Posts Tagged ‘GOOG’

Blame it on China

The stock market dropped a little bit yesterday thanks to Alcoa bombing its earnings report and dropping 11%.  It seems investors are starting to worry a little bit more about how the economy is doing.

A bigger problem for today is what’s happening in China. China decided to raise reserve deposits for the banks. This spooked investors who think that China… the country that is leading the global recovery… will kill the global recovery. Overnight, Japan’s Nikkei 225 stock average was down 1.3 percent, and Hong Kong’s Hang Seng slid 2.3 percent.  The Shanghai benchmark tumbled 3.1 percent.

Then came news that Google will stop censoring results in China and might even abandon its China offices in response to a highly complex hacking attack on its servers. Apparently some hackers out of Taiwan hacked into a few Gmail accounts of suspected human rights leaders. While Google didn’t outright say that these attacks came from the Chinese government, it sure as hell implied it.

As you can imagine, Google stock is down. It’s not that Google makes that much money off of China. It’s just the prospect of losing the biggest customer base ever that’s hurting its share price.

The selloff will probably continue early in the morning but things could change around 2:00 PM. That’s when the Fed Beige Book of economic activity hits. This is what the Fed uses during its interest rate deliberations. If this report shows a strengthening economy, the market could move higher.

I think the power of the Federal Reserve printing press combined with holiday shopping and an inventory rebuild will ensure that numbers come in at the top of their ranges or better than expected.

Will this be enough to push the market to new highs? It’s hard to tell. The market is starting to turn more bearish according to an Investors Intelligence report on January 4^th. But, it still remains at historic lows.

The market has also struggled to climb to new highs, even while volume is climbing. Seems that buyers are getting a little more exhausted and even overwhelmed by sellers.

Fundamentally, consumer credit is contracting at an alarming rate. The number of workers who have given up looking for a job is at all time highs. And there is no evidence that consumer demand can sustain the economy after the inventory rebuild and stimulus run its course by the second half of 2010.

Since the stock market is forward looking,  the stock market should start a downtrend sometime in the next few months.

Stuff to Read…

Google to end China censorship after e-mail breach

Weaker Alcoa results, China news drag stocks lower

NY Fed to be subpoenaed on AIG pass thru payments

My Love for Android Knows No Bounds

This has been one of the laziest market weeks I’ve ever gone through. As a result, I’ve had more coffee this week than I’ve had in a long time.

I tell you, the girls over at Dutch Brothers (a drive-thru coffee joint here in Oregon, which hires shockingly good looking people) not only know my name by this point, but they’ve also figured out exactly what I love to drink, and what car I drive.

They have my coffee ready for me by the time I drive up to them! It’s fantastic. But it goes to show you how much time I’ve spent getting coffee this week in order to cope with this flat market.

After all the excitement of Monday’s rally, the rest of the week was flat, flat, flat.

Dow Jones Industrial Average

Just look at that. The Dow Jones stayed in a 33 point range for most of the week.

A big reason why the market was so flat is that investors were posturing for today’s Bureau of Labor Statistics employment report. At the start of the week people were throwing around all sorts of optimistic jobs numbers. I even saw Zero Hedge –- the most bearish blog I’ve ever read in my life — point out analysis calling for a jobs number surpassing 300,000 due to seasonal fudge factors.

From ZH…

An analysis out of Stifel Nicolaus points out that due to various seasonal adjustments, an NFP print of up to +100,000 could be expected (which incidentally does not reflect anything favorable at all about the actual employment picture as it is due exclusively to seasonal fudge factors). In fact, Stifel argues, a print of +316,000 is theoretically possible

Alas, the positive number never came. Instead the employment report showed an 86,000 job drop.

A couple things you should be aware of regarding the employment report…

• Bernanke said himself that it would take 100,000 new jobs a month for the unemployment rate to start dropping.
• When trying to look for a bottom, it’s best to look at how many hours the average work week is. Right now it’s at 33.2. Once employers start feeling better about the economy, we’ll see this number increase. That’s because an employer would rather give an existing employee more hours rather than hiring a new employee.
• There are 2.5 million people that have no job and want one… yet are still not counted in the unemployment report.
• In February the BLS will make revisions to the 2009 unemployment numbers. Analysts are expecting a HUGE decline as the BLS accounts for fewer jobs created at small businesses. Calculated Risk, who is very good when it comes to predicting economic numbers, has calculated that revision to lead to 824,000 more jobs lost. This would most certainly shock the market and lead to a higher unemployment rate.

So while the jobs report has certainly been improving, we’re not out of the woods yet.

As for the market…

The three major US indexes are at or near 52-week highs and overbought. Investor sentiment is at extremely bullish readings. And the VIX is at a 52-week low.

Even the commodity companies I love so much are sitting at 52-week highs. So what does that leave for us, the guys who profit off of short-term market swings?

One rout we could take is getting into some bearish credit spreads. In other words we sell call options in hopes that they are never profitable for the buyer. But honestly I just don’t feel comfortable going against the dominant uptrend right now.  Nearly ten years of playing the stock market has shown that type of play to be a painful one.

What it comes down to is good old fashioned stock picking.

One stock I’ve recently loved up is Google, mainly because of the Android operating system for mobile phones. It’s really started picking up market share after Motorola’s recent release of the Droid for Verizon.

Admittedly I think the Droid is a hideous excuse for a phone. But everyone seems to be eating it up. Most of that love is because it runs on Google’s OS.

In just the last year the Android operating system has picked up 12.4% market share in the smartphone sector, mainly at the expense of the iPhone and the Blackberry.

And with a slew of new Android devices hitting in the first quarter of 2010, I fully expect that market share to hit 20% or more by the end of the year.

This is great news for Google, and so I expect GOOG to be a low risk way of riding the Android OS higher. Another way to take part is to get into Motorola itself. The company has picked up pace ever since the release of the Droid. Analysts expect 1.4 million Android devices sold for Motorola in the 4^th quarter alone. In all, Motorola sold 12.5 million handsets for the year. For a company everyone expected to vanish by 2010, that’s remarkable.

Motorola isn’t sitting on its ass either. It’s gone ahead and released another phone, the backflip, for AT&T. It also plans on introducing more new Android based models this year.

At this point Motorola has good exposure to AT&T, T-Mobile, and Verizon Wireless. That’s good in my books. All it needs to do now is charge for the European market and sales should beat expectations.

Just be aware that positions in these companies should be held over the mid to longer-term (about 6 – 12 months).

Take care,

Charles Delvalle