anymore. I’m busy watching ant trails in my back yard — they’re more interesting.) Hard to say whether the health care sector will be hit. If so, it’ll be short lived because the news that the Republicans will not be passing their wonderful new health care bill has already been factored into prices. Only one guy in the world is surprised…and he’s the guy who just got back from his sailboat trip where he sailed around the world without a radio or wifi. Happy he’s back safely. Now, time for a shave and a shower.

With that obscure bit of humor, I’m outta here. See you in the forum. Let’s see if we can make money on Netflix!

–Dan

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