Morning Market Comment

Stock futures are spurting higher following the 8:30 release of economic data. The figures on retail sales and import prices are stronger than expected. Retail sales jump 1.4%, biggest gain in 16 months, U.S. May import prices rise 0.9%. Briefly, the yield on the 10 year treasury jumped to 5.31%, but have since pulled back. So S&P futures are shooting higher as a rebound takes shape this morning indicating that even a whiff of a more stable 10 year treasury is able to give the stock market some room to rally. But staying power is what's important - whether initial gains after the open can be sustained in this higher rate environment. The usual suspects will need to be watched closely: everything from bond yields to VIX futures and the VIX (interesting that the VIX futures somewhat lagged the actual VIX yesterday) to breadth and put to call ratios, etc.

The recent surge in bond yields has had a noticeable impact on mortgage activity. US mortgage applications rose last week - MBA. It looks as if some folks rushed in to lock themselves in as rates moved higher.

Gold futures extend losses, as dollar rises

Not an Oil's Well That Ends Well Situation

FT: Oil Demand Rising Faster Than Expected.


To add further perspective, in just our country energy use continues to skyrocket:



And with energy use skyrocketing in places like China, India and even Africa, the supply demand picture is looking grim:

Really, the question that needs asking is why is OPEC so coy with upping its output these days? What are they trying to hide? I'll stop there, too late to get into the whole 'peak oil' debate.

One thing is for sure.... enjoy the 'cheap' $3.50 a gallon gasoline while it lasts!

The Options Screener

My Options Screener picked up a variety of interesting options volume situations. As always, this information is for informational purposes and is not a recommendation to buy either options, or the underlying stocks.

Automatic Data (ADP) - very intriguing. Nearly 5,000 June 42.5 calls traded vs open interest of 642 with just three days to go before expiration. More than 6,000 June 45s traded vs open interest of 749. Only 100 June puts traded.

10,000 Alpha Natural Resources (ANR) September 17.5s traded and more than 12,000 September 20s traded vs very little put volume across the entire put side of the chain.

Everyone loves Apple (AAPL) with many folks taking a stab at the July 150's. Even with 3 days to go before expiration, June 130's were active with volume of over 18,000 contracts with a bid of .05 and an offer of .10. While bullish speculators are willing to chase AAPL call strikes $30 above present levels, put players were willing to only go $5 below with the 115 puts being active in June and July.

Bell Canada (BCE) takeover speculation continues to heat up. This news from late yesterday got a bunch of folks lathered up: UPDATE - Onex joins consortium mulling BCE bid.

Crocs (CROX) calls remain a crowd pleaser. My screener only picked up the heavy June activity in the 90 and 95 call strikes, but over 2,400 June 100 calls traded as well! July call buying went all the way to the $110 strike and there was some nibbling of the September 125 calls as well.

Taser (TASR) has also become a darling again and its calls were active as earnings approach.

Delta (DAL) December 17.5 calls saw only 8 trades, but two of them accounted for 65,000 contracts hitting the offer.

UAUA and CAL options were also active.

ICICI Bank Ltd. (IBN) active on takeover chatter, so to Seagate (STX).

"Dumb It Down and Tart It Up"

Dan, would you tell us how you really feel? Ultimately, Dan Rather left CBS as a journalistic disgrace so in many ways most folks care less what Rather has to say, but the novelty of Dan's negativity is noteworthy - similar to Carter calling Bush the worst president ever. You can't make this stuff up.

What Will Bonds Do For Another Encore?

Wow... 5.28% 10 year yield. All things considered, another less than 1% decline in the Dow wasn't so horrible considering that the rapid rise in bond yields will bring further havoc to real estate (housing and REITS were very ugly stock sectors today), could stop potential deals dead in their tracks and that rising borrowing costs will pressure corporate earnings.

The continued slide in the 10 year treasury came on a day when there was NO economic data. Wednesday is a different story as we face May import prices, retail sales less autos, business inventories and the Fed's Beige Book.

May import prices will be interesting as a big factor driving our U.S. rates higher is rising overseas rates on concerns about inflation in Asia including a long awaited end to deflation in Japan.

Tribune (TRB)

Google the lastest news for Tribune (TRB) and you begin to realize why the stock is trading at just under $31 even though it's supposed to be bought for $34.....

Teamsters Call on FCC to Protect Diverse and Local Viewpoints at ...Earthtimes.org

Law Firm Objects To Tribune Sale Streaming Magazine
Groups oppose Tribune waivers Chicago Tribune
Group seeks to block Tribune sale Los Angeles Times
Ventura County Star (subscription) - CNNMoney.com

Beyond the opposition, let's not forget the recent rise in rates. Sam Zell has made a personal investment toward this deal, but it will be interesting to see how it gets done.

Greenspan Speaks Again, Markets React Accordingly

Greenspan not worried Chinese will dump Treasuries, but he seems worried about other things.

USANA (USNA) Some Fun Reading in The NY Post

The Expired CFO's CPA License at USANA.

Betting Against Apple (AAPL) Is Not So Easy

While I wondered yesterday if WWDC would result in a near term top of AAPL and the shares did pull back, it wasn't a long lasting decline. When you bet against Apple, you're betting against some mighty powerful forces. A variety of analysts have been defending the stock:

• Caris & Co has lifted its price target on AAPL to $140 from $115 seeing little reason for shares to move lower ahead of the iPhone debut on June 29.
• JMP and Deutsche bank both defended the stock saying weakness is a buying opportunity.

But there was one downgrade: Think cut to Accumulate from Buy seeing 8% upside to its $130 target.

I have no position in Apple.

Morning Market Comment

5.20% is likely the biggest stumbling block for the bulls this morning and it's reflected in a decent sized drop in stock futures. 5.20% is the yield on the 10 year treasury, rising in the absence of major economic data today.

Texas Instruments is the other stumbling block for the stock market: Texas Instruments narrows sales forecast for Q2. The stock is down 2% and sure to keep the chip sector weak today. This news will also pressure chips: Intel reported ready to slash prices of some processors..

Lehman has kicked off a strong earnings season for the brokers: Lehman Brothers quarterly earnings rise. LEH is up 2%, but the news is not enough to keep stock futures from falling.

Dow Jones family lay down the law to Murdoch. This should be interesting. The stock has been holding slightly above $60 indicating the market still thinks Murdoch wins... keep an eye for any sagging below $60.

