MorningWord 3/14/13: $BBRY Resurrection?

by Dan March 14, 2013 9:29 am • Commentary

MorningWord 3/14/13:  Tuesday on Fast Money I was asked to respond to a viewer Tweet about BBRY, whether to Buy Sell or Hold with the stock around $14.50?  If I recall correctly, my answer was a bit nuanced and I referred back to an early conversation about short interest to tackle such an important question.   BBRY has about 33% of its float short, so any perceived positive news can cause a fairly violent upward surge like we saw yesterday, and Monday causing 10% rallies in a straight line (below).  

[caption id="attachment_23664" align="aligncenter" width="589"]BBRY 4 day chart from Bloomberg BBRY 4 day chart from Bloomberg[/caption]

Then I moved on to some simple financial metrics – the company has 1/3 of its market cap in cash, no debt, and with consistent take out rumors and a enterprise value to sales of ~.5, it is cheap.    BUT, the company has placed all of their hopes of resurrection on one product and one operating system that are not likely to help them do anything more than slow the course of defectors to iOS and Android.  I do not believe they will succeed on their own, and think it is very likely they go the way of Motorola or NOK, either being acquired for a little premium and or they partner with a larger company as is the case with NOK/MSFT.

So the sum of the parts of BBRY with the stock btwn $10-12 is far more attractive than when it is the high teens.  The company’s patent portfolio is probably worth at-least $1b, their installed base of ~70 million users is probably worth at least $2b, they have $2.7b in cash and we are not even adding the value of future cash flows.   SO u get my point, high single digits to low teens, the stock is probably worth a shot on the long side as takeover spec and cheap valuation and the  unknown potential for a turnaround should put a floor in the stock above the lows made in the fall, but I have to assume that sellers come out in the high teens as they did back in Jan after a nasty short squeeze into the BB10 launch.

The stock has been a day trader’s dream, and many use options to lever their bets, after yesterday’s news hit the tape the BBRY sold 1m Z10 handsets to an unknown partner, there was massive buying in the weekly 14 and 15 calls with 21k and 26k trading respectively.

SO in sum, I would be a buyer btwn $10 and $12 and likely look for ways to short with defined risk back towards the Jan highs.  I am currently long a March 22nd / April 14 Put Spread (read here), with the intent to own April puts into BBRY’s fiscal Q4 earnings scheduled for March 28.



MorningWord 3/13/13:  Last night, the FAA set the course for BA to commence limited tests flights of their Dreamliners with their newly designed battery systems.  This is obviously great news for BA which has had their worldwide fleet of forty nine 787s planes grounded nearly 2 months ago.  On paper the last 2 months would appear to have been an absolute nightmare for a company who expects a good bit of its future growth from the order success of the Dreamliner, yet the stock has rallied 15% since the announcement of the grounding in January.    

In 2012, BA had record earnings and sales, which are expected to grow 24% and 3% respectively in 2013, but to me, this is where the risk of the last couple months lies.   With the stock at lofty levels, despite not exactly being expensive at ~13.5x 2013 earnings expectations, any future hiccups on the Dreamliner front in the next few months could put that earnings number in jeopardy and cause a slight re-rating of the stock.

On purely a technical basis, the chart just broke out of a fairly beautiful 3 year base, and is now approaching 5 year highs.  For the true technicians out there who ignore fundamentals, hats off to those of you who rode this thing higher in the face of what appeared to be a massive cloud of fundamental uncertainty.

[caption id="attachment_23590" align="aligncenter" width="589"]BA 5 yr chart Bloomberg BA 5 yr chart Bloomberg[/caption]

So what to do now with BA?   By all accounts, trading at a market multiple, with a stellar balance sheet, monster buy-back, 2.3% dividend yield and the potential for double digit  earnings growth for years to come (if they get the battery situation fixed once and for all) then BA could be a classic buy and hold.

In the near term, with the stock’s recent parabolic run, it could make sense to consider stock replacement strategies as the path back to the air for the Dreamliner may be a tad more difficult than the stock and the vol market are expecting.  The chart below shows BA 30 day at the money implied vol very near 2 year lows, which is not that surprising when you consider that the VIX is hovering around levels not seen since before the financial crisis.

