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Friday, April 15, 2005

Too bullish too soon.Especially with ibm..big blue has left me blue this week as the may 90 calls have gone from dep out of the money to impossibly deep out of the money.Fortunately this weeks decline in starbucks allowed me to close that position at more than enough profit to compensate for dancing with dinosaurs .closed the pfizer clalls for a decent gain this morning as well.SBux is one I wouldn't moind shorting again in the mid 50's if bear sterns upgrade can push the shares that high.A 40 multiple for a 5% grower is just too tempting a target.

Earnings hopes seem to be turning to earnings fears this week. The miss by harley davidson sent a clear message to the market that the days of counting on the so called consistent growers at premium valuations are coming to an end. The numbers just don't massage the way they did in the good ol days. Harley was always seen as somewhat insulated from economic swings by the consistent demand for the throaty roar of the open road. Now, it seems that they have shipped many more bikes to dealers than were ever registered by new owners and the only throaty roar is from growth funds puking upthe shares.Citicorp and Ge both exceeded estimates but the list of misses to the downside is getting longer by the hour.SUNW,RFMD,MAT,AVY and GWW are all off bif today on earnings misses. You thought march madness was interesting. Trying to build a bracket of earnings winners is getting more difficult all the time as the traditional 1 and 2 seed growth stocks fail to advance.

In spite of this, for the short term I m still bullish. The twin declines in oil and interest rates should give us a little upwards push.The SP500 is 2 standard devaitions below its average, and the vix and vxo are both above their 2 std-dev range. Past occurences of this have been infrequent and very bullish over the next trading month.I dont think it wll be a spectacular rally but we should recover some of the ground lost since early march.I think that 1195-1200 on the sp500 and 2020-30 on the NAZZ composite will be the top of any short term rally in here and would have to revaluate the picture if we reach those levels. Volatilty has been climbing as earnings disappointments build and I think there is finally enough fear to launch a decent little rally. The longer term path of least resitance is still down, and I ll probably be looking to restablish some more shorts as we near the top of my ranges.

Semiconductors, drugs and media remain my hunting growund for new long ideas.The continued decline in shares of ATML has increased my appetite for the shares and I have been aggressively adding to positions. Their smart card business is growing at a 40%+ clip annualy and with the mastercard paypass ramping upthis quarter, this will continue if not acclerate.In the microcontroller business the book to bill is finally over 1. There is revenue growth across all areas of the comopany and margins improved by over 5% last year. On there 4th quarter conference call in feb they anticipated further margin improvement starting in the second half of the year. Wells Fargo has a 12 month target price of 5.25 and I think Im right there with them. The long term trends in hand held consumer electronics and smart cards are very much in ATML's favor.ATMl sels for 70% of sales,right around book and only two times net current assets.Its a buy it and forget it stock that should provide outsize gains when the semi conductor sector picks up.In media and entertainment DTV remains a favorite...rather than walk you through the whole analysis, I ll just reference the barrons article last week as outling the valuation and prospects for the satelllite tv leader. Drugs have moved up in recent days and I would hold longs but not I mention I exited the more leveraged pfe calls this morning. I also like the HELE JAN 25-30 call spread for the more aggressive types.HELE earns a 22% ROE and trades at 12 times.Street estimates are 2.35 this year and 2.90 in fiscal 06 with a price target of 20.With the stock at almost 28, the debit of 2.0 is all intinsic value with a discount of time premium for a good chance to double by January 06.

Since coming back from a fuddruckers lunch I find that the market has taken an enormous dump again, volatility has jumped 3% measured by the vix.Semiconductors are getting crushed with all the tech etfs down another 2-4% on the day.The NASDAQ new low list bears an eerie resemblance to my portfolios. should have had a beer or 12 with that burger.Close eyes,buy puke..just another day in the stock market.

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