Tuesday, May 8, 2007

Morning Market Comment

Stock futures are signaling a bit of weakness at the open. Yes, it is conceivable that we could see one of those rare events - a down day and for no other reason then it's just going to be a weak day after a string of advances. That happens every so often and it is of course very possible that we quickly rebound off of any early weakness too. There isn't a specific catalyst that I see here for a slip in the futures, beyond follow through to some of the weaker internals by the end of the session yesterday like a fairly narrow NYSE advance decline ratio even as the Dow hit yet another record high on Monday. You can't have $30 bln in deals announced every day and also the opportunity to react to Buffett's comments that he'd like to do a $60 bln buyout. All that was yesterday, and things on the M&A front are looking quiet this morning - save the Thomson/Reuters situation which is looking like it will soon become at least a strong handshake: Thomson-Reuters Confirm Talks; $17.6 Billion Deal; Glocer Proposed ... The Journal, by the way, has been keeping track of M&A and so far this year $2 trillion of deals have been announced - 60% above this time in 2006.

Will investors be able to say, "Cisco Systems was a friend of mine" (wasn't that a hit song in the 70's?) after earnings tonight? Call volume has been overwhelming the put volume, which has me somewhat concerned, especially the frothiness in a pick-up in the June 32.5 call volume yesterday. Even the heavy volume in the May and June 30 calls has me wondering what the speculators know if they feel CSCO will finally go above $30. Were things that good in the April CSCO quarter? I suppose one should never underestimate the giddiness factor of CEO John Chambers and his thousand pound networking gorilla, but $29-$30 is the post 2000-bubble Holy Grail of resistance.

The Thomson survey of analysts shows The Street is looking for earnings of 33 cents per share on sales of $8.76 billion and everyone is fairly confident those numbers are in the bag. It's the guidance that is the big question. Never say never to a 'gapper's delight' move above $30 on a frisky outlook, but big gaps are not an every day occurrence with CSCO and as noted yesterday by way of the AmTech note cautioning that enterprise trends may be soft, if one cylinder is not fully firing enthusiasm could be damped enough to keep $30 a ceiling for the stock. However, with open interest of 67,000+ on the May30 calls, many have placed their bets for CSCO perfection.

Motorola (MOT) is down 2%: Before the Bell - Motorola slips after Icahn bid fails.

Bank of America downgraded Alcan (AL) to neutral following the huge run in its stock yesterday following the hostile Alcoa (AA) bid. While BOFA went 'neutral' on AL, it says other bidders may emerge and that the final price could reach up to $90.

The Heard on the Street column of the Journal explored the issue of who might be next to receive a hefty buyout in the commodities realm. Analysts say Aloca (AA) itself could be a target along with names like Lonmin (LNMIY) and U.S. Steel (X).

Better late then never: JP Morgan upgrades US equity market to overweight. Yesterday, Abby Joseph Cohen at Goldman Sachs said she was expecting to eventually see a 1600 handle on the S&P 500 this year. Rah! Rah!

It's a quiet day on the economic data front, but there will be fun in the bond market where $13 bln in 10 year notes go up for grabs at auction. Bid to cover ratios have been averaging 2.48 with 25.9% of indirect bidders (foreign buyers). Beyond refilling the treasury, the Fed meeting tomorow looms every larger.

Crude has nudged 31 cents higher on unrest in Nigeria. The bigger issue for me with the energy complex is the weather. Already the possibility of a tropical depression off the Carolinas? F5 monsters in the southern plains? Let's hope this isn't going to be a wacky summer of freakish weather that will damage energy assets along the Gulf of Mexico.

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