[caption id="attachment_23593" align="aligncenter" width="589"]BA 2 yr 30 day Implied Vol from Bloomberg BA 2 yr 30 day Implied Vol from Bloomberg[/caption]


A couple strategies that could make sense would be outright call purchases out to Aug to replace stock, or even a risk reversal, selling put and using the proceeds to buy a call.  The latter is a bit riskier, but the idea of owning fat premiums right now, albeit at low IV, doesn’t seem that appealing in such a low vol environment.

On the risk reversal, for example with the stock’s close of $84.16, you could sell the Aug 75 put at 1.65 and use the proceeds to buy the Aug 85/90 call spread for~1.65, putting on the package for even money.  Your risk in the trade is that the stock closes below $75, which happens to be a massive support level, and you are put the stock, you can make up to $5 btwn $85 and $90, with a max gain of $5 above $90

I would rather own the no premium risk reversal that has a wide band of not making or losing money than sit with the stock at highs, or watch long dated calls decay.



MorningWord 3/12/13:  AAPL is most certainly trying to put in a bottom after its almost 40% peak to trough draw-down from the Sept highs.  For most of yesterday’s trading AAPL, continued its relative under-performance looking like it was headed for a new 14 month low, until BAM!, a Twitter-Bomb to the rescue:

ProfessorKev  professorkev  on Twitter

Those Tweets by @ProffesorKev (53 followers), on his Twitter profile, he claims to, “Love the action and manipulation & thankful for this trading opportunity to easily afford me more family time”.   The “Professor’s” tweet was re- Tweeted not long after by someone who has a much bigger following, @Biggercapital (7100 followers) and at that point a Twitter rumor was in full effect and AAPL had a 2.5% reversal off of the lows.



For certain, some AAPL longs were certainly thankful for the action and manipulation.

Yesterday in this space I wrote about Twitter being the first real productivity tool of the social web (below), and I guess that can be extrapolated for all sorts of uses for all kinds of people.  Twice now in the last few weeks AAPL has been saved from new lows by Twitter “Bombs” relating to the company’s plans to distribute cash or split the stock.  The first was just wrong, and only time will tell on this one, but I would assume this one is too, or at the very least the timing is off on both.

The fact that AAPL trades so frantically over non-product related rumors suggests to me that the stock has not completed its bottoming phase.  The slope of the decline off of the highs is fierce, and the stock has held the downtrend fairly consistently (last week Enis had a great Chart of the Day on AAPL’s recent CounterTrend Rallies here).  AAPL could clearly bounce back to $450, or possibly back to the 50 day moving avg at ~$475, on a meaningful cash distribution plan, but my sense would be the stock needs to get washed out in some sort of capitulation that takes it back towards the breakout level of late 2011, early 2012.

AAPL 2 Yr Chart From Bloomberg
AAPL 2 Yr Chart From Bloomberg


The much anticipated AAPL “Bottom” will not be the result of  Twitter rumors, but much more likely a process that combines news related to financial engineering measures, and a return introducing innovative products, regardless whether they come at lower gross margins.  This will take some time, and I think it is unlikely that the stock will make a V bottom.   As a trader, AAPL’s relative price action is nothing short of awful; as a potential investor, I prefer this action because the stock below $400 (on a panic preferably) probably sets up as one of the best long term holds that I can remember in recent memory!




MorningWord 3/11/13:   Most traders of my age, the ones who sit in front of screens all day, have one eye trained on the scrolling news ticker on their quote system.  Prior to the Great Recession, and before the proliferation of the “Social Web” most traders had forsaken the uselessness of the Web 1.0 stock chat-rooms and relied on third party news/quote services and Google searches for their single stock and economic news.

