dead wrong!

If you thought I was not posting because I jumped off the balcony after this week, you would be very close to right. Disastrous action this week:

* AAPL fell off a cliff. Broke through $85 on the downside, holding now around $83. I backed up the truck and bought more on anticipation of a great quarter and a blowout set of announcements. It should be all good news from here - a calm restatement around the options stuff, talk of Christmas iPod sales, MacWorld buzz and finally earnings announcement on Jan 17. We should run from here. I am calling a bottom.

* ORCL. Disappointing quarter, and I went long. I still like the risk/reward on the trade but it didn't work out.

* RIMM. Didn't get the risk/reward I was looking for (call options were very pricey), so I sat this one out. And of course it moves higher!

I am taking donations.

ORCL and RIMM earnings this week

This week, Oracle and Research in Motion both report earnings. Big options volume ahead of the reports. Here are my ideas:

* ORCL. Oracle was hit this week with reports from Lehman that database revenues would disappoint investors this quarter. The data apparently come from customer surveys. Personally I don't have much confidence in this, as databases remain very important to the web industry as a whole. The report however did provide a nice haircut and profit taking move to the downside over the past week. This leaves ORCL in a great risk reward position. Expectations may be dampened enough that a weak report will not trigger much of a downside move in price. I like the risk/reward going long ahead of earnings tomorrow.

* RIMM. Research in Motion is likely poised to report blowout numbers after releasing the popular BlackBerry Pearl this quarter. Analysts are probably being conservative in their estimates of Pearl sales. The downside here is that RIMM has moved up so much that all the good news may be in the stock; any weakness would be severely punished. Palm Inc. reports on Tuesday, so investors may be looking at Treo sales as indicative of what RIMM may be capable of delivering. I think this is apples and oranges - if there is any downside move in RIMM because of what Palm does, I would consider it a buying opportunity.

Summary: long ORCL, cautious on RIMM unless Palm gives us a way to get into it cheaply.

New ways to play a Santa Claus rally

I've been doing some research today on some new ways to play a Santa Claus rally. After freeing up some capital today I have some buying power to deploy. Here are some ideas:

* JNJ. I have been looking at rotating into healthcare at the end of this big tech push towards Christmas. JNJ looks like it is breaking out here and I see nothing but upside. I may pull the trigger on a small part of my position tomorrow.

* AAPL. I am still hugely bullish on AAPL, even with the strange (options-related?) trading activity today. Everybody was up, but Apple was down. Maybe profit taking on the big move yesterday. But since AAPL is way above the $85 strike, I think bulls will try to push this stock above $90 in tomorrow's session. If it doesn't happen I've got plenty of buying power to step in on the dips (unlike last time).

* LOW. Lowe's is a great way to play housing weakness. Low interest rates mean cheap equity loans for remodeling. Low housing prices mean people will be sticking around and getting a new kitchen rather than selling their houses for new construction.

That's it for now. I still like Mastercard on any weakness, and I think GS is going to do really well as the bulls start to pile in over the next few sessions after options expiration tomorrow.

taking some profits

Taking some profits today on a nice up day. I closed out the last part of my options position in Exxon Mobil (XOM) with a nice gain. I was a bit of a hog with this trade; things got a little out of control last week. I bought more XOM on the dips and today I exited with a healthy gain. The right play would have been to take a bit off the table at the 52-week highs.

I've also closed out a bit of Research in Motion (RIMM). Not the entire position. I felt I was too exposed to tech here and the Q4 tech rally seems to be losing steam.

In other bad news, my Boston Scientific (BSX) play didn't materialize at all and I'm completely underwater in those options.

And GS didn't move at all on blowout numbers. It is basically pinned at $200 for options expiration week. I think it should rally to year end and be comfortably in the $220s shortly. As I wrote in my analysis earlier I think this could be a $240 stock.

The highlight of my portfolio at the moment is a hugely successful position in Apple Computer (AAPL) ahead of Macworld. I'm staying long this one until Jan 5 when the stock should be trading in the triple digits!