As suspected, puts indeed were the wrong way to go on Take-Two (TTWO): Take-Two Posts 2Q Net Loss. The headline is actually misleading. TTWO managed to beat top and bottom line estimates and announced a restructuring including job cuts, which Wall Street always loves. TTWO is up 6%.

Piper this morning maintains a Market Perform on Netflix (NFLX), but sounds a cautionary note that Apple iTunes may start offering movie rentals next year which could eventually bite into NFLX.

Gabelli has research out on MGM saying the sum of the parts is $108 a share and that any number of options could develop with Tracinda including sale of the company.

Neurochem (NRMX) Followup

The NRMX saga continues. Yesterday study data was presented by the company at a conference and they didn't quite know what to make of their own data: Neurochem Drugs Results Unclear, Researcher Says. That surely is a bad sign.

This morning Piper has reiterated its Underperform recommendation and lowered its target in NRMX to $4. The executive summary of Piper's report: Alzhemed is unlikely to be approved because it effect is small.

Quick Apple Follow Up

As expected, nothing exciting from Jobs at the WWDC... Apple sliding a bit in the aftermath. I have no dog in that fight, as I am invested in a variety of other things, but an anti-climax for Apple, at least for now.

Apple (AAPL)

AAPL shares managed to poke above the $126 level with the WWDC underway. Trading has been a bit choppy. We've learned that AAPL and Intel (INTC) are working on products and Electronic Arts (ERTS) is going to be making games for Mac computers. Also have heard that Leopard will have 300 new features. Here's what I wonder amid the hoopla of this event, will it be a near term climax? Stay tuned.

Strictly Anecdotal

I needed a fix of what has to be the best ribs place this side of Chicago, Laney's in Manchester, VT. On the way up early Saturday evening for dinner, we were surprised at how quiet the highway was. Then, when we arrived at Laney's at around 8 p.m., the restaurant wasn't the usual jammed place that it is on Saturday night. Following day, we were amazed at how dead things were at the outlets in Manchester, and even at Vermont's ultimate tourist trap - The Vermont Country Store in Weston; the place was super quiet. Perhaps we're in the no man's land of the final few weeks before school lets out for the summer, but generally the destinations that we visited this past weekend are usually very busy from spring right through to fall. And to top it off, the Sunday evening drive on the NY Thurway from Albany to downstate NY was a 70 to 75 mile cruise all the way - no traffic jams. Was it just the timing of an early June weekend, or are high gasoline prices and shutdown of the housing ATM starting to make a noticeable impact?

Early Options Screener

The Options Screener is pretty quiet thus far today....

VSE has been especially active on BP takeover rumors. Amazing that folks were also loading up on the soon to expire June calls.

MDVN flying on Alzheimer drug treatment hopes (covered in the Morning Market Comment).

UNH - no comment there and no news on SIGM, or IR.

Cleveland Cliffs (CLF)

Another Monday is here and no buyout of Cleveland Cliffs. The stock rocketed at the end of May on speculation that a Brazilian mining company would make an offer of over $100 a share. The stock then received additional pumping from CNBC's Jim Cramer. But today the stock is trading at just above $80. Is it about to fall off a cliff? This was a $73 stock before the buyout rumors hit.

Neurochem (NRMX)

I've commented recently on NRMX. Here's one tidbit of information: Market Report -- In Play (NRMX). I continue to hold puts as a crap shoot play. Volume has been especially heavy in the June5 puts with less than 5 days of life left in them. NRMX itself is up 13% as hope springs eternal for its treatment for Alzheimers. Mind you, I am not betting against a treatment for Alzheimers or hoping it fails, but speculating that NRMX will have more work than expected ahead of it.

Morning Market Comment

Ok, so it's Monday morning and I'm wondering where all the deals are. I was fully expecting nothing on the U.S. Steel (X) front after Severstal denied it was talking to ThyssenKrupp. X is down more than $4 this morning. But I had thought we'd get at least one $5 bln + transaction. All I see is that Affiliate Computer (ACS) says it will entertain bids to compete against an offer from its chairman and Cerberus Capital Management. IBM is buying a Swedish software company, Teleogic, for $745 mln. And there's a Peru Copper buyout. And here's a late breaker: James River to be acquired by DE Shaw for $575 mln.

Dillard's has recently been talked about as a buyout candidate. NY Post throw cold water on that: DILLARD'S SALE TALK SILENCED.

Friday is a big quarterly expiration Friday though it appears this morning that OEX options open interest isn't especially bloated and that the OEX will have to move either several points down, or several points up before meaningful computer driven activity is triggered to enhance trading direction one way or another.

10 year treasury is weak again, down 11/32nds.. yield back to 5.15%. U.S. Treasuries Decline as Investors Abandon Rate-Cut Forecasts.

On the medical front, this Drudge headline is getting lots of readers: Antihistamine Shows Promise in Treating Alzheimer's... The drug in question is Dimebon which is the lead product of a company called Medivation (MDVN) which is flying this morning with a gain of about 40%. Here's another related link: Medivation Alzheimer's Data Show Benefit.

Bristol-Myers, ImClone say FDA grants priority review of cancer drug... not much movement in IMCL.

Adding insult to injury for U.S. Steel buyout speculators, trouble at Nucor:
Nucor sees earnings well below analysts' view.

This story appeared June 4th.. Cadence Could Be Entertaining Suitors. I wonder whatever happened there? Hmmm.

Gold and crude both up by about 3/4's of a percent.

GE and Microsoft (MSFT) Abandon Bid Idea for Dow Jones (DJ)

Interesting reading at the WSJ.com website. One of the most interesting lines in the article, "The discussions raise the possibility that GE may seek another partner." That seems like a long shot and Murdoch may yet get his deal done. I hold no position.

The Week Ahead

Patti Domm at CNBC does a great job each weekend previewing the week ahead: The Week Ahead: Inflation-Watch. I agree, many eyes will be closely watching inflation indicators.

Putin and the New Financial World Order

Putin wants new economic "architecture". Putin is no dummy and realizes that a world system that decouples from the dollar can only weaken the U.S. and strengthen the Russian agenda. It's noteworthy that Putin is now pounding the table to see this goal accomplished - though at least he hasn't used a shoe, yet.