A few years ago this all changed and now it appears the big boys of financial media and brokerage are losing their grasp on being the first destination to obtain financial news. Twitter’s rapid ascent in real time search and theri recent adoption of the $ ticker hyperlink has been a game changer.   There have been plenty of attempts to assign values to Twitter’s worth and I have to clue whether it should be $1 billion or $15 billion but I can tell you this, aside from the daily searches on GOOG that yield so-so results, I use Twitter more than any other web property for professional uses.  Twitter is very likely in the first inning of penetrating different industries and verticals from what I can tell. And like most of you who follow @RiskReversal  & @EnisTaner for trade updates, alot of our followers are new to twitter and my sense is from talking to friends and peeps  in the business most of them are not even on Twitter yet.  

The first thing that I used to do when I woke up was log onto my Bloomberg and read 10-15 top news stories, now I generally don’t log onto Bloomberg until I get into the office.  I scroll my Twitter feed on my iPhone or iPad and quickly get through dozens of stories from dozens of news sources.  Finally the Social Web brings some efficiency rather than being a  massive productivity drain.

Here are a few things (of dozens) from just this morning that I would have never found if not trolling around on Twitter:



[caption id="attachment_23471" align="aligncenter" width="449"]Dow Previous Highs vs Now-Econ Stats from Kingwood Underground Dow Previous Highs vs Now-Econ Stats from Kingwood Underground[/caption]


Or this from CNNMoney:  CNNMoney  on Twitter

An analyst who downgraded Apple last August now says that Google is due for a fall

FORTUNE — “We’ve seen this movie before (Apple at all time highs) and we know how it ends.”

So began a brief note issued Sunday by Oracle Investment Research’s Lawrence Isaac Balter, chief market strategist at a boutique firm whose main claim to fame is his Aug. 21, 2012 downgrade of Apple (AAPL), five weeks before the stock went into a five-month swoon.

Now he’s warning that Google (GOOG) may be next.

“As we begin to hear the rumblings of $1000 target prices and cheerleaders in pom-poms, we are raising the target price only slightly from $670 to $700 to reflect earnings per share growth, but we still think you are overpaying.”

I don’t pretend to fully understand Balter’s accompanying chart (above), but it looks scary. As do the stats he rattles off:

  • From a P/E perspective, GOOG is the 10th most expensive in the S&P 100 at 24.6x

  • At 3.8x P/Book, it’s the 31st most expensive

  • With a PEG ratio of 1.20, it’s trading at a premium of its growth rate, whereas Apple’s PEG ratio is just 0.55x (the 5th lowest in the entire S&P 500)

  • Over the past 5 years, GOOG has been compounding retained earnings at only 6.74%, whereas Apple has been nearly double that at 11.88%

  • GOOG’s return on Assets has been declining at -6.47%/yr compounded rate, whereas Apple has been increasing by 11.7%/yr


For the record, by Dec. 5 last year Balter had changed his “hold” on Apple to a “buy” and then a “strong buy.” The stock, however, continued to fall, from $570 to below $420.

And of course follow dudes like the @ReformedBroker because, aside from his non-stop wit and astute market musings , he will serve you up his own list of tweets and news story culled down from his own process:

Downtown Josh Brown  ReformedBroker  on Twitter

Hot Links  Inevitable   The Reformed Broker





MorningWord 3/8/13:  In case you missed it, The February NonFarm Payrolls number came in this morning adding 71k more jobs than forecasts predicted, with the unemployment rate dropping to 7.7.  Despite the revision lower to the January numbers (down 38k from the initial report), the S&P futures are taking the news fairly positively, up 50 bps as I write.   The data is clearly good news for the supposed economic recovery, but begs the question how long can “Helicopter Ben” keep his pedal to the metal on the QE front in the face of improving economic data?  I am not an economist and generally rely on opinions of many smarter than me on macro issues, but if we continue to get the double whammy of improving housing and jobs data, it seems very unlikely that we will see QE4 and even more likely the Fed starts floating trial balloons as to how and when they put an end to easing in 2013 .  

Which brings me to the SPX up 9% on the year and flirting with all time highs. The question I ask my self hourly is how much good news is priced into the market at current levels??  If our economy is really improving, if the little hiccups that we saw in the last couple weeks from Europe and China were just that, hiccups, and we start to see the reflation of global growth then I will most definitely have to rethink my bearish stance.   If overseas data starts to move in the direction ours is then we could be off to the races.  But it is never that easy, which is why for the large part I would expect a 5-10% pull back at some point this spring as there will be fits and starts to the next leg of this bull run and I am not convinced that we are off to the races without the confirmation of a European economic turn and an uptick from emerging markets on the demand front.

