Monday, April 9, 2007

Tuesday Morning Curtain Raiser

It's almost tempting for me to say, 'I no longer have insights into what makes the market tick'. How odd that Advanced Micro Devices (AMD) would warn a second time this quarter, yet its stock rallied about 4%. At one point this morning, tech in general was higher. Some analysts attributed the gain to short covering on relief the warning wasn't worse. I have no dog in the AMD vs Intel fight, but the move in AMD shares is a stark reminder that anything can and will happen in the market beyond conventional expectations which certainly includes moves which seem to make no sense.

This goes for subprime and Alt-a as well where we've had great discussion in the comments section on which stocks to short. It's actually isn't so much a question of 'which', but 'when'. Folks in the know from the industry have chimed in on the comments section of this blog to point out any number of perfectly good reasons why a Downey (DSL) or an IndyMac (NDE) should be trading well below current levels, yet there they sit defying those conventional and sensible expectations. There's no doubt that American Home (AHM) and M&T (MTB) have opened the door to a realization, at least to some of us, that problems in the world of mortgages are not confined merely to subprime. It's actually quite alarming that AHM and MTB can't sell their paper in the secondary market. However, damage from the AHM news was largely confined to AHM and other lenders already outed with problems.

In general, options volume on the put side was fairly quiet in names like DSL, NDE, FED and even CFC though more than 1500 November 40 DSL puts traded today on open interest of a little over 200. One thing thing that really gets my attention in options world is volume that exceeds open interest, and for today little of that was happening among the lenders apart from those DSL trades which are a bit too far out there for me. Once I see more instituational activity, or if DSL can break support at 60, or Fed at $50 as a few examples, I am going to jump in. CFC July 32-1/2 puts, according to my data, are trading a bit below theoretical value; so I am going to try to snag some of those Tuesday morning.

The last time I wrote about Dendreon (DNDN) was sometime last week when the stock was about $10 below current levels. The run has been amazing and largely due to short covering and growing word about its unique prostate cancer (or prostrate as some are apt to incorrectly call it) treatment. It was highlighted on CBS with the perky-ratings-starved-one tonight:

No doubt, profit taking is going to set in, and while I may take a little more off the table, I am going to continue to hold most of my remaining position through the FDA decision which is expected on or before May 15th. For some who braved this stock and stuck with it when it was down at $4, this will ultimately be a 10-bagger or more, but not by the end of the week; things are getting just a bit carried away.

Alcoa (AA) traditionally the first of the Dow stocks to report earnings, posts tomorrow after the bell to kick earnings season off. 75 cents a share is expected thanks to strong demand from the aerospace sector.

The real earnings showstopper this week could be Research in Motion (RIMM). Could folks really think that RIMM has a chance of going up $20 this week? Over 8,300 RIMM April 165 calls traded today on open interest of just over 5,000. Pacific Crest today raised in Feb quarter earnings estimate from $1.02 to $1.09. Last week American Technology said RIMM likely made the high end of its guidance without the help of the 8800 and that estimates will need to come up.

Here's an off topic question. When you order soup at dinner do you expect it to come before the meal, or with the meal? We stopped at a Cracker Barrel (CBRL) in Elkton, Maryland earlier and when they served the whole dinner - soup and all, I took them to task for crowding the table with both the entree and the soup. They proceeded to tell me that "most" people prefer their soup with the meal and that I should have told tell them to bring the soup first. It's as if I had two heads for expecting the soup first and that they had never heard of such a thing. Perhaps I was cranky after several hours of continuous driving, but this actually escalated into verbal fista cuffs between me and the manager who told me I was being 'disrespectful' after I said only 'knuckleheads' would want their soup and the meal all at the same time. It would have made for a great Seinfeld episode. By the way, CBRL has had an amazing run, trading these days at $50 a share. With dirty restrooms (I should have had my goulashes on when I went in there earlier) and store managers who try to be overly assertive with customers (I put a quick stop to that), how much longer can it stay at an all time high?

Eating out while traveling is always fraught with interesting experiences. We were quite disappointed with a place called Mama Steve's in Williamsburg, Virginia. We sat for 20 minutes waiting for service, but no service. As we walked out the lady at the front said she was sorry, but was short a few waitresses. It would have been nice if they warned us when we came in. So Mama Steve's Williamsburg is off the list of breakfast eateries, though we discovered a far better place just down the street called the National Pancake House.

I have in the past railed against the casual dining genre, but there is a place that we discovered that I actually have taken a liking to: Longhorn Steakhouse. We dined out a number of times at Longhorn while in Williamsburg, VA and the food and service were both great. Longhorn is operated and franchised by Rare Hospitality (RARE).

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