Yen Carry Trade - Japanese Spare Time Fun

This is a fascinating story: Fukui Faces Pressure to Raise Rates as Savers Send Yen Abroad.

And lookey here: Japanese Stocks Drop on Concern Over Higher Interest Rates.

As I've said in the recent past, a key element missing from recent U.S. stock market consternation is the lack of a rising Japanese yen, or indication of an unwinding carry trade to exacerbate Wall Street selling pressure. The yen situation remains something needs to be closely monitored.

A Quick Reminder

This is a freebie blog. Why the haters come here to call me a liar about my trades and demand more information from a FREE site, I'll never know. They need to get some class and a life. As I disclosed more than a week ago throught the spreadsheet many requested, my options trading is going quite well, thank you. And if I choose ot brag about a victory, that's my choice on this free, take it or leave site. The spreadsheet showed the bad trades, but ultimately what really matters is that there have been many more good trades than bad ones and that the approach that I take means that a bad trade is not going to destroy my portfolios, anyway.

I am not here to make this a live trading site and dispense free trading advice and hand holding from buy-point to sell-point. The many folks who are smart enough, appreciate that my blog is loaded with information that a thinking person can use to formulate his/her own trading ideas by connecting the dots and doing some additional due diligence.

Sadly, there are the few who are greedy, frustrated by their stark limitations and are looking for free trading handouts (the haters). It just won't happen here for regulatory, logistical and economic reasons.

Take Two (TTWO)

While I didn't post the put activity my options screener found on Friday since it's hard to discern whether put buys are hedging, or engaging in all out bearish speculations, a few things did pop out. One of them was the options activity in the puts of Take Two (TTWO), a video game software maker. My screener picked up volume of more than 37,000 contracts in the September 22.5 puts, and then on closer inspection of the entire options chain, there was volume of 37,000 contracts on the June 22.5 puts. Just thought I'd mention it as I am not planning to take a position going into earnings at this time since playing earnings is not just a matter of getting it right vs estimates, but also getting it right on sentiment. The options crowd has been loaded for bear where TTWO is concerned and thus far that's worked since the stock has deteriorated in recent weeks and put volume in particular is off the scales. But that gets me to thinking that buying puts is just too obvious and perhaps the easiest way to lose money since the issue is how much lower will TTWO go amid shareholder activist rumblings. Certainly Carl Ichan's departure from the stock in mid-May was a big blow to expectations of a takeout. Since this is a quick Saturday afternoon post as I get ready to jump into the car to have dinner up at my favorite ribs place in Manchester, VT (Laney's), I won't even get into a discussion about the games market and sentiment going forward there.

The 37k volume on those two June 22.5 strikes and what looks like a huge bear spread is intriguing and something to watch on Monday ahead of the company's earnings Monday evening.

US Steel (X)

This could be a bad thing for X shares which surged on speculation that it could be a takeover target if Thyssen and Severstal merged: Severstal chief denies sale talks with ThyssenKrupp. I am holding X puts following a fast buy and sell of calls on Friday because the surge on Friday seemed to be a repeat of merger speculation that never panned out late last year (fool me once shame on me....). C'mon, a German/Russian steel combo that's going to buy U.S. Steel? Yes, I think JP Morgan and Andy Carnegie were both rolling in their graves on Friday. LOL.

While it was all well and good to do a long call scalp on X, the manipulation stinks - just stinks. I am wondering which hedge fund needed to get out in the $120s in a hurry, or who needed the stock up big a week before June options expiration? What was especially damning, was the fade in implied volatility in the final half hour of trading in the X options. I'd say there's about a ZERO percent chance we see a U.S. Steel deal on Monday. Unless something else comes along that can replace the now dead Thyssen rumor, this stock is headed back to the one-teens - perhaps around its 10 dma at about $115.

NutraCea - A Compelling Growth Story

NutraCea (NTRZ.OB) is a company that uses patented technology to produce stabilized rice bran- a process which no other company or competitor has been able to replicate. Stabilized rice bran is a high demand product of which 50-60 million tons gets pretty much spoiled every year, and NutraCea processes the inedible outer bran husk ( which was before considered too perishable and unable to be processed for human consumption) into edible rice bran that is both highly nutritious and affordable.

Although NutraCea has not been able to produce enough stabilized rice bran to fill the demand from continuing supply agreements with governments, nonprofits, food companies, etc., knowing their production capacity gives stable growth visibility. Pricing for their limited production could be a worry, however since they are the only company who is able to produce this product their monopoly in the area has not showed any negative pricing surprises.

Revenues have gone from $5 million in 2005 to $18 million in 2006. 2007 should be in excess of $50 million and based on presently announced capacity the revenue run rate will be in excess of $100 million in 2008. With EPS going from $0.02 in 2006 to $0.10 to $0.15 in 2007 to $0.40+ in 2008, a $0.40 eps in 2008 and a 50 multiple would be $20 per share.

While 1Q numbers were short of expectations which ran the stock up to the $5 level, they really didn't miss anything as they saw $2.6m of deferred revenue from product orders that havn't been accounted for, and will be recognized in the second quarter. Management has been expanding the business beyond the humanitarian potential and into the mainstream food industry, expanding facilities into Louisianna and Montana which would boost capacity from 1,800 tons per year to 2,700 tons per year. Q2 results in August are already looking to be huge with the $2.6 million carryover from 1Q, the Louisianna and Montana expansions.

In the near future, I wouldn't be surprised to see NTRZ get moved from the Bulletin Board onto the Nasdaq, once it trades over $5. What's to stop other companies to come into this space? It would take at least several years for a competitor to develop the same technology that would give the bran a legitimate shelf life that could grant FDA approval. Also, the demand is so high, that it wouldn't really matter for NutraCea anyway.

Lastly, rumors are circulating of a $200 million credit facility that would be used to fund expansion with a large international strategic partner, but of course nothing has been announced as of yet.

Related Articles:

• NutraCea says purchase orders in despite 1Q results
• Buyers Get Another Shot at NutraCea

The Options Screener

Here's a look at some unusual directional call and put activity. As always, this presentation is not a recommendation to buy or sell any securities, but is made for informational purposes as I continue to beta test my screener.

The image above is call activity:

American (AMR) and Continental (CAL) both had active options trading days and popped up on the screener.