Our trading clearly suggests that we are guarded bears, we are not going all in as the momentum for the time being points higher until it doesn’t, of course.  Rather than trying to pick a top I would rather continue to sell gamma and press smaller less convicted shorts in the weaker names like CAT.  For the day traders out there, today’s set up could be the one to play for the intra-day reversal as some investors may ask themselves the very sensible question, Is This As Good As It Gets??

Taking a quick look at the 10 yr charts of the SPX, IWM & the NDX (below) I think it is safe to say that while we have come a long way from the 2009 lows, the breakouts in the last leg of the rally are nothing short of impressive in the face of a fairly murky global macro environment.

[caption id="attachment_23409" align="aligncenter" width="589"]SPX 10 yr chart from Bloomberg SPX 10 yr chart from Bloomberg[/caption]

My quick take on the SPX is that this will need to consolidate a good bit near the prior highs before it can make a sustained breakout, I would expect the next new high fails but could clearly gather some steam after a sell off then a base.

[caption id="attachment_23410" align="aligncenter" width="589"]NDX 10 Yr chart from Bloomberg NDX 10 Yr chart from Bloomberg[/caption]

On a near term basis, the NDX appears to be making a rounding triple top that could suggest a head and shoulders.  This is not that surprising when you consider the under-performance of tech in the latest leg of the bull run.  Tech is one area that I would look to get overweight though on the next sell off as I think we will see a rotation out of consumer staples and transports into Tech if this rally is going to broaden out.

[caption id="attachment_23411" align="aligncenter" width="589"]IWM 10 yr chart from Bloomberg IWM 10 yr chart from Bloomberg[/caption]

The IWM that tracks the Russell 2000 is actually the most constructive in my opinion of all three and a consolidation below $90 could be a good entry point for bulls.



MorningWord 3/7/13:  Tuesday night on Fast Money two of the panelists were engaged in a bull/bear debate on the merits of owning INTC at current levels.  When asked for my opinion on the matter I weighed in with the bear, well because that’s just what I do.  For all intents and purposes, INTC appears to be a classic value trap.  Despite a strong balance sheet, ample cash flow to pay a dividend that yields 4.1% and fund a massive share repurchase, the company is facing a massive crisis as they have been caught off sides on the secular trend towards mobile computing.  INTC’s guidance and analysts estimates for 2013 reflect the company’s weak positioning in this brave new mobile world, with earnings expected to decline 9% and sales to grow a mere 1%.  Despite holding firm on the server side, INTC’s earnings have been under pressure from declining margins from pricing pressure for chips that go in PC’s and laptops which have faced massive cannabilization from tablets where the company’s market share is nearly non-existent.  

INTC’s stock reflects much of the pessimism surrounding their challenges, and until the start of this month, the stock was down on the year and just a few % from the 52 week lows and sitting on 4 year support.

[caption id="attachment_23364" align="aligncenter" width="589"]INTC 4 yr chart from Bloomberg INTC 4 yr chart from Bloomberg[/caption]


All of these challenges come at a time when INTC’s board is searching for a new CEO to replace Paul Otellini who has been at the helm since 2002.  This morning Reuters ran a story (here) describing INTC’s opportunity to make use of its idle factory capacity to manufacture mobile chips for competitors which could help profitability and eventually lead to a deal with AAPL where the company could greatly increase their competency in the mobile space.  The article is a good read, offering a hint of optimism for the potential of a new dynamic hire at the top level to take the once dominant chip maker down a different path.  Ironically, Tim Cook would be the perfect man for the Job (as he is widely regarded as a supply chain specialist), but he is a bit busy being fairly un-creative at AAPL.  I am sure we will start seeing speculation and short lists of CEOs from smaller companies and number twos at other mega-caps.

To help break the tie on the INTC Street Fight on Fast Money, I suggested that the stock below support in the teens on a broad market sell off could be a decent long in front of what could be enthusiasm about new management and a new course for the company that should be revealed starting in the middle part of this year.