Picks for the end of the year

Avid JP golf + stock readers, my profound apologies for leaving you hanging through the big rally in November. I've been engaged in moving my household up to beautiful and exciting Sunnyvale, CA. And it has been a little bit destructive for the old portfolio! Not enough rigor spells doom + gloom. But no worries, I think we are well positioned to profit from any year end rally.

As I write this, here are my holdings:

Apple Computer (AAPL), Google (GOOG), Goldman Sachs (GS), Halliburton (HAL), Lowe's (LOW), Mastercard (MA), NY Stock Exchange (NYX), Research in Motion (RIMM) and US Gypsum (USG).

I had some positions in Exxon Mobil (XOM) earlier this week, which I closed out. I moved out of XOM and made a speculative short-dated options play on GS. I think these guys will have a blowout number. If they can manage $6 a share per quarter, that implies a valuation of $240-275 per share at a peer-justified multiple of 11 or 12. I think tomorrow before the close they will announce such a number. It's been a great quarter for trading and also not bad for M+A activity either. Best of all, I think 2007 is going to be great for traditional underwriting activity too. So I like GS here. I didn't play this with Dec calls (I could have) but instead January calls. Last time it took a little while for the bulls to pile in. It could be a similar situation this time, especially if a Santa Claus rally materializes.

a nice looking pie

Feels like a pretty good week in store. Lots of great earnings plays and plenty of free time to trade!

impact on interest rates

A corollary to my last post is that interest rates probably will not be going down anytime soon. This has a negative impact on my Wells Fargo long position. I may look to reduce exposure in the coming days.

so much for "top of the cycle"

Today's revised employment numbers are quite a shock. No more slowing economy and soft/hard landing talk. Now, we see increased wage pressures and super-low unemployment. I think we are in a great position here - low interest rates, structurally low inflation, falling commodity prices and a good labor market.

To that end I am using these dips as buying opportunities. I mentioned a week or so ago that I'd like to be more long but could not justify it. Here, I can justify. Some new positions to mention:

* RIO. This is a recommendation from Jim Cramer's show. He identified this industrial metals play (copper, nickel, etc.) and I think it's a great pick. It trades with a Brazil discount that will likely disappear as the political instability plays out over the next few weeks. And, it's a great way to play scarcity in these metals.

* Goldman Sachs (GS). Finally, an entry point for this best of breed investment bank on its way to $200.

* NVIDIA. I do think NVDA's shares are pricey here. But there is a buying opportunity here because the shares have been hit by options cost restatements. This has no impact on the long term business prospects or earnings going forward. These guys are well positioned to take advantage of the video gaming story that is developing thanks to Electronic Arts' blowout quarter. (EA might be a good long -- I am doing some research on it today.)

no more GOOG talk

OK last post this afternoon... a wise friend counseled me last night not to talk about GOOG anymore on this blog because of my impending employment with them. So officially you won't hear me blog about it anymore. I can't trade it anyway so it shouldn't matter.

MSTR going to $150

I just ran the analysis on MSTR. They reported a blow out quarter after hours today - $77M in revenue for the quarter. These guys have a 85% gross margin and roughly fixed quarterly costs of $50M.

All of this points to a $310M top line number for FY2006 and about $357M for FY2007. Based on my numbers this yield a $4.58 and $7.50, respectively. Growing at 15% I think MSTR deserves a 30 multiple or so. This would yield a price target of $137-$225.

Seems like a long to me, even given that the stock is trading after hours at $121. Plenty of upside left.

would like to be more long here

Market looks good right now! Everything's rallying nicely and we see lots of buying on dips. I have two major problems though at the moment that are constraining me in cash. First, the upcoming election should unnerve markets at least once over the next nine trading sessions. Second, I just don't know what sectors I want to deploy my money in.

The second problem is the larger one. I'm already making strong gains in retail, home building and technology sectors. I don't want to increase positions here. I would like to add a defense and oil services play (Halliburton) or a Pharma play, but these stocks will be first on the chopping block with a Democratic house.