The king of beers, Anheuser-Busch Cos. Inc. (BUD), saw very active trading, not only in the strike above but in the June 50 & 55s as well as the July 55 calls. Speculators continue to react to this news that hit earlier in the week: Anheuser-Busch Shares Higher On Ackman Activist Target Speculation.

On no news, there was a flurry of activity in the October calls of Bally Technologies (BYI).

Skipping down to Medtronic (MDT), options were active on the call side amid hopes that its Talent Thoracic Stent Graft System will soon receive FDA approval following positive 12 month test results.

An accounting fine for Nortel (NT) boosted options activity on Friday.

Schwab (SCHW) options have been active amid talk of mergers in the online brokerage industry.

On Triad (TRI) it looks like a straddle involving 7000 calls and 7000 puts on the July 50 strike.

VIX June 22.5 calls actively trading Friday, though its hard to discern direction on all trade. There were enough buys in there, however, to indicate someone decided to throw a little money toward what would be a lottery ticket bet that another big leg down in the market will be coming in the next 10 days (VIX options expire on 6/19, not this coming Friday).

Utilities Select Sector SPDR (XLU), actually saw more putside activity, but some bets placed on the call side as well.

Did Greenspan Add to Subprime Woes?

Of course he did.

WSJ: Greenspan blocked a proposal to increase scrutiny of subprime lenders while he was Fed chairman, a Fed ex-governor said. Click Here.

Networks Go On Blitz For Web Hits

Interesting reading: CBS, Fox, NBC adopt online syndie strategies

Quick Wall Street Wrap

Rebound Friday. 10 year bond yield eased from the night's highs, some M&A speculation invaded the market at midday and National Semi (NSM) led chip makers higher, enabling the market to close at the highs of the day. Have a great weekend!

US Steel (X)

The X momo has faded and I have moved out of the call options.. have actually reversed and picked up a few puts. UBS put a note out saying a Thyssen buyout of X would make no sense and to take profits. Be careful with these Friday rumor specials, folks.

Midday Leg Up

This is largely thanks to a spurt in M&A speculation in the steel sector. I managed to catch a good chunk of the U.S. Steel (X) rise and have already dumped out of the June 120 calls but still holding other strikes as well.

Morning Market Comment

Stock futures are little changed to trying to drift higher in dead cat bounce fashion after 3 down days even as bonds continue to slip. The 10 year yield is up to 5.17%. One of my concerns about the recent bond market jolt is what it might do to leveraged buyouts, both those that have yet to occur and to some deals that have already been completed. The LBO has been a key driver of the recent stock market bull run. The Wall Street Journal this morning is reporting,

"Even as the buyout boom rolls on, a number of recent high-profile deals are already showing signs of strain. Among them: the $1.3 billion purchase of retailer Linens 'n Things Inc. by a group led by Apollo Management LP; Avista Capital Partners' $530 million buyout of the Star Tribune newspaper in Minneapolis; and the $17.6 billion deal for Freescale Semiconductor Holdings by several buyout specialists. Apollo's $6.7 billion purchase of Realogy Corp. also is raising questions among some investors." Click Here To Read More.

The Journal story only covers the realm of some troubled completed deals. What I'm curious to see is what happens to some deals that have been announced but not yet consummated and whether the changing landscape in the fixed income market keeps other deals from happening altogether. If troubles do broaden in LBO world, that would mean big trouble for the equities market. But whether this is that time, it's too soon to know. It's one thing to dismiss the recent selling in the stock market as a blip, or garden variety correction, but what's going on in the bond market is historic and far reaching when overall leverage and derivatives, swaps and spreads, etc., are considered. As we saw yesterday, the fixed income woes very easily spread into other assets, especially the stock market.

Lest you think I'm getting carried away over the bond market rout, a report from Goldman Sachs this morning says, "The bear steepening move in US fixed income markets amounted to a 3 standard deviation event." And therein lies the problem for the stock market imho, not so much that we're back above a 5% ten year yield, though that can be problematic unto itself for the bulls, but the speed at which we've arrived at present yields is what has spooked the street. Until we get a sense of where bond market yields are going to level out, it's likely that the stock market action will remain choppy and sloppy (read, volatile). I'd be very wary of being too quickly to declare that bonds are oversold.

The trade deficit contracted in April... makes no difference in the bond market this morning: Treasurys under pressure even after record export fall.

One positive on the equities front, declines have been fairly mild in European markets (down around .5%) while major Asian markets were down around 1.5%.

How is this shaking out in the markets this morning? Qualcomm punished with phone import ban... QCOM is up 3% as analysts say the ban will have a limited impact. BRCM also scratching out a gain of around 1%. Apple (AAPL) is being declared a winner by some analysts who say its iPhone won't be affected, same for Nokia (NOK). But some analysts say phones slated for release by Verizon (VZ) and Sprint (S) will be impacted by QCOM's adverse ruling.

This headline may be a big help to Wall Street today... some tech leadership: National Semiconductor Shares Surge on Profit, Buyback Plan. A variety of analysts have raised price targets on NSM this morning.

I sold my SPY puts at the close yesterday going from $1.25 to $1.95... may jump back into those later today if we revisit 1490 and it doesn't hold. We'll see.

Wall Street Wrap

I have a business meeting to attend to this evening, so I'll hand the honors to AP. I'll discuss the bond market's woes, which are directly impacting stocks, Friday morning.

Gross, A Bond Bear Manager

This dispatch from Reuters at about 3:30.. helping to send the markets to lows: Pimco's Gross says he's now a "bear market manager"

Novastar (NFI)

I've locked in some nice profits on NFI. I don't like the broad market condition at this moment... time take some long profits off the table and watch what happens. S&P 1500 battle going on right now. I would be surprised if it fell this quickly, but discipline approach when good sized profits on the table can't be bad. I am also long on some SPY puts, but ready to jump out of those if we start to get a bounce off of 1500.

Time (TWX) for EW Scripps (SSP)?

NY Times DealBook reports on the remarks of Time's CEO: Time Inc. Chief Imagines ‘Marriage’ With Scripps

Teton Energy (TEC)

Shareholder activism doesn't necessarily need to center upon the large cap companies of the world. Teton Energy (TEC), with a market cap of $81.5 mln, is feeling the pressure from a small outfit called First NY which has ties to bigger operators in the LBO world.