For those looking to play for a bounce into what could be a couple second half catalysts, selling a long dated put to buy a call spread could be a low premium way to play (in full disclosure, I am not there yet).   For instance with the stock at 21.75 (as of yesterdays close) you could sell the Jan14 18 Put at ~.70 and buy the Jan14 22/25 call spread for ~.95, the structure would cost you .25.  Your worse case scenario would be that the stock closes at 18 or below and your would be put the stock and lose the .25 premium you paid.  Between 18.25 and 22 you only lose your 0.25 premium and make up to 2.75 btwn 22.25 and 25.   This could be a decent alternative to buying the stock here, but ideally I would look to employ a strategy like this when implied volatility would be elevated on a relative basis, and I would personally look to do this when the stock was back towards $20 and look to sell the Jan14 15 put and Buy a lower call spread.   Stay tuned, we are getting our lists of story stocks that we think may see better days once some change is in place and the shares get washed out.



MorningWord 3/6/13:  IN case you missed it the financial world is rejoicing in its own splendor as the the most mathematically dubious index the world over, the Dow Jones Industrial Average, closed at a new all time high yesterday.   After you are done sweeping up all the confetti, think for a second where you were the last time the Dow closed above 14,160, on Oct, 9th 2007?  With the help of my trusty Palm Pilot, I just looked and it says I was gainfully employed by Merrill Lynch in their equity derivatives group, had drinks at a new Sakatini bar in Soho with 2 guys my trading group was desperate to hire, and then had dinner at Nobu to celebrate the closing of my latest condo investment in a swamp in Florida.  Ok I am kidding about some of that but Merrill no longer exists for all intents and purposes and the combined equity with BAC is some 80% lower than Oct 2007, let’s just say those young traders we hired learned very quickly what LIFO means, tables at Nobu are now easily available on OpenTable, and that Florida condo didn’t work out so well!

Make no mistake about it, its been a hard slog for most since the previous top back in late 2007, and for the most part, I think it is fair to say that very few market participants expected the sort of bloodletting that we saw in 2008/09 in both the world economy and global markets. So we are back, and what’s it mean for you? Well, most investors don’t feel like they are at new highs and most people that I speak with are working more for less with more anxiety about job security, their home values are still below their peak, their 401k are back above highs because of increased investments (not based on returns), and generally feel that the markets are a fairly rigged towards the big dogs.

I guess the one piece of advice I would give to those investors who are worried that they missed the rally, DON”T PANIC.  My sense would be that most retail investors make the job of being profitable difficult by making missteps at tops and bottoms.  I am not suggesting that because the Dow is at new highs and the SPX less than 2% away that we are at a top, but if I were a betting man, and I am, I would (and have) bet that we are far closer to a top (meaning that there is 10% sell off in the offing) than some staging area for a parabolic move higher.  Timing is one of the most important aspects of consistent profitable returns in equity investing, and getting TOO long at tops and booking too many losses at bottoms will only compound the already difficult task.

I have been fairly adamant for a few weeks now that I do not see a favorable risk / reward scenario to committing new capital to equities above 1500 in the SPX, despite the fact that all the major indices are breaking out.  I have been wrong, but I’ll stick to my guns for just a bit longer.   If you are a momentum investor, the trade is to lean on support at 1500 and trade from the long-side,  if you are an intermediate to longer term investor and you are long from lower levels I would leave some powder dry with and eye towards adding to longs with the SPX at 1450, a support level that we could most definitely see at some point this Spring, while using the all time high of 1565 to take down some long exposure.  Trying to pick a top here is difficult business, lots of stuff is working the way it should, so the obvious question is why fight it?





MorningWord 3/5/13:  Its fairly hard to miss as the market continues its march onward and upward, AAPL’s slow leak is causing the stock to make fresh 13 month lows.  This has be a fairly interesting phenomenon that has played out over the last few weeks/months, and now that it is becoming the norm it may be close to done. After more than a year and half being a “bizzaro” stock on a relative strength basis both positive and negative.  AAPL’s 40% retreat from its all time highs in September at $705 to yesterday’s close of $420 has not been without its beneficiaries.  AAPL investors who had become accustomed to earnings and sales growth of 25% plus over the last 5 years have been desperately searching for growth at a reasonable price and have found a new tech mega-cap darling, GOOG, which is up ~20% (at all time highs) since the start of November, vs AAPL which is down 30% in that period.