So the best I could come up with today was back into Wells Fargo. I like WFC here because the bond market thinks the Fed will start cutting in Q2 2007 rather than Q3 like before. Low short term rates are good for the banks and WFC is the best of breed here.

I may try to pick up a little more tech tomorrow. I'm looking at MicroStrategy and NVIDIA.

Trimming GOOG here

Yes, GOOG is going much much higher. But not in a straight line. I have a strong feeling that the Democrats are going to take back the House (possibly the Senate). This will roil the markets. Higher taxes, the threat of a long protracted impeachment, and other specters loom over the horizon. It's not good for anybody.

Keep in mind, I'm not a huge fan of the current administration. But I am worried that the Democrats will mistakenly think they have a mandate from the people. And they will interpret that mandate as a license to push protectionist, isolationist failed policies back into the political discourse. This is worrying for American economic competitiveness.

The Democrats might also interpret a House win as license to begin investigating all aspects of the Iraq war. I think there is a lot to investigate here! But its also not productive. We're there and we have to build a democracy in Iraq. No other choice at the moment. As the Economist puts it, I am worried about a long period of "navel gazing".

So I'm reducing my exposure to GOOG here. I'm selling into strength today. (What a trade!)

As I mentioned before I'm starting work at GOOG in a few weeks. Thus I will need to stay away from trading GOOG in the near future. Might as well get used to it.

earnings mistake on ALK

I must confess I made a huge mistake on Monday: Alaska Airlines. The mistake wasn't going long with Nov 40 calls ahead of an atrocious earnings call. The mistake was that I didn't blog about it before hand. The reason that I do this is so that I can justify my own trades in writing before I execute. This time, I didn't do it. There wasn't any rigor behind my ALK long than an ebullient recommendation by Cramer and some nonsense about American Airlines and Continential reporting blowout quarters. Sure, its pin action. But Alaska isn't best of breed. And I've flown Alaska and it is not the greatest experience in the world. They still run McDonnell Douglas MD 80 planes! I hadn't been on one of those beasts since I was five years old.

Thankfully it was not too costly. Nonetheless, I won't be repeating it again.

unbelievable upside move in GOOG

I hope everyone got a chance to see Cramer dancing around with GOOG written on his forehead on Thursday. I was in Miami over the weekend and I did the same thing. What a quarter! And it's up another 15 points today.

My Dec 470 calls were originally purchased at $10. They are now trading at about $26. Not bad! There is still plenty more upside here.

Unfortunately I will be joining the Google team shortly and as such I won't be allowed to make derivative transactions. I will need to exit this position over the next few days for that reason.

on the money after all

With Yahoo closing at $23 today, it turns out my analysis was right on the money after all. I closed out my position this morning at around 10:30am which I'm pretty happy with. Given the initial overreaction on the positive side I think this trade worked out reasonably well.

That said I believe that YHOO is forming a nice bottom here. We've got the New York Times effect plus the rally attempt on horrific news plus new expectations that YHOO might actually ship Panama soon. I will be looking at Yahoo over the next few weeks to see if any buying opportunities emerge.

I don't play takeovers but it seems to me that Yahoo would be a phenomenal addition to the Microsoft stable.

Note: Apple Computer reported blow out earnings after the bell and is trading up about 5% after market.

high risk, low reward

Well both Intel and Yahoo were little changed on their numbers today. Intel is slightly up -- with weakness from yesterday, I'm about even on the position (I bought a little yesterday morning on the dip). Yahoo is slightly down. Although their numbers were horrific and they were downgraded across the street, Semel announced Panama for Q1 2007 and that took a lot of the downside out.