This 13D SEC filing is way under the radar, but interesting, indeed: http://sec.gov/Archives/edgar/data/1111629/000092242307000759/kl06023.htm. Item 4 is especially noteworthy, as is Exhibit B.

I have no position.

10 Year Treasury Yield Surges, Stocks Slide

The ten year is down about a point so the yield is knocking on 5.1%s door. Bad for stocks, simply stated as we enter into the 1500 to 1505 S&P support lower trendline area.

Also, crude is up more than $1 which fans inflation and consumer strength worries.

Volatility Breakout?

VIX very comfortably above 15 today. Some months ago I blogged that reversion to the mean could surprise many who were thinking we'd gravitate back to the good old days of sub-11 VIX after the late Feb dislocation. It never happened. Monthly charts of the VIX show long term averages are far above present levels. While the players who played VIX call strikes above 13 in May left the party empty handed, those seeming long shot bets at the June 15s don't look so wild eyed any more. I'm keeping an eye on the VIX in part for the daily gyrations, but also to see if we're moving into a longer term breakout phase.

Dendreon (DNDN)

Not many details, but theflyonthewall.com is reporting "chatter" has resurfaced concern DNDN and a strategic partnership. If we hear anything more, we will post it.

Morning Market Comment

I don't mean to be editorially picky, but one well known website this morning started their lead report on the markets by stating, "After two days of heavy losses..." I'm sorry, but two days of Dow declines of less than 1% are not "heavy losses". Yikes.

Ok, now that I've gotten that out of the way, it does look like U.S. stock markets are poised to open little changed following a few days of selling. May retail same store sales are less than spectacular after a dismal April. Again, simple concept: shutoff of housing ATM is clearly starting to hurt the consumer.

• Wal Mart (WMT) up 1.3% vs consensus of 1.4%. Without gasoline WMT sales would have been up only 1.1%.
• Target up 5.8%
• JC Penney (JCP) down 2%, see June sale down low single digits
• Nordstron (JWN) up 6.3% vs estimates of less than 3%
• Limited (LTD) up 2%
• Ann Taylor (ANN) down 4.6%
• Macy's (M) down 3.3%, sees June down as much as 2%
• Saks up 37.5% due to promotional shift, see negative June same store sales.
• Chicos (CHS) down less than expected 2.9%
• Deb Shops up .2%
• Dillard (DDS) down 2%
• Wilsons (WLSN) down 25%

There's one done deal to report: Biomet accepts sweetened $11.4 bln takeover offer.

Looks like Dow Jones (DJ) shares may nudge higher: Inquirer owner has interest in Dow Jones.

With the CFO out at Monster (MNST) Finance chief at Monster resigns in shake-up, Goldman Sachs this morning says new CEO is putting his stamp on Monster - another indication the company will not be sold. GS rates MNST a neutral. UBS, however, thinks the new CFO could mean the company will be sold since he presided over the sale of Symbol. UBS recommends buying shares of weakness. Bank of America and Citi are defending the stock saying any weakness is a buying opportunity.

Every one just loves Apple (AAPL). Piper has lifted its target to $160 saying AAPL could sell upwards of 45 mln iPhones in by 2009!

Sumner Redstone tells CNBC he has not plans to take CBS or Viacom private. Click Here.

The housing fun and games continue: Drop in U.S. Home Sales, Prices Likely to Accelerate (Bloomberg).

One other big analyst note: Lehman downgraded Procter and Gamble (PG) to Equal Weight from Over Weight citing a slow down in revenue and margin growth.

Is Alvarion (ALVR) at takeover candidate? CIBC names possible Alvarion buyers.

Options Screener

As you can see, I'm behind schedule today. Today's Option Screen includes some put activity. Normally I stay away from screening puts because it is just too hard to discern what's going on from a hedging standpoint vs all out bearish bet speculation. But with the market down today, I thought it might be useful to demonstrate what was happening on that side of the trade.

On the call side:

Apple (AAPL) has been an amazing performer, rising again today even as the broader market sank with folks stepping up to buy the Oct160 calls.

American Capital (ACAS) looks like a dividend capture with market maker to market maker volume

Integrated Device (IDTI) no news that I can find and only heavy volume in the July 55 strike.

Novastar (NFI) surged 11% on continued takeover speculation. I'm still long, but trimmed back today. Hat tip to my friend Howard for the mention on his blog today! For those who us who still remain long, let's hope we're not over staying our welcome in this one since NFI is more toxic than the rest in the space.

Progressive (PGR) another one that has been talked about in the rumor mill.

Netflix (NFLX) came on strong early in the morning on chatter Amazon (AMZN) might be interested.

Shuffle Master (SHFL) call options active, but after the bell earnings below ests, stock down > $1.

Sunoco (SUN) shares got hit hard today and options trading was very active in both puts and calls.

SPX calls and puts active today, no doubt direction bets, spreaders, hedgers, etc.

Ameritrade (AMTD) seeing heavy options activity as activists push for sale of company.

Nvidia (NVDA) rumor that Intel (INTC) might buy if you can believe that one.


On the Put side:

Champion Enterprises (CHB) no news but some large Jan08 put trades

EEM options active, especially on the put side as folks are no doubt wagering rougher times ahead for emerging markets.

GOOG options active as usual with the scanner picking up a swell in volume for the June 520 puts.

Neurochem (NRMX) options volume has be nothing short of intense on both puts and calls with phase3 alzheimer drug study results due before the end of the month. Apparently the crowd must be expecting something before expiration Friday June 15 as most of the volume remains concentrated in June calls.

And then on the put side a healthy dose, as you would expect on a down day, of speculation in MNX, SPX and MDY index options.

As usual, the above info is presented for informational purposes and not a recommendation for trading.

Novartis (NVS)

As PT Barnum stated, "any publicity...." Novartis sued over Boost Plus drink. Sure, this one get snickers and laughs, but will make an interesting marketing case study as no doubt lots of folks will be looking to try this beverage.

Garden Variety

It was a garden variety pull back for the stock market today after a decent run and clearly overbought technicals (eg RSI on Dow over 70 for a number of days). The Dow gave back less than 1% as the 20 day moving average on the S&P 500 again provided support. Volume was average at 1.55 bln shares on the Big Board. Only one -1000 tick today which is nothing in comparison to those rough days in early March. VIX up 7%, at one point above 15, but nothing startling. The bears were on such a hiatus during April and May that they're looking a bit feeble in this round of selling.