1 yr GOOG vs AAPL from Bloomberg
1 yr GOOG vs AAPL from Bloomberg

Is GOOG entering its own parabolic rally not to0 different from AAPL’s in 2012?    

We’ll save that for another post, but I think it is important to recognize that the money still coming out of AAPL, aside from the couple hundred billion of losses in the stock from the highs that have gone to the equivalent of the stock market graveyard, has been desperately looking for a home.  Aside from GOOG (where it is not hard to make a case to own it at all time highs on its expected growth vs its valuation) , the price action in NFLX (up 95% ytd), LNKD (up 54% ytd), YHOO, (up 14% ytd) PCLN (up 15% ytd) & AMZN (up 8% ytd) suggests that investors are more interested in investing in the a bit of the unknown than the unit & margin driven strategy of past investment in Old Tech like AAPL, MSFT & CSCO.

Trying to pick a top in the likes of NFLX and LNKD seems like a fool’s errand, largely given the simple fact that convicted longs have the shorts by the short hairs so to speak, and the day traders are having their way with them causing massive intra-day volatility, which for the time being is pointing higher (until it doesn’t as was the case with NFLX yesterday).   From where I sit, they are just where I want them, not in my trading book, or a longer term investment portfolio, I prefer to just use them as sentiment indicators.

BACK TO AAPL, a question that I hear a lot is when to step in and buy.  Sentiment is close to washed out, and the stock is nearing another psychological level at $400 (where much more trading has occurred over the past few years than at the previous $500 level).  If there is any type of capitulation move below there, then it’s probably time to step in for a trade.  Enis will have a Chart of the Day post later today detailing what the next rally might look like.




MorningWord 3/4/13:  Just when you thought some of the market ills from 2011/2012 were behind us, then wham, right in the kisser. First Europe last week, and now fears of a slowdown in China (again).  The Shanghai Composite and the Hang Seng nearly hit the lows for 2013 last night (down 3.65% & 1.5% and both basically flat for 2013) on the back of a series of weak economic data coupled with the nation’s attempt at cooling off an overheated housing market.  China has clearly been off the radar of many investors in the U.S. for the last couple months, but it was just a few months ago that many western market participants were more focussed on 2,000 on the downside in Shanghai, rather than 14,165 in the Dow Jones.  Since the Shanghai’s false breakdown in December, the index had more than a 25% rally of the lows.  After failing to get near what looks like significant resistance at 2500, this puppy could be range bound for some time.

5yr Shanghai Comp from Bloomberg
5yr Shanghai Comp from Bloomberg


On the heels of China’s tightening measures, and soon after Asian markets opened, CBS’s 60 Minutes ran a piece on China’s real estate bubble that got a lot of love in the financial Twittersphere in real time.  If you haven’t seen it, you should:

For many market participants, this is not a new story, famed short seller Jim Chanos has been warning of a property bubble ready to burst for at least 3 years; 2010-here, 2011-here & 2012-here, and websites like Business Insider have also been writing about these ghosts towns (here).

Why should U.S. investors worry about the potential for China’s real estate bubble burst and what would most certainly amount to a credit crisis of epic proportion?  For the same reason that international investors should have feared back in 2007/08 about the U.S. real estate bubble burst and the subsequent reverberations across almost all businesses, causing a financial crisis that spread from Wall Street to Main Street, and then quickly overseas.  Some of the actions by Chinese banking officials to cool down the real estate market in the last year or  so and to rein in their massive shadow banking industry, appear reminiscent to the last ditch efforts by U.S. regulators to contain the uncontainable impending subprime credit crisis here.

