Thursday, November 12, 2009

Walmart, 3Com trades and more...

Walmart was modestly optimistic for the upcoming holiday season based on their earnings released this morning. What does this mean for the US economy? Is Walmart the canary in the coal mine indicating that the consumer has turned the corner or is Walmart taking a larger share of the consumer spending?

I tend to think it's that Walmart is getting a bigger piece of your spending. This explains why Walmart keeps upgrading stores to SuperWalmart's. In the past you might pop into Walmart for a quart of oil and some shampoo (don't judge, I had a rough weekend:) and then head off to the grocery store for staples and Best Buy for the latest Call of Duty game. Now, all of those dollars go straight to Walmart. Locally, this is good for Walmart, but bad for Kmart, Sears, Hannaford, PriceChopper, etc....

I don't understand people that keep trading on insider information. It might take the government 8 years to find you, but they will eventually figure out who bought all of those November and December $5 calls yesterday on 3Com.

I'll walk you through this assuming that you know nothing about options... A call is the right to purchase a stock at a defined price by a certain date. Yesterday, 3Com's stock was trading around $5.65 for most of the day. There were a total of 960 November $5 calls outstanding yesterday morning. With the stock trading a little above the "strike price" of $5 these contracts had value despite the fact that they were going to expire in 10 days. Suddenly, someone bought almost 4,000 November calls. That's four times the open interest (total number of contracts) trading in small time stock with 10 days to expiration. That's fishy.

Then someone bought over 3,000 December $5 calls which was like 15 times the open interest. VERY FISHY. After the market closes, HP announces a deal to buy 3Com for $7.90 making each of those contracts worth close to $300 each and they were bought for $65 to $85 a piece just 3 hours before the close of trading.

The plot thickens when we learn via Zero Hedge (he's a little out there, but this blogger is connected) that....

Goldman yesterday advised selected clients that 3Com had withdrawn at the last minute from the Conference. As those in the industry are well aware, any last minute switches of this kind are indicative of imminent good or bad news dissemination, and more often than not are associated with some strategic announcement.

A company canceling a presentation is not enough to warrant any trades, but it often leads people to start digging around and that may have triggered the trades....

As someone said, it's a good thing the SEC was off yesterday for Veteran's Day.
Initial jobless claims were a little better than expected but again, the statisticians seem to be playing games to get good headlines. The announced number of 502,000 (which is still awful and signals rising unemployment) was about 8,000 fewer than expected, however, the government revised upward initial claims from last week. Companies have little room to cut further (although some large firms like Pfizer, Johnson & Johnson and Applied Materials are going to take a shot at it) so we may see the rate of new claims slow, but hiring remains almost non-existent.


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