The Morgan Stanley Triple Sell

Read about it here: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/06/cnmorgan106.xml

Morning Market Comment

No surprise from the European Central Bank. They have lifted their benchmark lending rate by a quarter point to 4%. The bigger is question is how much higher? A Goldman Sachs report this morning says perhaps another 50 bps more of rate hikes this year from the ECB.

The Wall Street Journal has a thoughtful piece this morning on how spare production capacity is running out in many countries while workers in those far, far away factories are winning wage increases. Fancy that! These are key ingredients for global INFLATION. The Journal article says this situation is forcing central banks around the globe to consider rate hikes Click here for the article -a subscription required. Fed speak today includes comments from the Cleveland Fed Bank president which are not conducive to a warm and fuzzy feeling for the bulls: Fed's Pianalto says longer-term inflation trend too high.

MBA data continues to move back toward reality: US mortgage applications declined last week - MBA.

Rate hikes are not good for stocks and this is widely being cited as a factor behind this morning's slide in S&P futures. Overnight, the Shanghai composite clawed its way to a half percent rise. The DJ Stoxx 50 is down about 1 percent in Europe. Enhancing the decline in stock futures - the latest productivity and unit labor costs figures. Productivity revised down, unit labor costs up: U.S. productivity revised lower to 1% in first quarter. So the inflation switch is suddenly turned on. It's not as if there have been no inflation warning signs until now, but with the 10 year yield recently backing up to just about 5%, the issue has moved to the front burner. It looks like a rough ride ahead on Wall Street. I'm still of the opinion that the market will have to bust through S&P 1500-1505 to demonstrate the bulls are starting to lose their control. We're now at 1530.

There's a little takeover-mania and it's in the online brokers. As noted late yesterday, Hedge Funds Push for Ameritrade Merger. AMTD is uo 7%. ETFC is up about 4% and we'll see if others like OXPS move higher as well.

What about Sears (SHLD)? Ackman may target Sears... could be something brewing here.

Prudential (PRU) has announced a big cutback: Prudential Shuts Equity Division.

Panera Bread (PNRA) is down about 10% citing pressured margins and the wallets of its customers squeezed by rising gasoline prices: Panera Cuts 2nd-Quarter Guidance.

Wednesday Curtain Raiser

With the 10 year treasury yield at 4.99% and likely to cross up into 5% territory, the mettle of the Wall Street's bulls' willingness to buy stocks 'til the cows come home will likely be tested in the days ahead. I'm not ready to say the bull market is imminent peril, but I am a bit uncomfortable with the converging worlds of higher bond yields here in the U.S. and an outside negative like a cracking Chinese stock market. Often it's a one two punch, or a triple whammy of negatives that can upset the apple cart and change prevailing direction. The bull is not out of it by a long shot as evidenced by support holding up well today at S&P 1525, or the 47 level on QQQQ. But peer deeper into the market and everything from housing ($HGX) to retailers ($RLX) to utilities ($UTIL) are in various states of distress from topping out to rolling over. Close attention is needed on treasury yields in the day ahead. We're still in a bullish, but somewhat range bound situation as long as we remain above the S&P 1500 level imho.

Special attention will need to be paid to Fed-speak. While Bernanke today continued his mantra of "moderate" economic expansion, he did spend some time talking about housing's drag effect on the economy. Some took this as a dovish signal that the Fed won't be so quick to lift interest rates and the dollar fell on that perception even as bonds fell due to the opposite interpretation. IF Fed speakers start talking up housing's impact on the economy as a signal the Fed is conceding that it can't lift rates in the face of the housing debacle, imho that could easily re-ignite the Wall Street rally - as odd as that might be. Oh, and my mistake, Ben was not in Cape Town, he delivered his speech via satellite. Must See TV, right?

Ameritrade (AMTD) is likely to be active on Wednesday as big investors push for a sale: TD Ameritrade says hedge funds want it to merge. AMTD options in recent weeks have seen some very active trading days.

Do you know anyone who owns a Dell tv? Dell to Stop Producing TVs, Focus on PCs, People Say. Every so often I go into an electronics store and salivate over a 60" plasma. For a partially sighted person like myself, that big 60 incher would help me see the picture better - right? But alas the old 36" picture tube tv remains in my family room. If I were to shell out big bucks for a giant brand spankin' new HDTV, it sure would not be a Dell tv shipped from who knows where and thrown around who knows how many times like a football before it gets to my house. It's good they've figured this out.

The debate continues to rage over the Glaxo (GSK) diabetes drug Avandia. A company funded study says the drug is just fine and dandy, but other experts remain skeptical: Glaxo says Avandia data comforts, experts unsure. In something relatively trivial like investing, a good rule is, "when in doubt stay away." When it comes down to risk of heart attack, I can't imagine how this study will keep people from staying away from Avandia "when in doubt". GSK is hovering just a point above a 52 week low.

Wednesday's economic calendar features the latest MBA mortgage data, also government productivity figures and the Challenger jobs report.

Get ready for another ECB rate hike...

Sudden and Dramatic

Large Georgia home builder files Ch11 citing a "sudden and dramatic" decline in business. I'm the guy who has the wife who is a realtor, or realator as some people are apt incorrectly say. I get to steal a peak at the MLS which has tons of houses on the market but movement is slow. I still think panicked sellers will slash prices at the end of the summer.

Wall Street Roundup - The AP Money Minute

Which is actually about 1-1/2 minutes.

As Is Options Scan

Above for informational purposes. CROX, AAPL on fire. NFI interesting takeover speculation name. DNDN took off today on no news. Not a recommendation to trade.

NY Times Dealbook - Who's Next After Solectron (SLR)?

Dealbook has some interesting throught in the aftermath of the Flextronics buy decision: Click Here.

Apple (AAPL) and its iPhone

A decent feature report:

Will This Have Long Term Impact on Soft Drink Companies?

Probably not... but interesting reading as I chug down my Diet Coke: Warning: Soda May Seriously Harm You.

Dow Jones (DJ)

The story gets more interesting by the day.

Financier Ron Burkle Joins Union, according to the Wall Street Journal. They've also reached out to Warren Buffett, but no response - that's according to Reuters.