Continuing to play the numbers game, I opened a GOOG 470 Dec call today. Based on Google's revenue growth I think they will report around $2.70 a share. The consensus estimate is $2.42 which seems like sandbagging to me. If you annualize the $2.70 this implies that GOOG is trading at about 38x earnings at the moment. Cheaper than Yahoo! If this multiple goes to 50 as is warranted by this growth monster, GOOG becomes a $500-550 stock.

yahoo and intel earnings plays

I love earnings season! I've taken some time out this morning to do some analysis and place some bets on upcoming Q3 reports for the following companies:

* Intel (INTC). Intel has been beaten down from highs of $27 per share primarily because of increased competitive pressures from AMD. But the new Intel Core Duo is rapidly gaining traction among the computer elite. I think that Apple is going to report a monster number for Q3... and that means good things will be happening for Intel on Tuesday. And it's not just a one off good quarter - Intel should raise guidance for the next year and that means that the price should be going way up. Right now Intel has a multiple of around 20 or so. The combination of the Windows Vista release, new gaming consoles and exploding Macintosh sales should be able to boost earnings and even justify a 30 multiple as well.

* Yahoo (YHOO). Yesterday after talking to my buddy who works at Yahoo, I was convinced that this stock had bottomed. An extremely negative article was publishing in the New York Times about Yahoo, which is a Cramer bottom signal. But then I started to do some analysis on the numbers and frankly, I think this stock has a tremendous amount of downside left.

Yahoo's revenue guidance is in the $1.15B range. This revenue number is considerably below the past two quarters in which they delivered $1.5B at the top line. The last time they reported numbers near this it would have been a loss if not for one time interest and investment income (sales of GOOG stock). This time around, Yahoo can't pull one of these accounting tricks to produce big numbers. On 1.1B of revenue I see approximately a $660M gross profit. Assuming that their R+D and admin costs are fixed, this actually is about a break even result. If Yahoo can produce some cost savings they will be able to eke out a small profit, maybe $100M or so. In my book that is $0.05 or $0.06 EPS. The street estimates are still $0.11 per share -- I don't understand how this is possible. Maybe I'm missing something. But I'm putting my money where my mouth is on this one and going short.

The bottom line is that I bought some October 25 puts on Yahoo because I think they will really disappoint tomorrow.

adding to my positions here

Feels like a nice calm before the breakout here. I'm buying some more TOL on weakness, some more SBUX here and opening a new position in Microsoft.

Why Microsoft? Well I'm definitely no fanboy -- in fact, I don't use any of their products. But that's because I'm in the position not to. Most people aren't. New versions of Windows (Vista) and Office are coming out next quarter. XBox 360 sales are strong since the PS3 looks so weak. I also like some of the things they are developing under the banner of "Unified Communications." They are tackling the VoIP space with some very innovative products.

Bottom line is that Microsoft has a virtually unassailable competitive position in the operating system and office productivity markets. With new product cycles starting, this should mean increased earnings. And right now, the multiples are just so low. With consumer staples selling off and these funds looking for a home, I think MSFT is the place to go.

well that sucked

Ouch, not a good start to earnings season! DNA reports solid earnings but still eases two percent this morning. Infosys reports a solid quarter and only trades up a small amount. Incidentally my call options strategy for INFY showed some bizarre results... even though the stock was up, it traded solidly down as expected volatility got eliminated.

Fundamentally, I'm not liking the tone of the markets here. I think its time to get solidly into safe haven plays like financials and stocks levered to cheap oil. I'm going to continue to move into homebuilders.

Note that I closed out my GOOG position today, since I am worried about what the market's reaction to earnings next week will be. I also think there will be some underlying jitters about the YouTube deal. For now, I'm staying on the sidelines hoping GOOG will rechallenge its $380-390 support levels before hitting new highs before the end of the year. If there is any sign of flagging growth in the online advertising market for Q3, I think the stock will take a massive beating.

genentech wobbles

Uh oh... genentech (DNA) reports a great quarter, but the stock is slightly down in after-hours trading. Not sure what to make of this. Apparently revenue growth on some of the more established drugs was less than stellar. But it was made up for in spades by strong Lucentis sales. I'm not sure why the stock would be down on this news -- it seems as though Lucentis and Avastin provide DNA massive upside in the medium-term and justify the multiples.

It may be that the market has started pricing in these big upside surprises. If that's the case, Q3 is going to get ugly for the longs.