Ironically, it was demand from China in 2009 that helped the world economy shake off the global recession caused by our crisis, and after years of very strong growth in China, U.S. multinationals in 2012 saw a drop in revenues, earning and operating profits (chart below from, as the country struggles with decelerating GDP that is expected to be flat year over year at 7.4% in 2013, a far cry from some of the 12-23% prints just a few years ago.

US Companies  Profits Continue To Fall In China As GDP Growth Slows

So the easy answer, and to oversimplify it and state the obvious, is that U.S. investors should keep a close eye on investment bubbles while they inflate and eventually deflate because many of our investments in U.S. companies rely a great deal on China for growth, either for manufacturing to sell outside of China or to penetrate and gain market share in a country that has a massive emerging middle class greater than the entire U.S. population.  Maybe 2013 will not be to dis-similar to 2011/2012 with macro risks abound causing volatility in U.S. equities.

Enis:  I have no doubt that the Chinese property bubble is of historic proportions, and its bursting would cause massive economic consequences in all asset classes around the world (and major social consequences in China).  But this bubble has been known for years now, so developing a trading thesis around it is in large part about timing.

My main takeaway from the 60 Minutes piece was not the actual story (which I had already heard and seen many times), but the simple fact that the Chinese government allowed a prominent American program such access to the developments and to the people involved.  The new Chinese administration actually seems resolved to curb property speculation, and using the foreign media to discourage more speculation is just another tool.  The risk going forward is that the Chinese government succeeds too well, and their soft landing becomes a very hard landing indeed.




MorningWord 3/1/13:  Last night CRM reported eps (.51 vs .40 consensus, but .08 of the beat comes from an r&d tax credit) and revenues ($835m vs $831m consensus) that beat expectations, and guided Fy 2014 to inline with consensus.  By all accounts the quarter looked good on most metrics from op margins that came in 1% higher than expectations, and strong bookings that included a very healthy large order closing rate in Q4.  Yesterday afternoon, prior to the results I placed a low risk, potentially high reward bearish trade in Apr expiration, that would benefit from a move in line or greater than the implied 8% move, but, it was not solely predicated on the move happening today.

Most readers know I often look to be a tad contrarian in these situations, and CRM is not the sort of stock that would make it on my Buy list given its current growth profile and valuation. So I would tend to look for structures that offer a good risk reward in front of potential inflection points, and that was the plan with yesterday’s trade (from yesterday’s trade post):

Trying to pick tops is difficult business, but trying to spot inflection points is another thing all together.  On tonight’s call, if results show fiscal 2014 consensus estimates to be a tad optimistic, the stock will likely be re-rated, similar to the revelation that AAPL investors had in the last 5 months that the company was facing deceleration in earnings and margins.  The difference btwn CRM is that the stock is priced as if they will continue to grow sales and earnings at 20% plus a year for the next ten years.

So what did last nights call actually show? As stated above, it showed what I would call their ability to hold on to their first mover advantage for now.  The guidance that they gave for the current quarter was actually a tad light to expectations, and the full year guidance bulls will argue will prove to be conservative.

Wall Street analysts are overwhelmingly positive on the stock with 35 Buys, 3 Holds and 4 Sells, things feel about as good as it gets from a sentiment standpoint.

The stock is up ~4.3% in the pre-market and I have a sneaking suspicion that the quarter and guidance wasn’t the sort of masterpiece that will drive incremental buyers a few % from all time highs, and if I were part of the 10% short interest I might not exactly being scrambling to cover.  Earlier in the week another high valuation, semi-controversial stock, PCLN had a large implied move that it under-performed on its own strong quarter, and has since spent the next 2 trading days filling in the earnings gap, maybe its wishful thinking, but if I saw this sort of price action in CRM today, the stock could set up as a decent press on the short side.

So here is the MAIN ERROR IN MY CRM TRADE,  (as I said I wasn’t trying to pick a top merely an inflection point, but in hindsight),  I SHOULD HAVE JUST WAITED TILL AFTER THE RESULTS WERE OUT AND PLACE MY TRADE WHETHER THE STOCK WAS UP OR DOWN 4%.

I was risking less than 1% of the underlying to catch the inflection over the next month and a half, but now I am stuck with a position where the strikes may be to far out of the money, I will need to dig myself out of a hole.