PMS-MSNBC:http://www.msnbc.msn.com/id/19048214/

Morning Market Comment - Blood Bath & Beyond

Instead of a Shanghai surprise where they almost melted down again last night, problems closer to home appear to be getting the better of the bulls this morning. Is a trend in the making? Are intrepid shoppers pulling back on purchases of $500 Dyson vacuum cleaners, or 3200 thread count sheets, $400 home espresso machines, or $150 kitchen garbage cans with automatic lids? The housewares retailer Bed Bath and Beyond BBBY issued lowered guidance in the range of Q1 earnings of 36 to 38 cents vs estimates of 39 cents. Same store sales, they say, are likely be only 1.6% vs the 3% to 5% that's the norm at BBBY. BBBY is down more than 6% this morning.

This retailer will also take it on the chin: Cache May same-store sales fall 2 pct; cuts 2nd-qtr view.

For the moment, it appears Wall Street is recognizing that the shut off of the home equity ATM is having some negative repercussions on the all important consumer. S&P futures are down about 4 points. But the question isn't how low the market opens on these weak mornings, but whether it can, with McGeyver like ability, recover by the closing bell. McGeyver was the guy in the 1980's tv series who could put together an aresenal of tricks to get himself out of any sticky situation, even if all that was available was a bottle of draino, ketchup and some matches. Yesterday, the McGeyver like bulls used the soft factory order numbers to recover from the China swoon reasoning that soft factory orders would go into the "we don't have to raise rates" column at the Fed. It will be interesting to see what the bulls use today.

China was McGeyver like last night. At one point Shanghai was down more than 7%, only to finish with a gain of 2.5%. Speculation the Chinese government would step in to stabilize the market led to the turnaround.

Bernanke is upbeat - is that any surprise? Bernanke expects US economy will rebound in months ahead.

This deal is finally done: Private equity firms to acquire Avaya.

Apple has been on a tear. How much higher can it go now that it's already up to $121? Credit Suisse lifted its target to $140 from $120 saying the iPhone will do well because of its technical superiority offseting the negative of its $500 price.

Shanghai and Simple Moving Averages

Just a quick picture that speaks for itself. This is a market that likes to take out key moving averages. I think they also call it, "the bigger they are, the harder they fall."

Thus far tonight a rebound of about 2% in China.

ASCO Conference

Very good converage of the cancer conference in Chicago by CNBC: Click here for a video summary of today's events. ONXX, CELG, DNDN all making news.

Interest Rates

There's a very interesting story on the Bloomberg system about interest rates:

Fed Faces Growing Pressure to Raise Interest Rates, Options Market Shows

If this comes to pass, look for quite a roller coaster ride in the stock market in the months ahead.

Dow Jones (DJ)

The heat is really turning up in this situation. Reuters is reporting that the employee union has hired an advisor to explore alternative bids. More as it develops.

edit:

NEW YORK, June 4 /PRNewswire-USNewswire/ -- The Independent Association ofPublishers' Employees (IAPE), the union that represents more than 2,000employees of Dow Jones & Company, has retained advisors to explorealternatives to the proposed News Corp. bid for Dow Jones & Company and itsflagship publication, The Wall Street Journal. IAPE believes that the best safeguard to the continued independence andunquestioned integrity of Dow Jones would be the continued stewardship of theBancroft Family, but if the Family is persuaded that a sale of Dow Jones isnecessary, IAPE believes that there are alternatives to Mr. Murdoch. We arehopeful that the Bancroft Family, with its long-standing commitment to theintegrity of Dow Jones, will consider these alternatives. Working with our advisors, Ownership Associates of Cambridge, Mass., andwith the resources of The Newspaper Guild and the Communications Workers ofAmerica, IAPE has begun reaching out to substantial investors that we believecould serve as partners in our effort to maintain the editorial independenceof Dow Jones & Company and preserve the unquestioned journalistic integrity ofall of its publications and products. The Newspaper Guild-CWA represents 35,000 workers in the United States,Canada and Puerto Rico, and CWA overall represents 700,000 workers in telecom,IT, journalism, broadcasting, manufacturing, airlines and other sectors.

Quick Morning Market Comment

The 8% slide in China has cast a bit of pall over most markets going west from Shanghai. This would include the U.S. marts where a modest knee jerk lower is indicated by a 5 point decline in S&P futures. But the dips in Euro markets have only been around a half percent and in Asia, while China was sooning the Korean market rose more than 1% to a record high. The force that continues to keep major contagion at bay, at least here in the states, is liquidity driven M&A. Again there are a wide variety of deals. The Yen carry trade is also not unraveling in the face of Chinese market tremors; no major flight to quality toward the Japense yen which would mean double trouble for U.S. stocks. Yen futures on my screen up 25 points. 10 yr treasury is up 2/32nds, taking the yield a hair below 4.95%.

Dendreon (DNDN)

The Dendreon (DNDN) Saga gets more interesting by the day. Two so called cancer experts are finding out that actions can have unexpected consequences: Cancer Experts Threatened After Opposing Drug. You can't make this stuff up. There's no other way to put this but in very blunt colloquial terms -a political shit-storm is developing over Provenge. Sorry for the profanity. A massive protest rally is slated to happen in Washington tomorrow and ABC World News w/Charles Gibson is going to do a piece Monday night on the FDA's decision to block Provenge pending years more of tests.

One other note. A nincompoop on the Yahoo! Dendreon message board put together a spoof press release that DNDN reached a partnership agreement with Genentech (DNA). The problem: the spoof PR looks too real! People are thinking there is a deal, BUT AS OF NOW THERE IS NO, NADA, EL-ZILCHO DEAL BETWEEN DNA AND DNDN!!!! The release on the Yahoo! message board is a complete fabrication.

Monday Morning Curtain Raiser And The Week Ahead

A small scale merger Monday is already in the making and as usual it features companies that were not part of the Friday rumor mill:

Netherlands' Qiagen buying Digene for $1.6 billion. Digene (DIGE) closed Friday at $44.77 with just a smattering of options trading. The takeover price is $61.25. Hot diggity!

Blackstone, purported in the rumor mill to be after Micron (MU) is making a buy. But it's purchasing an insurance brokerage company: Blackstone to acquire Alliant Insurance Services.

