understanding the psychology of behavior

MA beat the street’s estimate by 9cents, but the market decided to take it down hard. Yesterday was interesting for the credit card transaction companies. Visa reported a solid number, and numbers caused V and MA to shoot up in after hours. Master Card produced similar solid numbers, and the street had no mercy.

Those preaching MA was due for a hit because ‘the stock got ahead of itself’, IMO, are not correct. Visa is much more expensive than MA on a PEG basis, yet MA took the bigger hit today. Kinda throws the ‘expensive’ arguement out the window. Visa has a right to be at a premium given its huge market share, but growth causes premium, not market share.

On a valuation basis, MA traditionally starts to pull back when a PEG higher than 1.58 was achieved. Obviously in the current economic environment we can not have such a PEG. However, at what price is a good price for a company growing EPS at an actual +25% rate.

Looking at the chart, support is present at 240, around 220 and around 180.

Current EPS estimates have MA bringing in 8.73 for the year, with a 5yr growth rate of 21.1%. They beat today by 9cents, which conservatively lifts estimates to 8.81. At 240 MA has a PEG of 1.29, the lowest I have seen it thus far.  At 220 MA has a PEG of 1.18. At 180 MA has a PEG of 0.96.

So… how low can it go? I think 240 is a good price with respect to macro economic conditions and the company’s business model. At 220 the stock is just cheap.

If 180 is achieved, consider yourselves the luckest SOBs for having the opportunity to purchase it at that price.

I bought MA 240 Oct calls because of the earnings collapse.

Sometimes I do not understand Wall Street. Upon news of the Amex settlement MA shot up. They post today, and they collapse because of the loss from the settlement. Yet their earnings were great, and beat nicely.

What pissed me off about the trade… I guess when I typed in the order I initially typed in a different option order then I thought i was typing in. The process of closing it out, then buying the correct option order cost me.  Anyway, had to vent that. Its such a pisser.

What a difference 2 days makes. As I covered my heavy market short, the market continued to decline, and I thought I would be able to purchase AAPL, JPM and PWR at more attractive prices. But my-oh-my it was an interesting head fake.

The SMAs that were resistance for the market, are no more.

There is a sense of bullishness that may ultimately lead the SP500 to 1320 before a sizeable market consolidation (or the continuation of the downward move).

I do see a sea of resistance within the Nasdaq, so I do not know if tech will contribute as much.

There is resistance around 2400 (not shown) that maybe reached with an upward pushing market.

Take advantage. Seriously take advantage. ERII produced great announcements over the past few weeks, one of them was today. ERII is a player in china.  The press release indicated china is increasing their desalination capcity greatly over the next 5yrs (something many already know), and ERII will be getting more biz.

The big boys are missing this one.  Act on it before Cramer starts pumping it or analyst jump aboard.

To be up only 19cents on today’s news is a joke.  Not with the product, the industry wind and fundamentals on this company.

Everytime this have gone below 10.50, I add, as such, I am now heavily in it.  IMO, this is the best way to play the global needs of drinkable water.

Here are a few stocks that I am interested getting long, but waiting for the right moment:

AAPL - Looks to want to break down further to around 145. Some protection is merited here via selling calls on a position or purchasing puts. I also will be looking to play the Oct 140 calls around 145.

JPM - Around 36 looks to be an interesting entry point if entry at 30 was not taken as I pointed out before. I will be playing the common at 36 for the pop. If the pop is not seen, I am willing to hold it.

PWR - As stated earlier, I will add (to the common) at 29. The weekly indicates the 20 SMA (within the weekly) is acting as support withing the current movement. After this set of consolidation, the 34 resistance will mostlikely be broken upward.

I closed out the remaining of my market short position. I am under the most humbling of opinions that the easy money from this current down side was made.  Things have gotten over sold for the trade.

Also, I am looking to add PWR at low 29. Just an FYI.

(I’ll post charts later in the day.)

PST is an ETF that is UltraShort Lehman 7-10 yr Treasury ProShares. Basic thesis is that rates will go up, yields go up, which means bond values will go down. The inverse of down is that PST goes up, obviously.

Inflation is with us, and in a normal economic situation rates would have gone up a while ago. But rates are kept down because of the credit and housing mess this country is in. I am under the belief the ‘Paulson’ Bill, about to be passed, will give the Fed the ability to start raising rates.

The question that remain are…

1. When will rates start going up?

-Will the Fed want to see some housing data improvements, and GSEs improve before they raise rates or will data points not matter.

2. By how much will rates rise? (I’m not an economist so I will have to pay attention to what Kudlow says )
At the moment PST looks to want to consolidate a bit…

And this is confirmed by the 10yr treasury yield, as it wants to consolidate to maybe 39.

However, within the yield chart, notice the SMAs are now indicating an uptrend, and economic fundaments suggest the trend to continue… at least until the housing/credit mess is out of the way.

The Government will bail out housing with the Paulson Bill. (Annoys the hell out of me that my tax dollars will be used like this.)  Then (IMO) a rise in interest rates.

I am under the strong impression that rates have not risen because of housing. (its okay to call me a genius with that extremely obvious assumption … weak economy be damned.)  Negative rates have lasted for far too long, and with stability in housing and the credit markets I think the Fed will get the green light to raise rates.

What will this mean for the markets?  I am not sure.  After the White House said they will not Veto the Paulson Bill, markets rallied.  The bill will solve one of the major economic issues, but the consumer slow down is still with us and most businesses are not growing profits as quickly.  And until the VIX sees aroud mid 40s or so, I do not think the bear market is over.

(FYI… Brazil raised rates significantly, and are planing to do so again soon. The economic drivers… BRIC… are acting on inflation, and we will too, once housing is taken care of.)

I simply appreciate WWAT, and their desire to have some legitimacy within their publicly traded company.

Here we have a company, whose stock is worth 67cents (with a lot of promise), and they are trying to properly communicate with the Street. Along with this communication comes the cut-throat scrutiny the Street will give.

Good luck Dr. Smith… I hope good things are said on August 11th, especially about the Entech panels.

The market rallied upon the inventory numbers, and stayed positive through out the day.

From the 10-1030am rally, the Vix was negative and suggesting a legit market push upward. But after the inventory numbers were given, the Vix stayed positive, suggesting investors were buying a lot of protection.