$ADBE stock overreacts to earnings

Yesterday $ADBE underperformed the market by around 7%, after posting results the night before. The results were ok or even good, beating expectations, although guidance seemed conservative. (Adobe beats expectations) . Furthermore, $ADBE has been underperforming in general as can be seen from the chart, part of the reason being its current "fight" with Apple (Apple atacks adobe´s flash).

Analyst´s were pleased with the results, while some worried about future margins, others saw reasons to maintain their bullishness. (Analysts reactions to earnings)

I have no particular opinion on Adobe´s long term prospects, but it seems that given the above, plus a reasonable forward P/E of around 15, there seems to have been a tradeable overreaction

$SBUX Outperformance

$SBUX ripe for a short trade against the SP500

Review of Fading Trades $VMW $CRM

A couple of days ago both $VMW  ( http://jpotrading.blogspot.com/2010/05/is-vmw-bubbly.html ) and $CRM had gone into my radar due to their outperformance of the market.. Then on the 3rd of June both went up more than 7% against the market. The only reasons I could ascertain to cause this were UBS lifting the price target from $64 to $75 and especially comments by Microsoft´s CEO Steve Balmer including $VMW among its four main competitors.( vmware-now-on-microsofts-enemies-list-ubs-ups-estimates) . $CRM went up supposedly due to it also being in this cloud computing business.

I went short both stocks against the SP500, and both underformed the SP500 by around 3% in the following days. So what this trade involved was having the stocks in the back of your mind due to previous research so as to have the courage to make a judgement call when "extreme" moves occur; that it was not based on any or strong enough news and will have a good probability exhibiting of mean reversion.

Even a day trader such as myself needs to have a good sense of market and sector valuations to correctly gauge market sentiment. With the talk of famous hedge fund managers buying C and BAC I decided to examine some bank valuations and apparent low nominal dollar prices I decided to examine some bank valuations.
Tangible equity and return on this variable seem to provide the fairest estimate of what a bank´s normalised earnings will be. I retrieved bank tangible equity per share (TES) figure from the bank´s web sites, and applied a 20% return on tangible equity (ROTE) in the first table, and a, in my opinion, more realistic 15% ROTE in the second table. In both I combined the resulting earnings per share (EPS) with a price to earnings (PE) ratio of nine to obtain a "fair value".

With the above 20% ROE, all are undervalued except for WFC. Lets use a more conservative 15% ROE and see what happens:

We now have WFC even more overvalued, BAC and JPM are basically at fair value and C is still undervalued.

$GIS...potential short?

Made money..but did I trade well?

Reasonable money making day, but coming into friday situation was as follows; was short high beta stocks , $BIDU, $CRM ,$VMW(average beta 1.70) and the latter two were up 7% on thurday. At the end of trading thurday I hedged 60% of my shorts with sp500 etfs, since I did not want to risk a bullish jobs report.

Well the jobs report was not good and the euro continued collapsing and the SP500 ended down 3.50%. So my hedge lost me money but that was fine. What bothered me was my high beta stocks should have fallen much more than the market and they did not really...particularly my bigggest short $VMW which behaved with a beta of 1.0  .($BIDU -4.25%   $CRM -5.50$).

$OIH outperformed and $GS did really well down only 1.20%.

Day´s Summary $VMW $FCX $CRM

Market went nowhere really. Early in the morning bearish comments by $FCX about china (and overnight China actually fell) reported by bloomberg and fair enough $FCX fell 4% .

Balmer from $MSFT included $VMW as one of the four "enemies" and UBS reiterated buy and upped price target to 75 from 64 , and it crushed me going up 7% as well as $CRM.

$BIDU went nowehere , neither did $APPL. Closed my short APPL.

Banks underperformed. $DIS corrected, and the euro was very weak...close to lows.

Underperformers of the day

The following behaved according to post title : $HD $LOW $MMM AAPL $VMW $DELL
In fact market was basically lifted by financials and mainly energy related stocks...$OIH up 6%.

Outperformers: $DIS $DE $AXP

Shorting $DE

Had to short $DE. Up 4% AND at point of maximum outperfomance against SP500...just have to decide now if pure short or against SP500.

What´s up with $DIS

$dis outperforming sp500 by 2% today on remarks by ceo on park bookinks continuing to trend upwards...will keep an eye for possible short versus market.

funny

$HD outperforming

Keeping an eye on $HD for a short against sp500

What´s down $JNPR ?

5% underperfomance by juniper seems a bit much. Only news was downgrade by UBS.

Bank stocks cheap?

This article makes a case bank stocks might be cheap...i do not agree...will expand on this later.
http://dealbook.blogs.nytimes.com/2010/06/01/do-hedge-funds-have-it-right-on-bank-shares/

$AAPL cheap?

Apple is up this morning while futures are down 1%...everyone upgrading them due to good overseas Ipad demand...looked at it with intent to short it...but I was surprised it actually is NOT expensive. Assuming a conservative $15 per share x 15 = $225...and it has $25 in cash...currently trading at $258, so definitly not in bubble territory....do NOT short it.