There's a $5 bln offer already on the table for Dow Jones (DJ) from Newscorp (NWS) and Rupert Murdoch. The much ballyhooed meeting between 'Roop' and the controlling Bancroft family is scheduled to happen tomorrow in New York. It's tempting to think that something above $5 bln might be enough to sway the family, but editorial independence of the Journal remains a huge issue. An article on the WSJ.COM web site tonight that Murdoch will not accede to a demand that Bancrofts be allowed to control an editorial oversight board indicate the two sides are far apart and that money may not bring them together.

10 year treasury yield at 4.956 Friday is the number to watch in the coming week. A further backup in yields (a move toward 5%) could trigger angst on Wall Street. But how much angst could anyone feel for very long on the street with so much money being juiced into the system. NowAndFutures.com does a nifty job tracking security repurchase agreement (REPO) activity at the NY Fed and money has been flying out of the discount window at full throttle.

That chart above gives insight into why the world of the high flying stock market is bumping up against rising bond yields where the whiff of inflation continues to get stronger but still suppressed by the official figures which continue to keep monthly core numbers at around .2%.

The economic calendar is quiet this week. We get factory orders on Monday, ISM services on Tuesday, productivity on Wednesday, jobless claims on Thursday and trade deficit figures on Friday.

After a dismal April, due to an early Easter, retailers are expected to show a rebound in May sales. The numbers will be released Thursday morning.


Fed chairman Ben Bernanke is a travelin' man this week. He will be attending a monetary conference in South Africa (lovely this time of year) and will make a joint appearance with his counterparts from the Bank of Japan and the European Central Bank.

Novastar (NFI)

The two charts above are for comparative purposes - Novastar (NFI) and Freemont (FMT). Fremont soared last month after snagging a deal to sell its commercial lending division. Is the same thing about to happen with Novastar? On Friday, Dr. Jon Najarian from Optionmonster.com briefly mentioned the possibility that NFI could be a takeover candidate on CBOE TV for as much as $12.50 a share. Dr. J mentioned that trading volume in NFI was not reflecting institutional participation. But one thing you'll notice in the chart above, is prior to the FMT deal, volume was also muted. Fremont was actually down in regular trading prior to the news that sent the stock through the roof, indicating to me that institutions can sometimes be caught off guard. On Friday, NFI call options volume swamped put options volume by more than 10 to 1 with especially heavy volume of 12,450 in the deep in the money June 2.5 calls vs open interest of 6,225. The 2.5 call volume appeared to be just below the offer and a single transaction. Hmmm! The June 7.5 calls were also active with volume of just over 3-thousand contracts. I am long NFI, though only a few weeks remaining in these high volatility June calls makes me uncomfortable, but this is one to keep an eye on in the coming trading days.

For Those Keeping Up With Provenge Saga

It's really more than a 'saga', it's quality of life and life and death for thousands of men...

Should the Taxotere ^%%#s win this with impunity at the FDA?

Here's a very informative Blog: http://provenge.blogspot.com/ - Immunotherapy is the future. Provenge is now.

Here's another: http://www.provengenow.org/index.php - PROVENGENOW.ORG

Uh, Oh - Rough Week Ahead for the Stock Market?

Bulls get the buy message is the banner headline on the Marketwatch site. Their article talks about how stocks are likely to rise in the week ahead. My only concern is that last weekend Marketwatch was talking about the potential for a falling market. We all know how things turned out this past week. Let's hope Marketwatch's weekend previews are not a contrary indicators!

Dendreon (DNDN)

Another extremely active options family today are calls and puts of Dendreon (DNDN). Call volume, in particular, has the upper hand. With FDA approval unlikely until sometime in 2008 for its Provenge treatment for prostate cancer, what would be causing the speculative froth? The big cancer mecca known as ASCO that got underway today. While I have a long position for the long haul, short term speculators are jumping into the option on the hope DNDN will announce a partnership with a big pharmaceutical company at some point during ASCO. This is a rumor that's been around for a while, but ASCO is seen as an opportunistic time for such an announcement. Stay tuned.

Micron (MU)

Once again it's Friday and volume in a variety of options families is through the roof - Micron in particular - on pre weekend speculation. MU in recent weeks has been the subject of "chatter" that it will be taken out by the likes of Blackstone. Sandisk (SNDK) has even been mentioned (there has been heavy SNDK put buying today). In the June contracts alone, call volume totals over 66,000 contracts, or about 6-times the put volume. Do I know if a deal is going to happen? No idea but many folks are hoping for something. I am long MU. Not only has options volume been strong, but perhaps of greater significance is the stock volume which is approaching 60 mln shares today! It's one thing for folks to step up and buy lots of cheap out of the money calls, but a whole different situation when you see multi million dollar blocks of this stock continuously crossing the tape. The 10,000 share blocks have been the smaller blocks today indicating major institutional and fund accumulation today for whatever reason. Perhaps we'll soon find out.

4.96%

That's the present yield on the 10 year treasury. It's a testament to the stock market's strength that we're not seeing more red in stocks as yields back up towards 5%. Anyone want to venture a guess on what would kill the bull? 5.25%? Maybe 5.5%? Perhaps even higher?

The S&P at 1800 by December?

One of the trades picked up on my options screener today is volume of 6300 December SPX 1800 calls that have traded today. These mostly went off at $1.30 or near the offer. The spread is outrageous with a bid of 85 cents and an offer of $1.35. Imagine, the S&P rising nearly 300 points more by the end of the year. Who knows exactly what that's all about - some sort of swap, or hedging? It's just way out there.

Morning Market Comment

With this sinusitis making it feel like someone pushed a thumb tack into my face just below the right eye, I arrived late to my home office - at 8:31. I didn't even have to look at the news ticker, just the S&P futures - up more than 5 at that moment - to know the employment numbers were to the liking of Wall Street: U.S. nonfarm payrolls up 157,000 in May. This is a pretty cool world in which we live when if you consider that if we had official inflation figures that showed a true rate at a more realistic 8 to 10% that GDP would technically had contracted, yet we have close to full employment. So, with S&P futures up, it looks as if the effort continues toward my target of 1550 (old intraday S&P high). Put to call ratio look favorable and so does the ISEE, but beware the continued deterioration in the bond market where firm economic data is seen as lessening the chances of a Fed easing later in the year. The 10 year note is 2-ticks lower with the yield at 4.902. A wary eye should be kept on China for any further suprises but it appears that the powers that be are trying to quickly stamp out this nasty rumor: China has no plans to tax capital gains in near future - report